Regional News

California RDAs Set to Sue State

SAN FRANCISCO - California redevelopment agencies plan to sue to block a $2.05 billion revenue grab that state lawmakers approved Friday as part of a $23.1 billion budget-balancing deal.

The deal requires redevelopment agencies to send to the state $1.7 billion in 2009-10 and $350 million the following year. This year's take equals about 30% of the agencies' property tax collections.

John Shirey
"It's illegal and irresponsible," said John Shirey, executive director of the California Redevelopment Association. "We intend to sue the state."

The budget legislation says payments to the state from agencies are subordinate to the agencies' ongoing debt service payments, which means investors in outstanding bonds are at the front of the line to be paid before the state.

But the revenue grab is likely to derail ongoing economic development projects across the state, according to the Redevelopment Association.

"It puts redevelopment agencies out of business," Shirey said in an interview yesterday. "I'm assuming most agencies are making plans to suspend nearly all of their activities for the year."

California's redevelopment agencies use municipal bonds to help finance the rebuilding of economically blighted areas of cities and counties. The agencies use the incremental growth in property tax revenues spurred by their projects to repay bonds.

All of the state's RDAs will lose revenue. The biggest losses are $70.8 million for the Los Angeles Community Redevelopment Agency, $62.2 million for the San Jose Redevelopment Agency, and $55.6 million for the San Diego Redevelopment Agency.

California lawmakers decided to take redevelopment funds as part of a package that tried to close a $24.2 billion deficit in the state's general fund. They passed a plan that included $23.1 billion of accounting changes, spending cuts, borrowing and one-time revenues. Gov. Arnold Schwarzenegger pledged to use his line-item veto power to close the rest of the budget gap.

Lawmakers said they didn't want to take local revenues but could not find another way to balance the budget.

They borrowed about $2 billion from local government property taxes, but the state must pay those funds back within three years with interest. A proposal to shift $1 billion of local gas tax revenue to the state was defeated. The state has no plans to repay the redevelopment funds.

John Weis, assistant executive director of the San Jose RDA, said the state action potentially puts all of the agency's ongoing projects in jeopardy, including the expansion of the Silicon Valley city's convention center and its affordable housing programs.

"We have to be really cautious with our expenditures," he said. "Projects will be put on hold, and I think that a lot of agencies will have a very difficult time making payments and keeping their programs going."

Weis said the San Jose agency supports the Redevelopment Association's lawsuit but will have to make plans to make the payment - which is due May 10, 2010 - if the lawsuit fails. He said his agency would consider borrowing to spread the payments out over time.

The agency took part in the California Statewide Communities Development Authority program that helped redevelopment agencies borrow to cover a state revenue grab in 2005-06. Lawmakers approved such borrowing again this year.

Lawmakers tried to mitigate the impact of the legislation by extending the lives of agencies by a year, which would allow them to recoup the money down the road, and by allowing them to skip required payments to their affordable housing trust funds for a year.

The RDAs are required to pay 20% of their tax increment revenue to affordable housing trust funds. The savings resulting from not making such payments this year will cover much of the tax grab this year, but the legislation requires the agencies to repay affordable housing funds over five years.

The Redevelopment Association plans to sue to block the revenue shift. The agencies successfully blocked a $350 million raid on their funds last year, arguing that the state constitution only allows redevelopment agency tax increment funds to be spent for RDA obligations.

California lawmakers wrote the new legislation with an eye toward overcoming the legal challenge. The law directs the money taken from redevelopment agencies back into schools in redevelopment agency project areas. It cuts the same amount of general fund education dollars from school budgets.

"This is a truly desperate attempt to rewrite the constitution by statute, which everyone knows can't be done," Shirey said.



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