California court says state can kill redevelopment agencies

SAN FRANCISCO Thu Dec 29, 2011 3:45pm EST

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SAN FRANCISCO (Reuters) - In a major victory for California Governor Jerry Brown, the state supreme court on Thursday upheld a law that would eliminate 400 local redevelopment agencies and could divert billions of dollars to schools and other local services.

The court ruled that the state legislature was within its rights to abolish the agencies, which have long played a major role in local development projects ranging from apartment houses to train stations and sports stadiums. At the same time, the court struck down companion legislation that would have enabled the redevelopment agencies to stay in business if they agreed to pay a big chunk of their revenues to the state.

Local officials vehemently opposed the elimination of the redevelopment agencies, and a group of plaintiffs, including the California Redevelopment Association and the League of California Cities, asked the California Supreme Court to declare both laws unconstitutional.

Redevelopment agencies, widely used around the country, sell bonds to fund local development projects. They pay them off with the increased property tax revenue, or tax increment, that results from the project.

Governor Brown has argued that because of the convoluted way in which property tax revenues are divvied up in California, redevelopment agencies have the effect of diverting money away from schools and other local services. The state is then forced to fill the funding gaps for basic services while the local redevelopment agencies pursue projects that might be beneficial locally, but do little to lift the state's economy as a whole.

The most immediate effect of Thursday's court ruling will be to preserve the state budget for the current fiscal year. The budget, passed last summer, includes $1.7 billion in redevelopment funds that would flow to the state as the agencies are wound down. Successor agencies would assume responsibility for repayment of existing redevelopment bonds; projects that are already underway would in most cases go forward.

The non-partisan legislative analyst's office has estimated that the elimination of redevelopment agencies could free up $2 billion a year for schools, courts and other services.

Jean Ross, executive director of the California Budget Project, called the ruling "good news for the budget."

Local officials, on the other hand, say they will lose a crucial tool for revitalizing blighted areas and promoting local economic development. Redevelopment agencies often acquire land in run-down parts of a city and invest in infrastructure improvements. They then work with private developers to build parks, convention centers, transit stations, shopping malls and apartment buildings, among other things. The agencies also help to fund affordable housing projects around the state.

The elimination of redevelopment agencies is among Gov. Brown's boldest strokes since he took office last year, and a key part of what he calls the "realignment" of state and local taxes and services.

Because the "tax increment" generated by redevelopment projects is not subject to the state-mandated formula on how local tax revenues are divided among cities, counties, schools and special districts, local officials have an incentive to rely heavily on redevelopment districts for a wide range of projects. The city of Oakland, for example, was found earlier this year to be financing some police services, and even part of the mayor's salary, with redevelopment funds.

Redevelopment critics also say the agencies have gone far beyond their mission of combating blight and often subsidize projects that either would have been built anyway, or would have been built in a nearby city.

(Reporting by Jonathan Weber and Dan Levine; Editing by Dan Grebler)

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Comments (2)
sdguero wrote:
I know the local redevelopment agencies in San Diego have done HUGE things for the downtown area, despite their problems with corruption (which totally happens at the state level, and is never reported on). And those agencies were how we were going to get a stadium downtown for the Chargers. If you had seen the gaslamp area in 1998 compared to today, I think it would be hard to call this a change good thing for San Diego… Sigh.

Well, I guess Jerry has gotta find a way to pay for the pension plans he welcomed into our state 30 years ago on his first go round. The man and his politics are a blight on the State of California, but then so are the senseless political zealots, welfare recipients, and over-paid public workers that voted him back into office.

Dec 29, 2011 6:06pm EST  --  Report as abuse
TomMariner wrote:
A stupid question but what that the $2 billion would have paid for is not going to happen? If it was just going into somebody’s pocket, why wasn’t this done before and if it had a use, who is going to pay for that?

When I see a long time accumulation of cash that has withstood the test of a lot of audits being gobbled up for a single year’s budget, I get suspicious.

Dec 29, 2011 6:08pm EST  --  Report as abuse
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