Extra Credit for Creative Thinking : * Santa Ana’s School-Funding Idea Just Might Work

It is said that necessity is the mother of invention. And, no question, the need is great in Santa Ana’s schools. The Santa Ana Unified School District is the fastest-growing in Orange County and among the tops in the state in growth. Of the district’s 46,000 students--4,500 more than projected for last fall--about 28,000 have limited proficiency in English. Schools are bursting at the seams. Meanwhile, the state, from which schools get the bulk of their funding, faces a record $14.3-billion deficit, which will be rectified in large part by cuts to schools.

Creative thinking seems to be in order, and the city of Santa Ana is doing some. It recently proposed joining with Santa Ana Unified and the city’s other school districts in an innovative plan to form a citywide redevelopment area aimed at improving education facilities.

Santa Ana’s proposal isn’t new. Coronado, in San Diego County, formed a similar agency several years ago and, as a result, will open a new $9-million elementary school this fall. Hemet is looking at a similar plan. Both are twists on the state’s 1970 redevelopment law.

Here are the basics of redevelopment: The state authorizes formation of agencies to promote renewal of “blighted” areas. Once that is formed, property taxes normally paid to other government agencies, such as counties, schools and cities, are frozen. Tax increments arising from increased property values then go to the redevelopment agency, which uses them to finance improvements, which in turn generate more taxes. Agencies also have eminent domain powers.

Not surprisingly, most local government agencies object to redevelopment areas because, within them, they don’t capture property tax revenue growth. In the case of schools, however, the state guarantees a certain level of funding to districts. If local property taxes go up, state funding goes down. Conversely, if property taxes go down, funding goes up.

This is the key to the plan proposed by Santa Ana. A citywide redevelopment agency would capture tax increment funds for education-related projects, including more classrooms. Schools, meanwhile, would continue to get their normal amounts of state aid. A key to making the project work is that all other new collected taxes would “pass through” to other local agencies as if there were no redevelopment area, thus quieting the usual objections. Santa Ana also says it won’t employ eminent domain powers that could raise the hackles of private property owners.

From a broader, statewide perspective, were such agencies to proliferate, they could have a negative impact on the state budget. That’s because they capture local property tax money that otherwise would go toward the base school-funding levels guaranteed by the state. Those who support the plan, however, argue that it would help provide facilities such as schools that would otherwise be the state’s responsibility. An opinion by the state attorney general last year on a related topic said that the law does not preclude the arrangement. It concluded that tax-increment funds given by a redevelopment agency to a school district do not constitute “property tax revenue” to be deducted in computing the amount of a school district’s state general aid.

This mutation of redevelopment is one more government-financing contortion caused by the under-funding of public services in the last two decades. Still, there’s a certain beauty in it. It probably isn’t the best way to go about things. But if this approach alleviates Santa Ana’s school crisis, more power to it.