Redevelopment 2.0 -- Infrastructure Financing Districts Approved for Redevelopment Project Areas

Despite being destroyed and dismantled, redevelopment in California has been born once again, this time reincarnated under the name of "Infrastructure Financing Districts."  Last week, Governor Brown signed into law AB 471, which amends section 53395.4 of the California Government Code to allow infrastructure financing districts to finance a project or portion of a project located within a redevelopment project area or former redevelopment project area.

Infrastructure financing district law now provides a mechanism to finance projects that would have otherwise been financed by redevelopment agencies but for their elimination.  Local agencies can now form an infrastructure financing district over a redevelopment project area to finance redevelopment projects that were not yet completed prior to the dissolution of redevelopment agencies.  The newly formed infrastructure financing district can issue bonds to pay for real or other intangible property and certain public capital facilities of communitywide significance, and such bonds will be secured by any increase in property tax revenue over the assessed value of the property within the infrastructure financing district.

The new law also encourages local agencies to wrap up their redevelopment affairs, as a redevelopment project cannot be financed until the successor agency to the former redevelopment agency receives a finding of completion.  Similarly, the law makes clear that any new debt or obligation created under infrastructure financing district mechanism will be subordinate to enforceable obligations of the former redevelopment agency.  In other words, the new law may accelerate the redevelopment wind-down process.

The question now is whether or not infrastructure financing districts will be successful to re-invent redevelopment projects.  The infrastructure financing district idea passed the Legislature in the early 1990s as an alternative to redevelopment, permitting the use of tax-increment financing for infrastructure without requiring a finding of blight. But the idea has rarely been used, primarily because they require two-thirds voter approval to be created or issue bonds.  While there was discussion about reducing this requirement, as part of the new law the the two-thirds vote requirement was not changed. 

 

Redevelopment Wind-Down: A Few Random Thoughts

I saw a couple of California redevelopment-related stories over the past week that seemed worthy of at least a brief comment. 

First, a court decision involving a rather bold argument by a public agency. 

The City of Loma Linda, like so many California cities, used to have a redevelopment agency.  That redevelopment agency acquired property and embarked on various efforts to, well, redevelop things.  When Governor Brown eliminated California's redevelopment agencies, many projects were left in mid-stream. 

In the case of Loma Linda, the redevelopment agency purchased some property, erected a fence, and cut off another property's access to the public street.  It seems like a pretty simple takings case, and the owner sued.  But then Governor Brown's legislation intervened, and things got weird. 

The redevelopment agency was no longer a viable defendant in the takings case, because it no longer existed.  And the City claimed it was not a viable defendant, because it hadn't engaged in the conduct that resulted in the taking. 

The trial court didn't find this argument persuasive, and according to the attorneys representing the property owner, the case is now pending before the Court of Appeal.  We'll see what happens, but I have trouble believing that owners subject to takings by former redevelopment agencies won't be provided a remedy just because the agency that engaged in the taking no longer exists.

Second is another story about the redevelopment fallout.  Governor Brown has apparently offered a bit of an olive branch to the cities in the form of an expansion of California's Infrastructure Financing Districts.  According to James Brasuell at Planetizen,

Brown’s proposal would expand the use of IFDs beyond infrastructure to include military base reuse, urban infill, transit priority projects, affordable housing, and ‘associated necessary consumer services.

But this would only apply to cities and counties that had fully satisfied their former redevelopment obligations, which Mr. Brasuell hypothesizes is a means of accelerating the redevelopment wind-down.  According to a January 10 article in the Sacramento Business Journal, Skepticism over Brown’s redevelopment replacement, the reaction from cities has been lukewarm.  The article also notes that Governor Brown's proposal looks an awful lot like AB 243, which he promised to veto just last year after it passed in both houses.  As always, stay tuned. 

Governor Brown Signs AB 401: Giving Broader Authority for Regional Transportation Agencies to use Design Build

On October 5, 2013, Governor Brown signed AB 401 (Daly, D- Anaheim) into law.  The new law grants Caltrans, Orange County Transportation Authority, the Santa Clara Valley Transportation Authority and other regional transportation agencies expanded authority to use design build for project procurement.  You can view a summary of the new law here.  Highlights include:

  • Caltrans is now able to use design-build procurement for 10 projects on the state highway system;
  • The Orange County Transportation Authority may now use design-build for improvements on the I-405;
  • The Santa Clara Valley Transportation Authority is specifically included in the definition of a "regional transportation agency" that is allowed to use design-build;
  • Defines "regional transportation agency" to include county transportation commissions, any agency so designated by statute, and joint powers agencies created with consent of a local transportation agency or commission;
  • Cities and counties are not included in the grant of authority to use design build; and
  • Other regional transportation agencies, as defined in the law, may also use design build procurement on expressways that are not on the state highway system.

The full text of the new law can be found here.

At least one regional transportation agency, the SouthEast Connector JPA, is already considering using its newly authorized design-build powers for its planned, 35-mile parkway serving the Sacramento and El Dorado County region.  You can view its press release about AB 401 here.

Existing law set to expire at the new year authorized only certain state and local transportation agencies to seek authorization from the California Transportation Commission to use the design build process.  The new bill expands the number of agencies that will be able to utilize the process, which may likely improve the delivery of highway projects and provide significant cost savings for local agencies.  The bill also contains provisions regarding construction inspection services and other monitoring and enforcement services related to design-build projects.

For more on design-build, see my colleague Geoffrey Petrov's recent blog post.

Governor Brown Vetoes Eminent Domain Bill, But I'm Not Sure Why

Earlier this week, Governor Brown vetoed AB 374, a bill to amend Code of Civil Procedure section 1263.510, the statute governing recovery of loss of business goodwill in an eminent domain case.  But it's not the veto that caught my eye so much as the veto message, which really left me scratching my head until I looked more carefully at what was going on (or at least what appeared to be going on). 

Some history:  last year, the Court of Appeal issued the decision in People ex rel. Department of Transportation v. Dry Canyon Enterprises 211 Cal.App.4th 486 (2012).  The case purported to make some new law, requiring a business owner to prove that the business possessed goodwill before the taking (i.e., in the before condition) in order to seek recovery for loss of business goodwill. 

Even that had me scratching my head, because section 1263.510 already required an owner to prove that "the loss [of business goodwill] is caused by the taking of the property or the injury to the remainder."  Silly me, I had always assumed that to lose something, one had to have it to lose. 

But still, Dry Canyon clarified things, holding that the business did in fact have to possess goodwill in order to lose goodwill as part of satisfying the entitlement factors (along with proving the loss was caused by the taking, the loss could not be prevented by reasonable mitigation measures, and compensation for the loss would not be duplicated through another form of recovery).  Fair enough. 

Then AB 374 came along, presumably seeking to codify the Dry Canyon result by adding specific language to section 1263.510, so that the introduction would now read:

The owner of a business conducted on the property taken, or on the remainder if the property is part of a larger parcel, shall be compensated for loss of goodwill if the owner adduces sufficient evidence to permit a jury to find that goodwill existed prior to the taking and proves all of the following: . . . 

So to the extent proving the existing of pre-taking goodwill was ever really a problem -- and the Dry Canyon opinion itself didn't solve it -- this really makes things clear.  Or does it? 

Governor Brown then vetoed AB 374.  Does that mean that he believes that a business owner need not prove that goodwill existed in order to recover for loss of goodwill?  I don't think so.  In fact, the Governor's veto message makes clear that he agrees with the Dry Canyon decision:

I am returning Assembly Bill 374 without my signature.

This measure would reverse several appellate court decisions allowing judges, in eminent domain claims for loss in business goodwill, to decide facts before a jury decides on compensation. In this case, I think the appellate courts got it right. Judges are in the best position to decide whether businesses had goodwill to lose before proceeding to costly jury trials.

So if he agrees with Dry Canyon, why the veto?  It turns out that AB 374 actually muddied the issue, rather than clarifying it (at least in Governor Brown's view).  Since goodwill first became compensable in California in 1975, courts have interpreted section 1263.510 as creating a series of threshold showings the owner must make before being entitled to present a goodwill claim to a jury.  This has often resulted in an "entitlement" hearing before the judge, deciding whether the owner could prove the items listed in section 1263.510. 

But the new introductory language proposed in AB 374 would have thrown a potential wrench in the works, since it provides that the owner must "adduce[] sufficient evidence to permit a jury to find . . . "  And this is apparently the basis for the veto.  AB 374 seems to shift the entitlement findings from the judge to the jury. 

But I'm not convinced that's what AB 374 really intended.  Indeed, the language AB 374 attempted to add to section 1263.510 mirrors language from the Dry Canyon opinion.  Indeed, AB 374 seems designed to resolve an issue the Dry Canyon court left unresolved.  Is the standard by which the court should measure this "new" entitlement requirement:

  1. Whether the owner proved to the court that a reasonable jury could conclude that the business possessed goodwill in the before condition; or
  2. Whether the owner proved to the court that the business in fact possessed goodwill in the before condition.

These standards appear quite similar, but the difference can be crucial.  Is the court merely a "gatekeeper" charged with ensuring the owner meets some minimum evidentiary threshold in order to get to the jury, or is the court the actual fact-finder on this issue?  Under AB 374, the Legislature sought to codify the first option, rather than the second. 

So in the end, it's not that Governor Brown thinks an owner can recover for lost goodwill despite not being able to prove that the business possessed goodwill in the first place.  It's that Governor Brown thinks this determination properly lies with the judge, not the jury.  

And I'll admit it.  I missed this nuance in AB 374 until I read what I thought was a pretty strange veto message.  As always, the devil's in the details. 

End of Redevelopment in California: More on Yesterday's Supreme Court Decision

Yesterday, we reported briefly on the Supreme Court’s decision in California Redevelopment Assn. v. Matosantos.  As many of you undoubtedly know by now, the outcome was the nightmare redevelopment agencies feared most, but that many (including us) had forecast after listening to oral argument last month. 

The Court upheld ABX1 26, allowing the dissolution of California’s redevelopment agencies to proceed, but struck down ABX1 27, the “voluntary” buy back program that would have allowed redevelopment to continue.  In particular:

  • The Court had little difficulty upholding ABX1 26, the law eliminating California’s redevelopment agencies. The Court reasoned that because redevelopment agencies were created by the Legislature, the Legislature could also eliminate them:  “A corollary of the legislative power to make new laws is the power to abrogate existing ones. What the Legislature has enacted, it may repeal.” 
  • When it came to ABX1 27, the Court felt differently.  All but Chief Justice Cantil-Sakauye concluded that the “voluntary payment” portions of ABX1 27 run afoul of Proposition 22, adopted by voters in November 2010. The Court further concluded that the balance of ABX1 27 was not severable from the improper payment provisions, and the Court struck down ABX1 27 in its entirety. 

Though as a technical matter the CRA obtained a split decision (successfully attacking one of the two laws), the outcome represents a self-described “worst case scenario” that is obviously not what redevelopment proponents had in mind when they filed the lawsuit.  That said, the result is not too surprising to those who followed the oral argument, which focused largely on three issues:

  1. The fact that redevelopment agencies were created initially by the Legislature, which would, absent some constitutional prohibition, mean that the Legislature could also abolish them.
  2. The fact that the “voluntary” payments under ABX1 27 were not particularly voluntary, since failure to make them meant the redevelopment agency would be eliminated.  And, if not voluntary, the payments seemed to run afoul of Proposition 22.
  3. The question of whether the two laws were so intertwined that striking down one (presumably, ABX1 27) would necessitate striking down both. 

Much as it telegraphed during oral argument, the Supreme Court started by concluding that ABX1 26 – the dissolution bill – passed constitutional muster.  Rejecting the argument that Proposition 22 created a constitutional right for redevelopment agencies to exist, the Court found no discussion of redevelopment agencies taking on constitutional stature, and without some explicit mention of such a profound shift in the law, the Court would not imply any such intent.  As the Court summarized, the drafters of legislation do “not, one might say, hide elephants in mouseholes.” 

The Court moved on to ABX1 27, focusing its attention on the “voluntary” payment program.  The Court concluded that ABX1 27 was substantively indistinguishable from earlier efforts by the State to shift property tax increment from redevelopment agencies to the State’s educational revenue augmentation funds (“ERAFs”) – the very circumstance Proposition 22 sought to prevent. 

The Court then put the nail in the ABX1 27 coffin: “A condition that must be satisfied in order for any redevelopment agency to operate is not an option but a requirement.  Such absolute requirements Proposition 22 forbids.” 

Finally, the Court turned to the severability question, needing to decide whether ABX1 26 could stand alone, or whether it must fall given ABX1 27’s fate. The Court responded to claims that a number of legislators had reportedly opined that the Legislature would not have wanted such an outcome by looking at the statute’s specific severability clause stating the opposite, concluding that

whatever individual legislators may have said at one point or another, what the Legislature actually did establishes it would have passed [ABX1 26] irrespective of the passage of [ABX1 27], and that [ABX1 26] is volitionally separable. Consequently, it is severable.

Thus, the Court’s final conclusion: ABX1 26 stands, while ABX1 27 falls. 

What Happens Next: the Mechanics? The Court examined some of the mechanics of ABX1 26’s implementation in light of the partial stay and the passage of time that has rendered some of the law’s time frames impossible. The Court concluded that it had the power to reform the law, and it chose a superficially simple solution: all initial dates in ABX1 26 are shifted four months, representing the time period during which the Supreme Court’s partial stay was in place. 

But there is a twist. For any obligations that span multiple fiscal years, the Court did not reform the deadlines. Instead, only those trigger dates which fall before May 1, 2012, get shifted. This means, for example, that for the distributions required to be made on January 16 and June 1 every year, the January 16, 2012, distribution is now due May 16, 2012, but the June 1, 2012, distribution (and all future distributions) remain due as set forth in ABX1 26. 

What Happens Next: Implementation? Moving beyond the technical issues, the real question is what happens to redevelopment obligations and assets. This will be the subject of considerable discussion in upcoming weeks, but there are a few, bright-line rules people should know:

  1.  For obligations incurred prior to January 1, 2011, the obligations remain valid and binding. 
  2. For deals under negotiation when the Supreme Court stay was issued, the redevelopment agencies have no power to consummate the deals. 
  3. Remaining redevelopment assets will be sold. 
  4. If the agency transferred any assets to its city/county or another public agency after January 1, 2011, the transfer is potentially subject to ABX1 26’s “claw back” provisions. 

What Happens Next: a Legislative Compromise? Finally, entering into the realm of pure speculation, there is already some murmuring about a possible legislative compromise designed to reinstate some form of redevelopment. Whether any such compromise sees the light of day remains to be seen. And even if it does, considerable obstacles may exist. 

In particular, any legislative effort to reinstate some form of redevelopment must overcome the very problem that led to the demise of ABX1 27: how to fund “Redevelopment 2.0” without running afoul of Proposition 22. Moreover, a legislative compromise only works if the Governor approves it, and Governor Brown’s early comments do not suggest he is dissatisfied with the Court’s holding. 

For more information on the opinion and its aftermath, please join us for a webinar, Supreme Court Upholds Elimination of Redevelopment in California - Now What? It will take place on January 4, 2012, at 2:00 p.m. 

Supreme Court Upholds Law Eliminating California's Redevelopment Agencies

Today, the California Supreme Court issued its much-anticipated opinion in California Redevelopment Assn. v. Matosantos, the case challenging ABX1 26 and ABX1 27.  In a decision foreshadowed by the tone of last month's oral argument, the Court upheld ABX1 26, but struck down ABX1 27 as a violation of California's Proposition 22:

  • "Assembly Bill 1X 26, the dissolution measure, is a proper exercise of the legislative power vested in the Legislature by the state Constitution."
  • "A different conclusion is required with respect to Assembly Bill 1X 27, the measure conditioning further redevelopment agency operations on additional payments by an agency‘s community sponsors to state funds benefiting schools and special districts. Proposition 22 ... expressly forbids the Legislature from requiring such payments."

This means that the law eliminating California's redevelopment agencies stands, while the law that would have provided a mechanism to reinstate redevelopment agencies upon making certain "voluntary" payments was struck down.  The bottom line:  the decision ends redevelopment in California.

We will have more on the opinion in the very near future.  In addition, we will be hosting a free webinar on Wednesday, January 4, 2012, at 2:00 p.m. to discuss the opinion, its implications, and what happens from here.  We hope you'll join us, you can register here

UPDATE, 2:05 p.m.  While we digest the opinion and attempt to write something meaningful about it, Robert Thomas has already managed two substantive blog posts on the case today, including a short summary of the opinion and a good collection of early reports on the decision

California Redevelopment Agencies File Suit Seeking to Overturn Their Elimination

While Governor Brown's push to eliminate redevelopment agencies seemed to drag on forever, California's redevelopment agencies were not so slow to act once the long-contemplated ABX1 26 and ABX1 27 became law.  On Monday, the redevelopment agencies filed suit directly in the California Supreme Court seeking to overturn the recent enactments.

The redevelopment agencies are represented by the California Redevelopment Association and the League of California Cities.  San Jose and Union City also joined in the lawsuit claiming they will face elimination since they cannot make the contemplated payments required to stay in existence.  

According to a Sacramento Bee article, California redevelopment agencies sue to block redevelopment plan, the redevelopment agencies claim that the legislation violates the voter-approved Proposition 22, which was intended to prevent the legislature from transferring transportation or redevelopment funds (such as fuel taxes and property taxes) to benefit other state or local entities.

The redevelopment agencies filed suit directly in the California Supreme Court because the legislation impacts cities across the state and only the Supreme Court can act authoritatively before the first redevelopment payment is due in January.

We will follow this closely.  Grab some popcorn; the show has just begun.

Governor Signs Law Eliminating Redevelopment in California

For months, we've been reporting on the impending death of California's redevelopment agencies.  Even we had started to feel like the "boy who cried wolf" as we reported on iterations of the Governor's budget plan that didn't come to fruition. 

But this time, it's real.  Along with an overall budget package, this week the Governor signed into law ABX1 26 and ABX1 27.  ABX1 26 eliminates redevelopment agencies in California.  ABX1 27 provides a means of survival if the agencies will pay the state, collectively, $1.7 billion next year (the savings the Governor claims ABX1 26 would generate by eliminating the agencies), along with additional payments every year thereafter. 

Of course, with a story that has as many twists and turns as this one, things are never simple.  First, and most obviously, with ABX1 27 in the mix, redevelopment could potentially survive after all -- assuming the agencies make the required payments.  At this point, it is not clear how many redevelopment agencies would, or even could, make the mandatory payments to allow their survival.  

Perhaps more importantly, the battle now turns from the political arena to the courtroom.  The CRA and League of Cities have already promised a major legal campaign designed to prove the unconstitutionality of the new laws.  And this fight will likely commence with an immediate showdown over an attempt to secure an injunction that will prevent the new laws from taking effect.

As the story evolves, we'll keep you up to date.  In the meantime, there's a pretty good summary of where we stand in Thursday's Sacramento Bee.  The article by Judy Lin,  Redevelopment Change Likely Headed for Court Fight, contains quotes from both sides of the debate.  As just two examples:

Chris McKenzie, president of the League of California Cities, is quoted describing the laws as follows:
"The governor provided the elimination bill," McKenzie said. "What the Democrats did is they added a gun-to-your-head provision. The second [bill] said, Oh, but if you pay the extortion - the $1.7 billion - you won’t be eliminated.’"

The League has also issued a statement decrying the new laws

Assembly Speaker John Perez's response was more restrained and succinct: 

We’re confident that it’s legal and we’re confident that reform is necessary.

Finally, though not about redevelopment, Amazon.com announced that it plans to fight back against another of the Governor's budget provisions, this one, a requirement that Internet retailers collect sales tax.  According to a June 30 Los Angeles Times article, Amazon won't collect sales tax; cuts off California affiliates, Amazon "terminated its relationship with approximately 10,000 Internet business partners in California" because "it does not intend to comply with the new law." 

Undoubtedly, more fireworks await us all as we head into the July 4th weekend. 

Days that Make Being an Eminent Domain Attorney Exciting: More Redevelopment Developments

We're trying to keep on top of the developments over the future of redevelopment in California, but by the time we can get something drafted and posted, the story has already changed.  Here's a quick recap of what we know (and what we don't):

Today, the game changed again - maybe.  Governor Brown took swift action on the budget plan, vetoing it in dramatic fashion.

But what does this mean for the redevelopment bills?  Who knows.  At least as of this post, there are rumors the the Governor may also veto the various budget trailer bills, including AB 26x and AB 27x (so far, he has only vetoed the main budget bill, not the companion, or "trailer" bills such as AB 26x and AB 27x).  There are also rumors that the Democrats will not submit those bills to the Governor.  And there are yet other rumors that the Governor may view at least some of the trailer bills as "helpful," presumably signaling an intent to sign them. 

And then there's the questions about what happens if the bills do get signed.  They were passed on a simple majority vote, which would typically mean that they could not take effect until January 1, 2012.  But they were coupled with the budget bill, under new authority that allows the legislature to make such bills effective immediately, even on a simple majority vote.  Now that the Governor has vetoed the main budget bill, does the exception still apply to AB 26x and AB 27x?  Would they instead not take effect until January 1?  Or maybe they can't take effect at all, since they purport to take effect this year, something not allowed under the ordinary legislative process.

By the time you read this, the story likely will have changed again. 

In the end, I cannot help but think about the ancient Chinese proverb/curse, May you live in interesting times.  Interesting times, indeed. 

(Disclaimer:  It turns out the ancient Chinese proverb may not be so ancient - or so Chinese, but it's still an apt phrase here, with all its implications.)  More later.

LEGISLATURE ACTS TO KILL REDEVELOPMENT AS WE KNOW IT

Yesterday, after heated floor debates, both the Senate and Assembly passed the two-bill package to end redevelopment as we know if.  In the Senate, the two bills each eked out the requisite 21 votes, with the final tally being 21-15. In the assembly the bills passed with the more comfortable margins of 51-23 for AB 26x and 47-28 for AB 27x.

Interestingly, these bills did not pass on party line votes, with some Democrats voting no and some Republicans urging a yes vote. A heated confrontation occurred when Assemblymen Don Wagner, R-Irvine compared provisions which compel redevelopment agencies to give money to local governments to offset State obligations, or face elimination, as being comparable to a Sopranos shakedown scheme. This prompted Assemblyman Anthony Portantino, D-La Cañada Flintridge, to demand an apology for the Sopranos reference. If nothing else, the scuffle that followed ensured that nobody fell asleep during the debate,

San Diego Mayor Jerry Sanders issued a statement after the bills passed, echoing Assemblyman Wagner's sentiments, calling the bills an "extortion attempt." He went on to explain that instead of acting on proposals advanced by a number of mayors to reform redevelopment " the Legislature put a gun to our head, threatening to kill redevelopment agencies if they don't hand over local tax dollars to the state instead of using them for streets, parks, housing and other local needs."

If the Governor signs these two bills, the CRA and the League of California Cities may challenge the constitutionality of these measures. Barring a successful legal challenge, if the Governor signs these bills, the big question is whether redevelopment can survive.
 

New Bills to Eliminate Redevelopment Agencies Unveiled

It has been rumored for some time that a “two bill” strategy to eliminate redevelopment has been in the works.  Bill #1 would eliminate redevelopment agencies as of a specific date and bill #2 would exempt any redevelopment agency from elimination if it makes specified payments for the state. 

The text of those bills has now been released.  As predicted, Bill #1 (SB 14x / AB 26x) would, immediately upon enactment, suspend most agency activities including the issuance of new bonds, entering into new contracts, acquiring or disposing of properties, or taking other actions beyond the servicing of existing contractual obligations.  Effective October 1, 2011, the bill would dissolve all redevelopment agencies and designate successor agencies.  County auditors would be required to conduct an audit of each former redevelopment agency by March 1, 2012.

Bill #2 (AB 27x / SB 14x) creates an alternative ongoing redevelopment program.  Redevelopment agencies would be authorized to continue to exist upon enactment of an ordinance to comply with this bill's provisions.  Among those provisions is a requirement that participating cities or counties make specific payments to a Special Districts Allocation Fund and a County Educational Revenue Augmentation Fund.  These monies would then be used to fund schools, fire districts, and transit districts.

One provision that has drawn the ire of many allows the Community Redevelopment Agency of Los Angeles to receive redevelopment revenues beyond a court-ordered cap that the city has already hit.  In view of the firestorm of controversy surrounding this provision, it may soon be struck from the bill.

As both supporters and opponents of redevelopment digest the text of these bills, there will no doubt be more in the way of controversy. 
 

The Future of Redevelopment: From Elimination to Reform?

As we have previously reported (Fate of Redevelopment Remains in Limbo), the bills to eliminate redevelopment agencies have languished due to Republican opposition.  With so many redevelopment agencies scrambling to use or secure redevelopment funds in an effort to protect them from being taken by Sacramento and with shortfalls in property tax revenues due to declining property values, redevelopment agencies are no longer as tempting a target for bridging the State’s budgetary shortfall.  

While redevelopment agencies may survive this budget cycle, the fight over their abolition has subjected them to pointed criticism for various alleged abuses.  If redevelopment is to survive in the long run, some of those abuses, whether real or perceived, must be remedied.

A new bill, SB 286, introduced by Senator Rod Wright (D-Los Angeles), with the backing of the California Redevelopment Agency, is aimed at doing just that.  This bill takes aim at many of those hot button issues that have made redevelopment so controversial in California.

For example, Palm Desert’s use of redevelopment money to renovate greens and bunkers at a local golf resort created a major uproar.  SB 286 addresses this head-on by prohibiting the use of redevelopment money for golf courses.  To blunt criticism of the use of redevelopment funds for professional sports arenas, and perhaps to supplant AB 1234 (a blanket prohibition on use of redevelopment funds for stadiums), SB 286 would require local voter approval before tax increment funds could be spent on professional sports facilities. 

Criticism that redevelopment agencies are spending money on economic development that would otherwise be earmarked for education is partially addressed by excluding from tax increment revenues transferred to a redevelopment agency any funds considered educational entity property tax revenues.  The catch is that this would apply only to tax increment revenues generated from redevelopment projects established after January 1, 2012. 

The bill is scheduled to be heard in the Senate Governance and Finance Committee on Wednesday.  That hearing should give us some indication as to whether it will garner bipartisan support.  We will continue to track this bill and provide updates on a regular basis.

Eminent Domain Legislative Updates

I presented an update on eminent domain/redevelopment issues making their way through the legislature at this week's IRWA Chapter 67 (Orange County) monthly meeting, and I've received a few follow-up requests for more information.  So I decided it was probably worthwhile to put all the information here on the Nossaman blog. 

  • Status of California Redevelopment Agencies:  It's now been several weeks since the  attempted Assembly votes, where Governor Brown's attempt to eliminate redevelopment agencies fell one vote short.  The Governor needs the $2.2 billion in redevelopment funds this year to bridge the budget deficit.  It sounds like there is some intense back-channel lobbying taking place with the Redevelopment Association proposing a voluntary suspension of their funding or at least agreeing to contribute a portion of their revenue stream to local school districts.  I spoke with a few connected people this week and word is that Governor Brown's elimination plan -- at least as proposed -- is not likely to pass (aside from the Assembly, the proposal would also need to pass the Senate, which does not seem likely).  We'll just have to wait and see what ultimately comes of this.
  • Federal eminent domain legislation: The House is currently considering H.R. 1433, dubbed the "Private Property Rights Protection Act of 2011," which is a bill that would prevent states and municipalities from using eminent domain for economic development purposes (such as redevelopment) on any project for which the agencies are receiving federal funding.  H.R. 1433 also prohibits the federal government from using eminent domain for economic development (including increasing tax revenue or creating jobs for general economic growth).
  • Use of Redevelopment Funds for Sports Teams:  Assemblyman Chris Norby (Fullerton) has introduced AB 1234, which would prohibit redevelopment agencies from using tax revenue or bond proceeds to develop, recruit, or retain any professional sports teams.  This legislation, if passed, could potentially kill a new stadium for the Oakland A's or the San Diego Chargers, which are both being contemplated through the use of redevelopment funds.  (In case you missed it, read a more detailed article here.)
  • Inverse Condemnation LiabilityAB 328 is also working its way through the State Assembly; it is a bill that would require a reduction in compensation payable to a successful plaintiff in an inverse condemnation action in direct proportion to the owner's percentage of fault in causing damages to the owner's property. This would change current law whereby a public entity is liable for 100% of the damages where its project causes physical damage to private property, regardless of whether others contributed to those damages.
  • Renewable Energy Mandates:  This week, Governor Brown signed Senate Bill 2X, which requires private and public utilities to obtain 33% of their electricity from renewable energy resources by 2020, raising the target from the current 20%, while providing the flexibility necessary to meet the higher standard.

We'll follow-up on these legislative issues as soon as we catch wind of anything newsworthy. 

The Calm Before the Storm

Despite daily rumors to the contrary, neither chamber took up the issue of redevelopment last week.

Both the Senate and Assembly held brief floor sessions Friday morning without voting on either SB 77 or AB 101, the bills eliminating redevelopment. While both houses remained on-call over weekend and today, the next floor sessions are not scheduled until Tuesday, March 29.

Meanwhile, there have been intensive lobbying efforts in support of the CRA and League of California Cities Alternative solution. Essentially, they are proposing that redevelopment agencies voluntarily suspend their housing set-aside for 2011-2012 with an equivalent amount of funds being contributed to local school districts in redevelopment project areas. In exchange, the agency would be allowed to extend the life of its project area for two years. Alternatively, they could contribute up to 10% of their non-housing tax increment revenue stream each year to local school districts for 10 years, in exchange for which they could extend the life of their project areas for one year for each percentage of tax increment so contributed.

Under either scenario, money contributed to local schools by redevelopment agencies could be counted by the State as an offset against its Proposition 98 guarantees to the school district.

Because this would be a “voluntary” program, it would not violate Proposition 22, which prohibits the State from seizing redevelopment money. However, it is unclear whether this proposal is gaining any serious traction.

In view of this public silence, it may be tempting to think that the abolition of redevelopment could slip through the political cracks for this budget cycle. This would be a mistake.

Last Thursday, Ventura Mayor Bill Fulton, publisher of the land-use newsletter California Planning & Redevelopment Report was quoted as bluntly stating “I do believe that probably redevelopment will not survive in anything close to its current form.” Speaking at a redevelopment conference in Sacramento on Thursday, Fulton urged cities to look for alternatives to traditional redevelopment for financing urban revitalization.

Speaking at the same conference, Steve Shea, an aide to Senate President Pro-tem Darryl Steinberg, said that Brown’s proposal to end redevelopment “will fall into place as the larger budget deal come together.”

Thus, if the Governor is unable to place the tax extension on the June ballot and instead is forced to proceed with a ballot initiative in November, it is possible that the he may likewise take a new approach to his attack on redevelopment. Some alternative to AB 101 and SB 77 may be in the works. Whether these would be subsequent trailer bills introduce for a simple majority vote or some alternative approach remains unknown.

What is fairly certain is that this battle is far from over.

The Budget and Redevelopment: Plan B?

Another day has passed with no apparent movement on the two remaining elements of the Governor’s budget.  Rumors are circulating that plans are afoot for bypassing Republican legislators by placing a tax measure on the November ballot. 

Officially, the Governor’s office remains focused on the original plan.  In fact, the Governor’s spokesman, Gil Duran, was quoted as saying that it was “a lie” that the Governor has decided on a November election.  However, other anonymous sources say that while Brown is continuing to negotiate with Republicans to put the tax extension on a June ballot, he is also considering two alternatives if those negotiations fail.

The first would be to place a tax extension on the June ballot by a simple majority vote in the Legislature.  An opinion from the Legislative Counsel Bureau, solicited by Senate Republican Leader Bob Dutton, suggests that a tax proposal could be placed on the ballot with majority vote so long as it addresses a statutory tax initiative already passed by the voters.  Some Republicans have therefore argued that the Governor is seeking political cover by pursuing a two-thirds vote of the Legislature. 

On the other hand, not obtaining a two-thirds vote, as seems to be required by proposition 26, would be fraught with political and legal perils.  The more likely alternative would be to place an initiative on the November ballot.  It has been suggested that such an initiative could include concessions to Republican interest such as regulatory reforms and a spending cap.  This "Plan B" is not without its own difficulties.  Assuming that some announcement is made this week, proponents may have as little as three weeks to collect the hundred of thousands of signatures needed to qualify in time for the November election.

What has not been discussed, at least publically, is whether the Governor has a "Plan B" for redevelopment.  As we discussed in Friday’s post, if the bills abolishing redevelopment were reintroduced as non-urgency legislation, they too could be pass on a simple majority vote.  What is uncertain is whether some pro-redevelopment Democrats would break ranks and oppose the legislation.  After all, their vote to kill redevelopment placed many Democratic legislators at odds with their urban constituencies.  If the Governor were to propose a November ballot initiative which includes significant concessions to conservative interest, some of those Democratic legislators may be more willing to vote against killing off redevelopment.

UPDATE, 5:10 p.m.:  Perhaps to avoid the possibility of the defections described above, rumors are now afoot that Floor sessions for both the Senate and Assembly are possible tomorrow.  There may be an effort by the leadership to have one or both houses vote on a measure providing for the total elimination of redevelopment agencies by majority vote.  Stay tuned...

Fate of Redevelopment Remains in Limbo

Both the Senate and Assembly have adjourned for the weekend, but what a week it has been in the battle over the future of redevelopment.

The bill to kill redevelopment, SB 77, came up for multiple votes in the Assembly on Wednesday. The bill initially garnered only 50 of the 54 votes needed for the two-thirds majority. The Governor, working out of the Speakers office just off of the Assembly floor, personally lobbied and cajoled legislatures throughout the day. Eventually, he won over two wavering Democrats and one Republican, Chris Norby of Orange County. By the time of the bill’s final call late Wednesday night, the vote remained 53-23 - one vote short.

Though SB 77 was back on the Assembly's agenda for Thursday, Democrats did not take up the issue again, presumably because they are still hunting for that last vote.  Meanwhile, the Senate has yet to take any action on the parallel bill before it, AB 101. 

The Governor's main budget bill was approved Thursday on a party line vote, passing 25-15 in the Senate and 52-26 in the Assembly. You may realize that these numbers fall short of the two-thirds majority we've been discussing all week.  To get the main budget bill passed, the Democrats for invoked the first time Proposition 25, which changed the legislative vote required to pass a budget from two-thirds to a simple majority.

Having wrapped up the main budget bill with nearly $14 billion in spending reductions, the revenue side of the equation remains in limbo. The Governor must get his proposed tax extensions on the ballot and obtain voter approval in a June election. He also needs approximately $2.2 billion in redevelopment money to bridge the remaining gap for the upcoming fiscal year.

For both of those items, two Republicans in each chamber must cross over and vote with their Democratic colleagues, because the Governor needs a two-thirds majority vote. Or does he?

Some Republicans have argued that there is legal authority for placing the tax extension on the ballot by a simple majority vote of the Assembly and Senate. Democrats counter that Proposition 26, passed by the voters in November, requires a two-thirds margin for increasing taxes or fees

Abolition of redevelopment could also likely be passed on a simple majority vote if SB 77 and AB 101 were reintroduced as non-urgency legislation. However, this is not a particularly desirable solution for the Governor because rather than taking effect at the commencement of the upcoming fiscal year, they would not take effect until January 1, 2012.  Thus, a substantial portion of the $2.2 billion in redevelopment money needed to balance the Governor’s proposed budget would not be available, leaving a gap in this year’s budget.

Since there is a consensus that the constitutionality of abolishing of redevelopment agencies will ultimately be decided by the courts, such a gap may exist in any event. As we discussed in previous post, the California League of Cities and the California Redevelopment Association have already laid out their game plan for challenging these measures.

They will argue that they violate the constitutional amendment implemented by Proposition 22, which prohibits the State from directly or indirectly compelling the use of redevelopment tax increment for the benefit of the State or any agency of the State. The Governor’s proposal to divert tax increment to fund Medi-Cal and trial courts - both state programs - seems to run afoul of this prohibition.

The Governor’s office has expressed confidence that the proposal does not violate Proposition 22. With the abolition of redevelopment agencies, there are no longer any redevelopment tax increment funds. However, a lawyer from the office of the Legislative Council of California has added a cautionary note. In testimony before the Senate and Assembly Budget Conference Committee, an attorney from that office acknowledges that the proposed legislation is “problematic” because Proposition 22 “specifically prohibits the legislature from enacting a statute that requires an (redevelopment) agency to transfer tax increment money for the benefit of the State..”

Another Dramatic Legislative Session, But (So Far) Redevelopment Still Intact

The Assembly has been in session since 11:00, and as best I can tell (I haven't been able to watch the feed the entire day), it has not yet taken up SB 77 or redevelopment again today.  My understanding is that further discussion is planned before the session ends, and that SB 77 was - at least at the beginning of the session - "item #7" on the agenda. 

In the meantime, the 11:00 session started a bit late this morning, and both houses almost immediately convened in caucuses.  Later, they moved forward with a few of the budget bills, taking them up and (apparently) approving them based on a simple majority vote after some controversial procedural maneuvering. 

To add a bit of color, the relatively tame debate of yesterday has also taken a decidedly more negative tone today, as allegations of "fear mongering" resulted in demands for apologies.

Now (just after 4:00 p.m. Thursday), the Assembly is waiting for some bills from the Senate, and it still has not taken up SB 77.   In fact, it's starting to look like SB 77 may not come back to the Assembly floor today, as the Assembly speaker's office is saying the measure is still one vote short, so a floor vote may be delayed until that last vote is found.

We'll let you know if anything happens as the session progresses. 

P.S. Happy St. Patrick's Day (I wonder whether a bunch of kegs of green beer would help move the process along).

UPDATE, 5:35 p.m.  The Assembly just adjourned for the day, without further discussion of SB 77.

Bill to Eliminate Redevelopment Agencies Still One Vote Short as Assembly Adjourns for the Night

As the evening has worn on in the Assembly, SB 77 has been called to a vote several more times.  What started as 50 yes votes (four short of passage) has now become 53 "yes" votes - now a single vote away. 

Just before 7:00, the vote was 53-23, with 3 still abstaining.  Another vote was called at about 7:10, but the tally remained 53-23.  The plan at that time was to adjourn at 8:30 barring some change, but discussions continued until well past 9:00.

At about 9:20 p.m., the vote was called one more time.  It remained 53-23, one vote short.  At that point, the Assembly adjourned; it is scheduled to reconvene at 11:00 tomorrow morning. 

By the way, if you want to follow things live, The California Channel is airing the session live.  We'll see what tomorrow brings.  Stay tuned.

UPDATE,  7:30 a.m. Thursday:  For a detailed summary of yesterday's events, see John Myers' article, "Brown Cajoles, GOP Demurs."

Initial Vote on Bill to End Redevleopment Falls Short

SB 77 - the budget trailer bill to eliminate redevelopment agencies in California - has been debated on the Assembly floor much of the afternoon.  When it finally came time to vote at a little after 4:00 p.m. this afternoon, it was still unclear whether Governor Brown would receive the two-thirds vote necessary. 

As the votes came in, it became obvious that (1) the votes, as expected, would fall largely on party lines, with Democrats approving the bill and Republicans rejecting it, and (2) that the final result was going to be very close, one way or the other. 

Ultimately, the vote came in with a substantial majority voting yes - but not quite two-thirds.  Rather, Governor Brown fell four votes short, with Assemblyman Chris Norby from Orange County casting the lone "yes" vote from the Republican aisle.  The final tally:  50 yes and 21 no, with 8 abstentions.  (Apparently, there was one person missing; the Assembly contains 80 members, meaning a two-thirds majority requires 54 votes.)

UPDATE, 5:10 p.m.:  Just moments ago, the Assembly voted on several other components of the Governor's plan: SB 74, SB 80, and SB 82 all fell a few votes short, while SB 72 passed, with exactly 54 votes. 

Then, just before 5:00 p.m., SB 74 was called again.  This time, SB 74 passed, with 56 votes.  SB 80 also passed during another vote right at 5:00, with 54 votes, and SB 82 passed, also with 54 votes.

Finally, the Assembly called for another vote on SB 77, the redevelopment bill.  At 5:05 p.m., the Assembly once again failed to obtain the required two-thirds majority; it remained stuck at 50 yes votes. 

I'm guessing this isn't the end.  More to come. 

Vote on Governor's Plan to End Redevelopment Planned for Today

It looks like Governor Brown's proposal to end redevelopment as part of his overhaul of California's budget may come to a vote on both the Assembly and Senate floors today.  AB 101 and SB 77 are scheduled for a 1:00 p.m. vote, and both include within them the plan to eliminate redevelopment agencies.  They require a 2/3 vote for passage.

In the meantime, the California Redevelopment Association is promoting an alternative proposal that it hopes will be presented on the floor.  They claim that the CRA proposal will:

  • Provide significant funding to schools which could also help close the state’s budget deficit;
  • Avoid the unconstitutional provisions of the Governor’s proposal that would lead to contentious and costly legal battles; and
  • Continue local redevelopment’s contributions to reviving the state’s economy and supporting hundreds of thousands of jobs.

For more on the story, see the article in the Huffington Post, "California Legislature To Vote On Governor's Budget Proposal Wednesday."  It should be an exciting day.

A More Personal View of the Redevelopment Fight from National City

We've blogged a lot in the past two months about redevelopment issues and the Governor's plan to help right California's budget by, among other things, eliminating redevelopment agencies.  But most of what we've written has viewed redevelopment from the 30,000 foot level. 

For policy-making decisions, viewing the big picture is hugely important.  But a case making news this week out of National City reminds us that the redevelopment fight is also quite personal. 

The Community Youth Athletic Center has been fighting what it perceives as an attack on its very existence for nearly four years.  The battle began not as a right to take challenge in an eminent domain case, but as a challenge to the overall redevelopment plan for the area and, in particular, its determination that about 700 properties - including the CYAC's boxing gym - qualify as blighted. 

This week, CYAC's lawsuit is finally reaching the trial court for a decision on the merits, after years of procedural wrangling that includes a 2009 decision by the Court of Appeal in CYAC's favor.  CYAC claims that the agency failed miserably in its efforts to justify an extension of its 1995 redevelopment plan.  Part of its complaint arises from changes to California law that followed 2005's infamous Kelo decision, providing additional scrutiny and procedural hurdles to the way agencies make blight findings.  According to CYAC, in 2007 the agency simply did things the same half-hearted way it always had, ignoring completely the newly enacted requirements. 

CYAC is represented by the Institute for Justice, self-described as the "nation's only libertarian public interest law firm" - and the firm that pushed the Kelo case to the U.S. Supreme Court in 2005.  Among other things, they've prepared a short video about the CYAC, its mission to help at risk kids, and its fight with the city.  If nothing else, it's really well done:

So what's going to happen?  It depends on the outcome of the current trial.  If the CYAC prevails, it may get the agency's redevelopment plan invalidated, removing the threat of eminent domain to build planned luxury condominiums - at least until such time as the agency adopts a new, properly documented redevelopment plan. 

Moreover, regardless of whether the agency prevails in the current lawsuit, it claims that it has no plans to condemn the CYAC's property.  But if the agency wins, it could change its mind.  And if it does, it's probably safe to assume CYAC will fight the government's right to take its property.  

Turning back to the big picture, if the Governor gets his wish and abolishes redevelopment agencies, the whole issue may evaporate into thin air.  With no redevelopment agency, there's no redevelopment plan, no blight finding, and no (even hypothetical) plan to turn the CYAC's gym into condos. 

Finally, one might wonder why this battle is taking place now, if the agency says it has no plans to condemn the property.  Doesn't it make more sense to have this fight only when (and if) the government decides to condemn?  Probably, but that's not the way the law works. 

Under California law, if someone like CYAC wants to challenge the government's blight findings, it has to do it within a limited period of time after the plan is adopted (or, as here, amended).  Failure to challenge the blight findings now could make it difficult - or even impossible - to challenge them later as part of a right to take challenge. 

So the parties are in court this week fighting about a possible eminent domain action that may never even have happened in a dispute that may be rendered moot if the Governor's plan is adopted.

Winning Hearts and Minds

As we noted in yesterday's post, Vote on Redevelopment Agencies' Future Uncertain, the Governor's deadline of March 10th is slipping away.  How far can it slip?  Some believe that a vote on his budget proposal could slip all the way into the third week of March, unless a few Republicans break ranks before then.  Thus far, at least publicly, Republican opposition to both the tax extension and abolition of redevelopment remains unabated.  Among the demands in the now infamous March 7th open letter to the Governor from five key Republican senators is "Save but reform Redevelopment Agencies and Enterprise Zones."

In the mean time, both sides continue to battle for public support.
 
On Monday the State Controller, John Chiang, issued a report summarizing his review of 18 redevelopment agencies.  As you may remember from one of our previous posts, when he announced the review back in January he questioned "whether the RDAs are the engines of local economic job growth or are simply scams providing windfalls to political cronies at the expense of public services." Chiang's report cites numerous violations and is particularly critical of the agencies for inadequate record-keeping and reporting.  The report also found no clear methodology or data to measure job growth.  He concluded that “The lack of accountability and transparency is a breeding ground for waste, abuse, and impropriety.”  
 
Advocates of redevelopment were quick to respond.  Some downplayed the findings.  Harry Mavrogenes, Executive Director of the San Jose Redevelopment Agency, was quoted as saying that the report had little to criticize about his agency.  "I just don't think there were any major findings at all."  John Shirey, Executive Director of the California Redevelopment Association, took a harder view, accusing the Controller of issuing "a politically motivated campaign piece to support those who want to abolish redevelopment."
 
In a bit of good news for supporters of redevelopment, a Probolsky Research poll of likely California voters was just released showing fairly broad public support for redevelopment.  In a poll of 753 voters, conducted between February 21 and 24, 59% of those surveyed believe that redevelopment agencies are a good idea and 63% said that Prop 22 should not be changed to allow the state to take local funds.
 
Finally, in an 11th hour push, this week the League of California Cities and a coalition of local government leaders, business, labor and community groups announced a grass-roots campaign to try to stop the state Legislature from voting on Brown's proposal.  The My Vote Counts campaign is running statewide radio ads calling the Governor's proposal a "scheme" that will "put thousands more out of work."  Not to be outdone, the California Professional Firefighters and the California School Employees Association announced that it will air radio ads supporting Brown's proposal.  The ad says it's time to end taxpayer subsidies for developers.
 
Meanwhile, the clock is ticking.

Redevelopment: The Final Showdown?

The Legislature may deal a death blow to redevelopment in California as early as next week.  Late yesterday afternoon, on a party line vote, the members of the Budget Conference Committee voted to move the Governor's proposal to eliminate redevelopment to both houses for a vote by the Assembly and Senate members.  The Governor wants the State Legislature to send him a budget package to sign by March 10, the date by which he must secure a two-thirds vote to get a measure to extend tax increases on the June ballot.
 
Therein lies the rub.  A minimum of two Republicans are needed in the Assembly and two in the Senate for the required two-thirds vote on placing a tax issue before voters.  The tax extension is one of the cornerstones of the budget proposal and the Democratic leadership is working hard to woo at least four of their Republican colleagues to cross over and vote to place it on the ballot.  Most of the Republican legislators are strongly opposed to this aspect of the budget.    
 
Interestingly, the tax extension is not the only aspect of the budget that Republicans oppose.  GOP members also refused to support the Governor's proposal to eliminate redevelopment agencies, citing legal concerns that prevent the state from raiding local government funds.

In an ironic twist, this places many Republicans in the same camp as the California League of Cities and the California Redevelopment Association.  "There is no doubt that eliminating redevelopment agencies and using the funding for state purposes is unconstitutional," said John Shirey, Executive Director of California Redevelopment Association.  Indeed, the CRA is circulating materials outlining its strategy for a possible constitutional challenge to the Governor's proposal, based in no small part on Proposition 22.  Adopted just last November, Proposition 22 amended the California Constitution (Article XIII, § 25.5(a)(7)) to prohibit the State from directly or indirectly requiring redevelopment agencies to use redevelopment tax increment for the benefit of the State.  By eliminating redevelopment agencies so that redevelopment revenues can be used to fund such State programs as Medi-Cal and trial courts, the Governor’s redevelopment proposal seems to require redevelopment agencies to transfer their tax increment revenue for the benefit of the State, in violation of Proposition 22.

Meanwhile, San Diego Mayor Jerry Sanders, along with several other big city mayors, have come up with a compromise plan that they submitted to the Governor last week.  Their plan is for redevelopment agencies to send to the state 5% of their annual revenues, approximately $200-million.  The 1.7-billion the Governor needs could be borrowed with the 200-million covering the debt payments.  So far, they have received no response.

Will the vote go forward next week if the votes are not there to place the tax extension on the ballot?  Will there be an 11th hour compromise along the lines proposed by California's big city mayors last week?  The situation remains very fluid.

Agencies Scramble to Secure Redevelopment Funds as New Legislation to Abolish Redevelopment Agencies Surfaces

Around California, agencies are scrambling to use or secure redevelopment funds in an effort to protect against anticipated legislation to abolish redevelopment agencies in California.  We've been following the story for weeks, but things are really heating up now. 

As just a few examples from the past couple of days:

While all this is going on, the Governor's proposal to abolish redevelopment agencies is moving forward.  On Wednesday, the Department of Finance posted information on the budget trailer bill language proposed to effect the Governor's proposal.  The draft, dated February 23, 2011, is entitled "Redevelopment Agency Dissolution and Succession." 

We'll have more on the proposed legislation once we've had time to analyze it. 

New Salvo in Battle Over Redevelopment

In a report issued in advance of today’s Senate Subcommittee hearing on the issue, the Legislative Analyst's Office reiterated its support for the Governor’s call for an end to redevelopment in California.  While acknowledging that redevelopment does lead to economic development within redevelopment project areas, the report asserts that there is no reliable evidence that it attracts business to the state or increases overall regional economic development. 

This may all be well and good, but analyzing the issues this way creates a subtle - but important -shift in the argument.   Redevelopment agencies' statutory charge is to eliminate blight, a cause that seems lost in the LAO's report and its focus on whether redevelopment constitutes an effective engine for statewide economic development.

Indeed, the report suggests that a redevelopment agency might attract businesses to a redevelopment project area that were previously located elsewhere in California.  While this results in an increase in property tax revenue in the project area, the report suggests that this is a zero sum game, as the project area’s gain is some other region’s loss.  Once again, the statutory purpose of redevelopment, the elimination of blight, is given short shrift in the analysis.

Interestingly, the report suggests that the Governor’s proposal does not go far enough.  While the Governor proposes to use redevelopment funds to offset state General Fund and K-12 education costs for 2011-2012, thereafter, redevelopment funds would not be used to offset the state’s payments for K-12 and junior colleges.  The LAO assessment suggests that if future revenues are treated generally as property taxes, the state’s ongoing share of costs for K-12 costs could be gradually phased out.

The LAO report acknowledges that “dissolving redevelopment will be complicated and disruptive.”  Ordinarily, it would recommend that the state phase out this program over several years or longer to minimize the disruption and abrupt ending it would likely engender.  However, given the state’s extraordinary fiscal difficulties, the report suggests that such a gradual phase out may not be the best option.

Redevelopment Agencies and Eminent Domain: Well-Reasoned Article Misses Part of the Picture

Over the weekend, Chlorinated Liberty posted a pretty good article that articulates the primary reasons people cite as the basis for abolishing redevelopment agencies.  The article, "How Eliminating California's Redevelopment Agencies Spurs Economic Growth," takes a reasoned approach to why the free market is better equipped to handle redevelopment and blight remediation than the government - and its redevelopment agencies. 

The article walks through some statistics that show that many of California's redevelopment agencies did not report any job creation generated by their projects over a multi-year period.  It talks about allegations of corruption, mismanagement, and failed projects.  It even cites data showing that strong private property rights are a key component of private investment, concluding

private property is necessary for economic growth and to achieve prosperity. Government infringement through redevelopment's use of eminent domain powers undermines private property rights in California. This distorts incentives, discourages the use of assets as collateral, and forfeits the benefits of capitalism. By eliminating redevelopment and the use of eminent domain, municipal leaders will witness the economic growth they so desperately desire.

I actually agree with much of what the article says, but it only glosses over the other side of the coin - and it's an important other side.  Before starting down the path towards articulating why we should abolish redevelopment agencies, the article concedes:

Places such as Pasadena's Old Town, Stockton's water front plaza and San Diego's Gaslamp Quarter have rightfully been touted as models of success.

The article then glosses over these to pursue its anti-redevelopment agenda.  But what about these "models of success"?  Without redevelopment agencies - and, yes, the use of eminent domain - what would have become of these areas and others like them throughout the state?

I'm all for allowing the free market to address redevelopment where possible, and I agree that the government's involvement may hinder, rather than facilitate, timely growth.  On the other hand, I believe that there are places where the market cannot, or will not, react to situations in desperate need of redevelopment.  Where that occurs, government involvement can turn miserable, blighted areas into vibrant communities.  And to do this, the government sometimes needs to use eminent domain to assemble the necessary property to make these redevelopment projects feasible.

In the end, I think the Chlorinated Liberty article serves to highlight just how complicated this issue is.  Both sides of the debate have good points to make, and no solution will be perfect.  Ultimately, a solution that provides greater oversight of the redevelopment process - generating more "models of success" and fewer corruption scandals - probably makes sense. 

But if the "solution" goes so far as to abolish redevelopment agencies (as Governor Brown proposes) or to eliminate their eminent domain powers, I imagine we'll all look back many years later and wonder why some of California's worst areas still have seen no viable market-driven redevelopment. 

Battle Over the Future of Redevelopment in California Rages On

In the wake of the Governor’s proposal to abolish all redevelopment agencies, State Controller John Chiang announced that his auditors “would be reviewing” 18 redevelopment agencies.  As he stated in his press release,

The heated debate over whether the RDAs are the engines of local economic job growth or are simply scams providing windfalls to political cronies at the expense of public services has largely been based on antidotal evidence.

These reviews, designed to “assist lawmakers in their budge debates” will therefore focus on how the targeted RDAs define a “blighted area,” whether they are appropriately paying for low-and moderate-income housing and how much RDA officials and employees are being compensated for their services. 

At the other end of the spectrum, supporters of redevelopment are gearing up for the initial legislative hearings. We can expect a vocal presence by local officials and stakeholder at the first hearings in the Senate and Assembly Budget subcommittees on February 3rd and 7th respectively. 

Meanwhile, the Legislative Analyst’s Office has identified a number of unresolved legal, financial and policy issues implicated by the Governor’s proposal:

  • Does the state have the authority to immediately dissolve all redevelopment agencies?
  • What entities will serve as the successor agencies? 
  • What happens to redevelopment agencies’ physical assets? 
  • Will there be an ongoing funding source for low-and moderate-income housing?

We will be following these issues as they unfold over the course of the next several weeks and will post regular updates here.

Battle Over Redevelopment Agencies' Future Continues in California

Earlier this month, we reported on the Governor's budget proposal, which includes the bold plan to "disestablish" (my new favorite word) redevelopment agencies as part of his plan to shore up California's budget.  We then told you about how the budget proposal interacts with Proposition 22, passed last November. 

Not surprisingly, the story is far from over.  A January 21 article in the Los Angeles Times by Patrick McGreevy, "Cities may sue governor over his redevelopment proposal," reports that earlier today, more than 100 mayors and city council members came together to condemn Governor Brown's proposal,

calling it an illegal money grab and warning that they will sue the state if it is adopted.

Within a few hours, the Governor's office reacted, claiming the proposal was perfectly legal:

Redevelopment agencies were created by an act of the Legislature, and they can be eliminated by an act of the Legislature. It's time for all of us, including local government leaders, to set aside narrow perspectives and turf wars and act as Californians first to address the state’s budget deficit.

I'm guessing things are just getting started.  Be prepared for a wild ride. 

Governor's Response to Redevelopment Agencies About Proposition 22: The Nuclear Option

The large pool of tax increment revenue flowing to the state’s 400-plus redevelopment agencies has long made a tempting target for a cash strapped State.  Time and again Sacramento has dipped into this pool to offset budget deficits.  Local interests have fought back, both at the ballot box (e.g., 2004's successful Proposition 1A "Protection of Local Government Revenue"), and in the courts.  Sometimes local interests gained the upper hand and sometimes the advantage went to the State.

Proposition 22, approved by the voters in November, was intended by its backers to be the ultimate trump card:  a constitutional amendment protecting local government funding sources from State "raids."

Before Proposition 22, the State had the power to require redevelopment agencies to shift revenues to local school districts for purposes of reducing State General Fund costs for education and other programs.  Recently, this resulted in the State requiring redevelopment agencies to shift $2 billion dollars, or roughly 15% of total redevelopment revenues, to schools over a two year period.

Proposition 22 changed all of that.  It amended Section 25.5 of Article XIII of the California Constitution to limit the ability of the State to modify the allocation of ad valorem property tax funds.  With the exception of funds appropriated to fund low-to-moderate income housing, Prop. 22 imposed an absolute prohibition on the State's ability to transfer taxes allocated to redevelopment agencies to or “for the benefit of” the State, any agency of the State, or any other jurisdiction.  (Article XIII, Section 25.5(a)(7).)

To address long term systemic deficits, the Governor's proposed budget for 2011-12 "calls for a vast and historic realignment of government services in California."  At its core, the “realignment” involves the shifting of responsibility for various programs and the funding thereof, from the State to local governments.  This would remove $5.9 billion dollars in program costs from the State’s books as those costs would now be borne by counties.

This realignment is to be paid for in the short term by an extension of four temporary tax increases.  With or without a comprehensive “realignment,” tax revenues previously allocated to redevelopment agencies would be redirected to offset State Medi-Cal and court costs as well as schools and other local agencies. 

This is precisely what Proposition 22 was designed to prevent.  The Governor has a simple solution:  abolition of all redevelopment agencies.  The reasoning goes that since redevelopment agencies were created by legislative enactment (Health and Safety Code sections 3300, et seq.), they can likewise be abolished by legislative enactment.  No redevelopment agencies means no special allocation of tax increments, which in turn means tax revunes otherwise allocated to redevelopment agencies would be distributed to cities, counties, and school districts in amounts proportionate to their share of the base county wide property tax.  As explained by the Governor’s Budget Director, Anna Matosantos, “If the legislature eliminated redevelopment agencies, then it’s just property tax.”