Posted by: macjohns | February 2, 2011

The California Budget, Redevelopment Agencies, and the Future of the State

Nobody said that the solutions to the California Budget Crisis would be painless. One group of people poised to feel that pain could very well be those who work inside the 425 redevelopment agencies within the state. Under Governor Jerry Brown’s budget proposal, these agencies would be phased out by July 1st, 2011 as just one way of helping to close California’s looming $25.4 billion budget deficit. The governor’s proposal has invigorated a debate about the effectiveness of redevelopment agencies in light of the budget situation. Specifically, the governor is concerned about the fact that redevelopment agencies are funded by property tax assessments; assessments which could  be diverted to schools, counties, and cities. These school districts and local governments are then forced to rely on state funding to make up for the loss of these property tax dollars.

According to the California Department of Finance, the phasing out of redevelopment agencies could potentially free up as much as $1.7-$1.9 billion after fiscal year 2011-2012 and even more as these agencies gradually pay off previously incurred debts. In effect, the governor is changing the funding scale at which school districts and local governments operate. In theory, a greater share of property taxes in local areas would be available for local needs.

While freeing up money for local needs and simultaneously reducing the amount of cuts that need to be made in other state-funded programs (health and social services, education, and public safety to name just some) seems like a win-win for some, many are adamantly against the idea of eliminating the redevelopment agencies altogether. In fact, mayors from nine of California’s largest cities recently lobbied the governor to save their redevelopment agencies. In their eyes, redevelopment is a way of creating jobs in the state by acquiring and developing land for commercial and residential use.  They pointed to data that illustrated that in a given year, redevelopment projects support roughly 304,000 jobs in the state and contribute over $2 billion in state and local taxes.

Critics argue, however, that redevelopment agencies have long since abandoned their original mission to rebuild blighted areas. Instead, redevelopment agencies are believed to be the vehicles by which cities shelter revenue and encourage developers to seek subsidies in the name of growth and inter-city competition. According to Steven Frates, Director of Research at the Davenport Institute at Pepperdine University’s School of Public Policy, the money invested in these agencies is simply money that is not being made available to school districts and localities. In fiscal year 2008-2009, that translated into nearly $5.7 billion.

This debate has pitted various interest groups against each other as Californians come to realize just how zero-sum these budget negotiations will be. In order to bring some empirical data to the debate, the governor has tasked State Controller, John Chiang with auditing 18 of the state’s redevelopment agencies including those of the cities of: Richmond, Los Angeles, Pittsburg, Fremont, and Hercules. The stated goal of the audit is to  “obtain facts on how … funds are used and the extent to which they comply with laws governing their activities”. The completion of the audit has been slated for early March, which will coincide with the time when Governor Brown and lawmakers should be finalizing roughly $12.5 billion in state cuts.

It is almost guaranteed that this issue will not be the only issue to define this year’s rounds of budget negotiations. California seems to have a perennial budget crisis and has been late passing a budget 23 times in the last 24 years; with the last breaking all previous records at 100 days late. After years of cuts to state services the situation is becoming ever more dire. There is the very real possibility of the virtual elimination of social services for California’s  most vulnerable populations and of further gutting California’s entire educational system. Indeed the future of the state rests on what strategies will be employed this year to balance the budget. In these zero-sum times, in which critical decisions must be made, redevelopment agencies are on the table and may soon find themselves on the chopping block.

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