ALAMEDA, Calif. — California redevelopment agencies are paying through the nose in a rush to access the bond market ahead of a proposal to shut them down, Treasurer Bill Lockyer told a state Senate committee Wednesday.
Gov. Jerry Brown proposed eliminating redevelopment agencies when he released his budget proposal in January.
The governor’s proposal would guarantee the fulfillment of contracts the RDAs enter into before they are phased out, and many agencies are working quickly to tie up redevelopment revenue into such contracts.
“What I’m concerned about is this enormous rush to beat the state out of shutting the door on their project,” Lockyer said Wednesday in testimony to an informational hearing of the Senate Committee on Governance and Finance. “A lot of it is driven by the cottage industry that exists in and around local government with regards to redevelopment.”
Local governments declare redevelopment areas that capture the increased property tax revenue generated by increasing property values in those areas over time. That tax increment typically is used to back bonds.
“There’s a lot of bad deals and bad financing going on right now,” Lockyer said.
Several smaller agencies have issued bonds in recent weeks and paid a premium, the treasurer said.
According to Thomson Reuters data, Stone & Youngberg on Feb. 3 priced for the Fairfield Redevelopment Agency $6.7 million of taxable tax allocation bonds at a top yield of 10% for the 2042 maturity.
The bonds carry a BBB Standard & Poor’s rating.
On the tax-exempt side, Kinsell, Newcomb DeDios Inc. priced $3.2 million of San Bernardino Joint Powers Financing Authority tax allocation bonds Jan. 28 with a top yield of 7.5% for the 2028 maturity.
They also carried a BBB rating from Standard & Poor’s.
Lockyer Wednesday aligned himself with the governor’s proposal, saying RDAs have claimed an ever growing share of California property tax revenue to subsidize projects that have the primary effect of moving jobs and businesses around rather than adding new ones.
“How is it particularly responsible to have a strategy allowing Victorville to lure a plant from Visalia?” Lockyer said, comparing redevelopment agencies to a “vampire sucking the blood out of everyone around them for their own particular purposes.”
The nonpartisan Legislative Analyst’s Office issued a report late Tuesday broadly endorsing Brown’s proposal, which includes a provision to allow local governments to finance economic development projects if they obtain 55% local voter approval.
The report’s co-author, Marianne O’Malley, told the Senate committee that the tax increment that flows to redevelopment agencies now amounts to 12% of all state property tax dollars. “That leaves 88% of property tax for all other services,” she said.
“When you look at the overall property tax, should 12% of it be used for redevelopment?” O’Malley asked. “California’s redevelopment dwarfs the other states by a wide margin, and it’s not because we have more blight than other states.”
O’Malley said the equation was different when redevelopment was first authorized 59 years ago, because local schools and governments set their own tax rates to fund their own programs.
But in 1978 Proposition 13 capped the base property tax rate at 1%, and the state has also stepped in to backfill funds for the vast majority of local school districts that don’t receive enough local property-tax revenue to fund their operating budgets. That creates a zero-sum game in which revenue gained by redevelopment agencies is a loss for others.
“In 1952 the state wasn’t responsible for backfilling schools,” O’Malley said. “The local fire district or government could raise taxes if it lost revenue to redevelopment.”
RDA supporters argued that the statistics prove their programs are working.
“If we’re making investments in project areas, those property values ought to grow faster, and quite a bit faster, than property values as a whole,” John Shirey, executive director of the California Redevelopment Association, told the committee.