State Challenges Redevelopment Plans Like Santa Ana’s : Finance: Local officials to proceed despite suit seeking to block school construction through redevelopment.

It seemed like a near-perfect plan for raising school construction funds without overtly raising taxes.

Faced with an exploding school population and inadequate state funding, city officials last spring proposed the creation of a citywide redevelopment area that would generate more than $1.5 billion over the next 30 years for new schools, athletic fields, computer labs, community centers and parks that could be used by both the schools and the city.

But now, just as the plan is being taken to city residents through a series of public meetings, a major problem has arisen.

The state government has taken the unprecedented step of asking the courts to stop cities from financing school construction through redevelopment. Officials in Sacramento also have suggested state legislation to prevent similar redevelopment proposals because they threaten the state’s treasury.

But, despite the early warning shots from Sacramento, city and Santa Ana Unified School District officials on Monday vowed to press ahead with their plan.

“We have a tremendous need for this money and we are moving forward,” said Mike Vail, senior facilities director for Santa Ana Unified.

Had the state done a better job of providing school funding, Vail added, Santa Ana Unified might not be considering redevelopment funds to raise more than $300 million that will be needed for facilities by 2000.

“I don’t think it’s fair that children in Santa Ana have to attend schools that are totally overcrowded because the state has not met its obligation to provide enough money,” Vail said, pointing to school yards that have been overtaken by portable classroom buildings.

During the first of five public meetings to pick a citizens’ advisory panel that will review the projects to be funded, Bob Hoffman, the city’s redevelopment and real estate manager, expressed confidence in the funding strategy.

“We believe what we are doing today is legal,” Hoffman told the three dozen citizens gathered Monday evening at Santa Ana High School. “If in fact this plan is later ruled invalid . . . we will look for something else.”

Santa Ana was not the target of the complaint filed by the state last week in Riverside County Superior Court. In that complaint, the state claims that a redevelopment plan in Hemet--similar to Santa Ana’s--is an illegal circumvention of school-funding mechanisms.

But the attack has ricocheted into Orange County, possibly slowing the momentum Santa Ana district officials had hoped to build for their plan. But in a city where previous redevelopment proposals were met with suspicion and controversy, the latest development was not unexpected.

“Every redevelopment plan that’s ever been advanced in Santa Ana has had to undergo some kind of challenge,” Hoffman said. “It would probably be naive of us to not anticipate some kind of challenge to this plan.”

And Vail said that Santa Ana, unlike Hemet, which still has open space available for development, could meet the “blighted area” requirement to create a redevelopment zone.

Under the city proposal, the two-thirds of Santa Ana not currently covered by six ongoing redevelopment projects would be included in a new redevelopment area, with capital improvements to be financed through the sale of bonds.

The bond debt would be paid through additional tax revenues that are created when property changes hands and the total assessed valuation increases.

The city would get 24 cents of each additional tax dollar raised, Santa Ana Unified would receive 27 cents and the Rancho Santiago Community College District would get 7 cents. The rest would go to the county and other taxing districts that overlap Santa Ana’s boundaries.

The plan is similar to those adopted in Hemet and in Coronado, an upscale San Diego suburb. In addition to the state lawsuit, Hemet officials face a challenge from citizens who want voters to decide whether to overturn the plan.

Critics argue that the use of redevelopment funds would drain state coffers because the state still would be required to help school districts meet their revenue limits.

Peter Detwiler, staff consultant to the state Senate Local Government Committee, likened school financing to a large bucket with two water spigots--one that fills the bucket with local property taxes and the other to make up any shortfall with state funds to ensure that the required level is reached.

Detwiler said that when redevelopment funds are used, “it’s like somebody takes an ice pick and puts a hole in the bucket.” The city is capturing those extra redevelopment dollars, but the state has to keep filling the bucket, he said.

In a recent letter to the California Redevelopment Assn., state Sen. Marian Bergeson (R-Newport Beach), who chairs the Local Government Committee, warned that the proposal “diverts scarce state budget dollars.” She added that it “invites a swift and severe legislative reaction that could put a stop to legitimate redevelopment activities.”

Rancho Santiago Community College District board member John Raya, a former member of Santa Ana’s redevelopment commission, criticized the plan because it is not solely for schools and suggests that school districts instead join forces behind a bond issue.

“I think that right now, the public’s perception of this is that we have a windfall of money,” Raya said, adding that the additional burden on state finances ultimately will cost the same taxpayers. “If they don’t have the money to send back to us, it’s our problem.”

But Vail said a bond issue is not politically feasible because it requires a two-thirds majority vote.