Law May Bar Davis’ Plan for Fund Shift

The $500 million that Gov. Gray Davis proposes to shift from local affordable-housing programs to the state budget may not be there for him to take.

And even if the money is there, critics say, taking it might be illegal.

The proposal to go after the housing money was unveiled this month as part of Davis’ plan to whittle down the state’s projected $21-billion-plus budget shortfall. Davis administration officials suggested that the money has been sitting in bank accounts in cities unwilling to use it to fund housing for the poor.

It’s actually more complicated than that.

The governor is basing the $500-million figure on a state housing report that is more than three years old. A more recent report from the state controller’s office indicated that all but $113 million of that money has been earmarked to help pay for thousands of housing units -- many of which are already being built.

And any move by lawmakers to take the money -- budgeted or not -- and ship it out of cities could be unconstitutional.

“What the governor is proposing to do here is exactly 180 degrees opposite of what the state Constitution requires,” said Murray Kane, a Los Angeles-based redevelopment attorney.

Kane lays it out simply. The funds come from property-tax revenue generated in local redevelopment districts. The state Constitution says such revenues are not to be used anywhere but within the county where they were generated.

Others have the same reading.

“There are significant questions as to whether the state can take that money,” said Jean Ross, executive director of the California Budget Project, a research group that advocates for the poor. “Nothing like that has ever been done before.”

Taking away the money could bring hundreds of projects to a halt. State statistics show that Los Angeles, for example, stands to lose more than one-third of its $71.3-million affordable-housing fund.

But the Davis administration says this extraordinary budget crunch calls for extraordinary measures.

“It simply doesn’t make sense to have those idle balances sit ... and at the same time have other programs be cut,” said state Finance Director Timothy Gage.

Officials suggest that they could dodge the constitutional issues with some clever accounting. One possibility would be moving the redevelopment money to schools -- thereby keeping it in the counties where it was generated -- and then cutting school funding from the state to local districts by the same amount.

“It is still being determined precisely how the money will come back to help” alleviate the shortfall, said Anita Gore, spokeswoman for the finance department.

Critics say any swapping scheme would amount to illegal money-laundering.

Not every affordable-housing advocate thinks the governor’s proposal is a bad idea. Some say it is about time to punish cities that neglect to build housing for the poor that is required by state redevelopment laws.

“Should he do it? Sure,” said Allen Baldwin, executive director of Orange County Community Housing. “That money won’t do housing much good in places where the political will can’t be mustered to build the homes.”

Baldwin said there are communities where the money is being misused, such as Lake Elsinore, which is using its affordable-housing funds to help pay for a minor league baseball park. Another city tried to use its funds to build a highway overpass.

But threats of litigation are flying.

“What the governor is proposing to do is absurd,” said Ken Emanuels, legislative advocate for the California Redevelopment Assn. “There would be a number of lawsuits filed.”

Financial analysts are following the debate. They are already warning that any attempt to take the money could get tied up in court for years.

The matter certainly is not as simple as the Davis administration made it appear with the few sentences tacked onto the end of an extensive budget-reduction proposal earlier in the month, analysts said.

On Thursday, bond-rating giant Standard and Poor’s advised investors in a report on California’s fiscal problems that redevelopment interests are “already mobilizing to fight” the proposal.

Others say it is fine if the governor wants to leap into the constitutionally murky territory of trying to grab redevelopment money, but they question the wisdom of going after the small portion of those funds dedicated to low-income housing.

State Sen. Joe Dunn (D-Santa Ana) notes that tens of millions of dollars in redevelopment money are spent every year subsidizing shopping centers and “big box” stores in places where there already is an overabundance of them.

“We are less in need of more strip malls than we are in need of housing,” he said.

Davis administration officials say they are not ruling out going after the money that subsidizes those strip malls, and signaled in their proposal that redevelopment agencies are in for another big hit in January, when the governor submits his budget plan for 2003-04.

The administration is targeting the affordable-housing funds for now, according to Gore, because that money is not being used.

“That money is just sitting there,” she said. “We have a budget situation that doesn’t allow us the luxury of that kind of money going unspent.”

The administration bases such comments on the state housing report from 1999 that determined that, at the end of the fiscal year, there was $500 million in low-income housing money unused in cities throughout the state.

The controller’s report last year that found there was only $113 million going unused showed that $401 million had been pledged to various projects but contracts had not been signed.

Housing officials in cities across the state say the administration’s attempt to shift money for which there is no contract demonstrates ignorance of how subsidized housing works. They say contracts with the developers are signed at the tail end of planning -- or even after ground is broken -- when all other financing is in order, and that can take years.

In essence, they say, the agencies have to work like developers, always keeping money on hand to invest in building opportunities as they arise.

An example is the city of Orange, which has been praised by the state for its affordable-housing projects but also has about $2 million in housing money that has been unspent this year.

Orange is using that money to cut deals with landowners and builders to help create more than 300 units of affordable housing. Under the Davis proposal, that money would disappear.

“This is insane,” said City Manager David Rudat. “We’ve been praised by the state for our programs. Now they want to make it impossible for us to do anything.”