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Redevelopment funding at center of new political fight

Facing a January 2009 deadline, a fight is under way in the Capitol over extending California’s decades-old redevelopment projects, which take an estimated $4 billion annually from local government tax funds and use the money instead to finance projects that remove blight. Critics, mostly local government officials, say they’re being squeezed to finance developers and retail expansion, not just blight, at the expense of vital public services.

“You’re going to hear cries and requests to remove the blight requirement. We urge you to weigh those needs with the needs of the state,” said Peter Kutras, the executive officer of Santa Clara County. “The basic promise is to fix blight and use a tax increment to do it, then return the area with a higher increment. … That basic promise has never been kept.”

Orange County Supervisor Chris Norby is even more blunt. “They (redevelopment projects) have in fact become a drain on local services,” he told the Senate Local Government Committee. “Whether they are an NFL stadium or Costco or Wal-Mart or a big box store, this money is going to subsidize private development. It’s being siphoned away. The sunsets have been well-known for a long time, and they should be enforced.”

The simmering dispute over California’s redevelopment programs is not new. The first projects, in San Francisco, were approved in 1969. Those and others from that year will end in 2009, with a 10-year transition period to liquidate debt, finish existing jobs and pay off bonds. Projects that were launched after that date face similar, 40-year deadlines that extend into the first half of the 21st century.

But redevelopment backers want the deadline extended, noting that fixing blighted areas improves the quality of life and leads to a better tax base — and more tax money. “I think we’ve seen very positive results in San Diego, but it’s not without blemishes,” said Sen. Christine Kehoe, D-San Diego. “We should go forward with legitimate projects, (but) we have to look at these extensions, at the amount of money that flows to the general fund from local governments, and make sure that every year it is for a public benefit and is justified.”

The aptly named City of Industry is leading the fight — the latest in a number of towns that have hoped to extend the programs.

 The city has hired A-list lobbyists including Aaron Read, Lynn Suter and former legislators Bev Hansen and Bill Duplissea, reportedly at $10,000 per month each, to push their case. Another participant is Frank Hill, a former Republican member of the Assembly and Senate, who has met with a number of key senators to argue in favor of the extension. Hill, once known as one of the Capitol’s shrewdest political strategists, was snared in an FBI undercover sting of the Capitol two decades ago and has kept a low profile in the negotiations. At least one major political consultant with ties to the Senate is setting up a public relations campaign on behalf of the plan.

The crux of the dispute is the financing.

For decades, redevelopment projects, authorized by state law, have tapped funds from local taxing agencies and used the money to improve blighted areas. The financing system is complex, but it rests on the idea that improved property values end up generating more tax revenue for the city and county.

The cities and counties set up redevelopment agencies — invariably the local city councils or boards of supervisors acting in a dual capacity — to identify blighted zones within their communities, decide on what projects need to be built and authorize the financing, often through the sale of bonds backed by the tax pool. The idea is that when the blight is removed, property values rise. That increase, or “increment,” is used to back the bonds and develop projects. The increment is figured from a base year when the project is approved, which means the longer the project area exists and the more the property values rise, the more tax money from school districts, special districts and other local taxing agencies is collected.

 But there are tensions. For one, the local agencies want that money back. For another, about half of the money that comes from the schools is reimbursed by the state, which means that the state in effect subsidizes redevelopment by about $2 billion annually — a hefty piece of change in a tight budget year. Since the 1990s, a number of local redevelopment agencies have sought extensions, with mixed results.

 By one estimate, there are about 400 active redevelopment agencies in California; about 4 out of every 5 cities have redevelopment agencies.

But the bottom line is that the first expiration deadline is 10 months away in January 2009, or 40 years from the plan’s adoption or when the project expired as scheduled, whichever comes later. That deadline was contained in 1993 legislation authored by former Assemblyman Phil Isenberg, D-Sacramento. Subsequent legislation carried by Sen. Torlakson, D-Antioch, formerly the head of the Local Government Committee and now chairman of Appropriations, tightened the rules to get extensions, forcing the locals to demonstrate that they had truly blighted areas that needed fixing.

Lawmakers sought to crack down on the deadline because the redevelopment financing programs, which were intended to be temporary, last for decades. “The feeling was if they haven’t done it in 40 years, when are they ever going to do it?” said one Capitol staffer familiar with the issue. There were also cases in which towns sought to have farm land declared as blighted — and thus obtain the tax increment financing.

In the City of Industry’s case, redevelopment provides a significant source of funding. The community, incorporated 51 years ago, is home to more than 2,000 businesses and has about 800 residents, about two-thirds of them Latino and a fourth of them in a local health care facility, according to demographic information on its Web site. The redevelopment revenue is used to make the community attractive to businesses, which the community aggressively recruits. “Every elected and appointed official, every staff member of every agency within the city understands our number one goal: to make it as easy as possible for businesses to grow and be prosperous here. I just can’t imagine another city more conducive to commerce and industry,” said Mayor David Perez.

 There are also suspicions about the City of Industry’s motives. The buzz in the Capitol has been that the city hoped to use its redevelopment programs as a way of getting a sports complex built that would attract an NFL team to the area. Hill has specifically denied it, but the suspicion remains. Capitol sources said the city and its allies were working on legislation to be carried by newly elected Sen. Alex Padilla, D-Van Nuys, to carry the bill. Padilla, however, did not discuss the issue but referred a reporter to an aide, who was not immediately available to comment.

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