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The next new thing: Infrastructure financing districts get close look

As the clock ticks and the lawyers fight, dozens of redevelopment agencies across California are deciding whether to pay the state to stay alive or throw in the towel.  Some are paying. Overwhelmingly, most aren’t – so far.

“Local agencies are having that discussion, whether or not to continue as redevelopment agencies, and whether they are willing to pay,” said Assemblymember Cameron Smyth, R-Santa Clarita, who heads the Assembly Local Government Committee. “Right now, a lot of local agencies are in their summer hiatus and I expect their staffs are beginning to do the research and present it to city councils.”

The payment – the agencies describe it as ‘ransom’ or ‘extortion’ and have challenged it in the state Supreme Court – allows them to remain in existence, with the amount pegged to the size and finances of each agency. Collectively, some 400 redevelopment agencies, which have been created over the last 50 years to curb local blight and boost economic conditions, are on the hook for $1.7 billion the first year and $400 million annually after that. The agencies collect some $5 billion annually by receiving some 12 percent of the property tax, although most of that money already is committed to existing or pending projects, including those approved as Gov. Brown’s move to abolish the agencies picked up steam in the Capitol. 

Nobody yet knows how many redevelopment agencies will make the payment. In an internal survey by the agencies’ trade association, some 70 agencies reported they likely would not be able to pay the money and faced extinction, while others said they were unsure.

In Redding and San Diego – the second-largest redevelopment operation in the state – officials have decided to pay, and Los Angeles’ main redevelopment agency is all but certain to act likewise.

But one path out of the pay-to-play dilemma may be the infrastructure financing district, a device that’s been used before, although sparingly.

IFDs are being looked at in the Capitol as a potential alternative to the redevelopment agencies. The IFDs are similar to redevelopment agencies but differ in crucial ways. They allow project-by-project financing without creating a new agency, don’t require a blight designation, don’t use schools’ tax revenues, don’t require so-called “backfill” money from the state and don’t require significant new staffing. They can market revenue bonds that don’t require voter approval to pay for projects.

A bill by Sen. Lois Wolk, D-Davis, authorizing IFDs was approved by the Senate in a largely partisan vote – the sole Democrat to oppose it was Sen. Lou Correa of Santa Ana – and it awaits action in the Assembly. There is no indication whether Gov. Brown would sign the bill, although Brown has been vocal about backing greater authority for the locals and may see the IFDs as an alternative to redevelopment agencies, which he fought to abolish.

“I didn’t put this forward as a substitution for redevelopment agencies. They can do both. It’s another financing mechanism for local government – that’s what IFDs are,” Wolk said. “It’s a financing mechanism, pure and simple.”

Other IFD bills are in the mix, local district bills dealing with local projects, such as Assemblymember Tom Ammiano’s AB 664 to expedite development at Treasure Island in support of the upcoming America’s Cup.

A long look at infrastructure is being authored by Sen. Noreen Evans, D-Santa Rosa, and backed by state Treasurer Bill Lockyer. The bill, SB 907, would set up an infrastructure commission to examine the state’s needs through 2050, when the population is expected to hit 60 million. Currently, the population is about 38 million, and the existing infrastructure is designed to accommodate 25 million.

The commissioners will include the state treasurer and appointees of the governor, assembly speaker, and Senate Rules Committee, each meant to represent different interests and policy expertise. The commission would be required to file its final report by December  2013 and then would be dissolved.

Evans said she was “concerned there isn’t a single entity taking a comprehensive view of our state’s long-term infrastructure needs, and more importantly, how we will pay for these critical needs … California can’t just rely on general obligation bonds and lease revenue bonds. We need to look for innovative financing options in both the public and private arenas,” she said when the legislation was introduced in February.

In the Los Angeles basin, with some 70 redevelopment agencies, the locals are considering their options.

“Even with reduced resources, we shouldn’t give up this agency’s important work,” Christine Essel, who heads the Community Redevelopment Agency of Los Angeles, said after Gov. Brown signed legislation abolishing the agencies. Essel’s agency, the state’s largest redevelopment operation, has a $400 million budget, about $125 million in debt service and some 200 employees.  

In L.A.’s case, the initial payment under the new law would be about $97 million, according to the California Redevelopment Association, by far the largest obligation of any agency, followed by $69 million from San Diego and about $47 million from Santa Clara.

In L.A., no final decision has been made on whether to continue, although local officials are hopeful that the first-year payment could be reached. “We are still in the process (of considering it) and we certainly are confident we will continue to have the support of the mayor,” said agency spokesman David Bloom.

Meanwhile, time is running short: By Aug. 1 – about two weeks from now – Brown’s budget-writing office, the Finance Department, will notify them of how much they owe to remain alive. The agencies can file an appeal – to the Finance Department — by an Aug. 15 deadline and the state will inform the agencies of the final decision by mid-September. For those agencies that agree to pay the state, their money must be turned over by Oct. 1.

It’s a tight timeline. The lawsuit filed this week in the state Supreme Court seeks to stop the clock until the core issues of the case are resolved.

The legal challenge, in the works even before Gov. Brown signed the new laws last month, was filed directly with the state Supreme Court in what the agencies hope will lead to a speedier decision than if they went through the lower and appellate courts first. The agencies’ basic contention: The new law violates Proposition 22, which voters approved by a near-landslide in November, that forbids the state from tapping redevelopment agencies’ money, local transportation money and other funding sources in order to balance its books.

“California voters overwhelmingly passed Proposition 22 just eight months ago to stop state raids, shifts and diversions of local redevelopment funds,” Chris McKenzie, executive director of the League of California Cities, said in a written statement. “The governor and Legislature have blatantly ignored the voters and violated the state constitution. We must now go to the Supreme Court to uphold the voters’ will and the constitution by overturning this unconstitutional legislation. We are confident the courts will uphold the will of the voters.”

The challenge was brought by the California Redevelopment Association and two cities, San Jose and Union City. In San Jose the new law “could result in the forced termination of its redevelopment agency and kill hundreds of millions of dollars’ worth of vital redevelopment projects,” accord
ing to a statement released by the Redevelopment Association.
Union City, meanwhile, “does not currently believe it will be able to pay the funds required to avoid elimination of its redevelopment agency,” the statement added.

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