TAHOMA, Calif. — Redevelopment is not dead in California, it’s just hibernating.
That seems to be the message received in the state after Gov. Jerry Brown vetoed every bill sent to him to create new means of using tax increment financing for economic development after the demise of redevelopment.
His veto messages for some of those bills appeared to leave the door open for future action.
“I prefer to take a constructive look at implementing this type of program once the winding down of redevelopment is complete and the general fund savings are achieved,” the governor wrote about his veto of Senate Bill 1156, which would have created “sustainable communities investment authorities” with tax increment powers.
Tax increment financing uses revenue from incremental property tax growth to back debt.
The use of TIF was the backbone of the state’s 400-odd redevelopment agencies, which were dissolved by the Legislature amid criticism that the agencies had gobbled up an unfair portion of the property tax base.
The state budget assumes $3.1 billion in savings from the end of redevelopment because money that used to go to RDAs is expected to flow to other local entities, primarily school districts, which would reduce the state’s school funding obligation.
Brown appears inclined to defer new policy actions while the unwinding of the former redevelopment agencies is still a mess.
The governor said as much in his veto messages.
Brown’s veto victims included SB 1156 and measures that would have made it easier to form infrastructure financing districts.
In one veto message Brown said it would be “premature” to expand infrastructure financing districts as cities may focus their efforts on using the new tools rather than finishing the job of unwinding redevelopment.
Tax increment financing certainly will be back in some form. Senate President pro Tem Darrell Steinberg, D-Sacramento, said in a statement that the first thing he would do on the first day of the next legislative session was to reintroduce SB 1156 to create the investment authorities.
“We are not frankly that worried,” said Michael Coleman, a fiscal policy advisor to the California Society of Municipal Finance Officers and the League of California Cities.
“We have had no indication from the governor and certainly not from the legislature that they don’t want a tool for tax increment financing, but there is some debate about what that will look like and when it is appropriate to bring it on,” he said.
Coleman said even if redevelopment came back right now in a new form many cities wouldn’t likely use the tool since many of them are overburdened with the wind down.
The state Supreme Court last year upheld a law dissolving California’s redevelopment agencies.
Since then, the so-called successor agencies — in most cases, the municipalities that created RDAs — have been in a scramble to tally their debts and assets, get them approved by the state and to make the required payments to the state and for debt service.
The review process involves oversight and review of RDA finances by a local oversight board, county auditor-controllers, the state controller’s office and the state Department of Finance.
Examples abound of the unwinding of redevelopment adding to the burden of local governments struggling amid a slow economic recovery.
Ratings agencies have issued several warnings throughout the year about the impact of the unwinding on municipal finances, especially those that intermingled redevelopment funds with the other city funds.
A prime example is the city of San Bernardino, which recently filed for bankruptcy.
Redevelopment agencies were typically creatd and run by the City Council of the sponsor city.
The state controller’s office has already disallowed some transfers between cities and their RDAs during in its role in reviewing the wind down.
The League of California Cities is also suing the state over the “clean-up” bill passed earlier in the year that had been meant to clarify the original legislation terminating redevelopment.
The clean-up law says payments from the “successor agencies” to other local taxing entities, such as schools and fire districts, had to include tax increment revenue going back to December 2011, which would increasing the total for some agencies.
The bill also set fines and the potential withholding of sales tax payments for successor agencies that don’t pay the state’s bill.
“It is causing huge challenges for cities, especially small and medium size cities,” said Robert Gamble, a senior consultant with PFM and a former budget director for San Francisco. “It is just difficult for them have the bandwidth to deal with this, it is not the only business they are in.”
Gamble said cities with important economic development projects that still need financing have turned to other tools, such as so-called Mello-Roos bonds and certificates of participation, which are typically secured by a portion of a revenue stream, such as lease payments.
California created Mello-Roos districts — named after the two lawmakers who sponsored the enabling legislation — in 1982 to finance infrastructure in the wake of the passage of Proposition 13 property tax limits.
The districts can issue tax-backed bonds for infrastructure with the approval of either two-thirds of the residents of a district or two-thirds of property owners in districts with fewer than 12 residents.
Redevelopment “was a significant market that is essentially closed now,” Gamble said. “Cities are using other available tools to serve some of the same purposes. The reality is they are not as good.”
