California State Senate Hands Newsom Decade-old Political Lightning Rod in Redevelopment Agencies

Since 2011, the California State Legislature has been itching to bring back redevelopment agencies.

Governor Jerry Brown’s nixing of the 70-year-old program scored the California state budget several billion dollars during the Great Recession in 2011.  At the time of their elimination, redevelopment agencies collected around 12 percent of all property taxes or close to $5 billion a year, more than all state’s fire, parks, and other special districts combined. Eliminating redevelopment agencies also saved state money since redevelopment agencies were no longer removing guaranteed funds from school districts.

Governor Brown may have wiped out redevelopment agencies with a stroke of a pen, but his actions only slowed their reemergence for about a decade.

Recently California lawmakers sent Senate Bill 5 to the governor’s desk with the hope of bringing back redevelopment agencies. These new redevelopment agencies will have a heavier commitment to affordable housing under the bureaucratically titled Affordable Housing and Community Development Investment Program.

As written, Senate Bill 5 gives cities and counties the ability to take local property tax revenue dedicated to schools for affordable housing and infrastructure improvements. While the new redevelopment agencies combat California’s housing crisis, it could pit some elected officials and the groups that support them against one another.

Redevelopment agencies were a popular tool for cities and counties to load up on tax revenues, often at the frustration of the state and other groups fighting for more city and county funding. Under redevelopment, cities and counties could use property tax revenue to invest in blighted areas and build up immense reserves.

The formation of redevelopment agencies begins way back in the 1945 when cities and counties were given permission to siphon property tax dollars designated for schools, city budgets, or special districts to help blighted areas with transportation or park upgrades.

What started as an overlooked and rarely used program slowly exploded in size and scale due to cities and countries looking for increased revenues in the 1970’s. A U.S. Department of Housing and Urban Development white paper found that only 27 project areas were listed by California redevelopment agencies in 1966. That number ballooned to 229 projects in 1976 and almost 600 in 1988.

After Governor Brown axed redevelopment agencies in 2011, he vetoed several attempts to bring them back. But in 2015, as the state budget improved, Brown signed a slimmed down version of redevelopment agencies authorizing local governments in economically depressed areas to use tax specific tax revenue for affordable housing and public works projects.

As Governor Brown prepared to leave office in 2018, then candidate for governor Gavin Newsom declared his support for redevelopment agencies in the name of addressing homelessness and housing affordability.

Senate Bill 5 is the answer redevelopment advocates have been looking for, but the proposal continues to draw the ire of the same groups competing for tax revenue. The bill will commit the state to pay $200 million annually, with an increase to $2 billion eventually. Where will this money come from? The same place the old redevelopment money did: schools. Money will be funneled from Educational Revenue Augmentation Funds which act as county bank accounts for collecting property tax revenue to fund schools.

Senate Bill 5 is letting the new redevelopment agencies come in, take their approved project money, and then have the state cut a check for that amount back to the school and county. Senate Bill 5 also guarantees that the state reimbursement will meet guaranteed funding set through California’s Proposition 98. Prop. 98 sets the minimum guarantee for state spending on schools each year and the money borrowed will need to be re-calculated when funds are removed and reimbursed. It’s no secret that Prop. 98 funding is already incredibly complex.

Senate Bill 5 also succeeds in bringing together the unlikeliest of political groups; the California Teachers Association and the Howard Jarvis Taxpayers, both listed in opposition. Housing and labor groups and incorporated cities make most of the support.

Redevelopment agencies had their share of support and criticism before they were dissolved in 2011. Many blame them for everything from abusing property rights through excessive use of eminent domain to ignoring housing construction for retail development and distorting the real-estate market.

In a now infamous example in Sacramento, California, more than $3 million in redevelopment funds were used to renovate and open several bars, including one with swimming “mermaids.” Other questionable uses of redevelopment funding include a $16.7 million bill to upgrade a premier golf course in Palm Desert. Other case studies show that redevelopment agencies did support the cleanup of toxic waste and contamination of groundwater and provided jobs and funding for cities.

Before Governor Brown left office early this year, he was quoted saying “. . .I would assume those people who care about the California public schools will fight that very hard.” He may be more right than he knows.

Evan Harris is Pacific Research Institute’s Media Relations and Outreach Director. 

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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