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

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.

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