California governor, mayors at odds over redevelopment

California Governor Jerry Brown introduces his budget proposal in Sacramento, California January 10, 2011.

SAN FRANCISCO (Reuters) - California mayors will press Governor Jerry Brown hard on Wednesday to drop a plan to raise money for the state by scrapping redevelopment agencies.

There are about 400 of the agencies across the most populous U.S. state, originally intended as vehicles to encourage property development in blighted areas.

Currently part of the tax revenues in those areas flows to the redevelopment agencies, but the cash-strapped government would use that money for its own needs under Brown's plan, a threat to cities who rely on it for their own purposes.

Intense lobbying by mayors from nine of California's largest cities underscores how the state's financial straits will make for a short honeymoon period for Brown. He was sworn in this month and must close a $25.4 billion deficit. The state now has a general fund budget of $86.6 billion.

Cities have their own fiscal problems and cannot afford Brown's plan to dump redevelopment agencies, Mayor Chuck Reed of San Jose, California's third-largest city, told Reuters.

"I'm going to tell him his proposal to terminate redevelopment agencies is completely unacceptable," Reed said.

Brown has rolled out a plan to narrow the state budget gap with $12.5 billion in spending cuts, disappointing fellow Democrats. They control the legislature and agreed after long battles with previous Republican Governor Arnold Schwarzenegger to cut the state's general fund by more than 15 percent over the last three years.

At the same time, Brown wants lawmakers to help him put a measure to voters to extend tax increases to raise revenue -- a proposal falling flat with legislature's Republicans minority.

Many lawmakers from both parties, however, agree on raising money by shutting down redevelopment agencies. Under Brown's plan, $1.7 billion in redevelopment agency revenue would go initially to the state and then in the 2012-2013 fiscal year the revenue would be allocated to local governments, including school districts.

The plan stunned Chris McKenzie, executive director of the League of California Cities. Redevelopment agencies are critical for spurring business when the state's unemployment rate tops 12 percent, he said: "We think it's bad for California, bad for jobs and bad for the economy."

But others say Brown, 72, should stand firm, arguing redevelopment in California has strayed far from rebuilding blighted areas and that cities are using agencies to shelter revenue while encouraging developers to seek subsidies.

"That's why you see affluent suburban communities with automalls adjacent to freeways," said Steven Frates, director of research at the Davenport Institute at Pepperdine University's School of Public Policy.

"A good deal of money goes to those redevelopment agencies. It's a good deal of money that doesn't go to schools and local governments," he said. "There's a joke about some cities being redevelopment agencies with police departments attached."

(Reporting by Jim Christie; Editing by Cynthia Osterman)