Facing the budget music

Last year, cities balked as Gov. Arnold Schwarzenegger balanced the state budget with $1.7 billion taken from redevelopment agencies. This year, Gov. Jerry Brown wants to go a substantial step further by eliminating those agencies and giving most of their funds, permanently, to schools.

Cities use redevelopment agencies to spur hiring and development in blighted areas, which in turn keeps tax revenues flowing. Mayor Antonio Villaraigosa dismissed Brown’s proposal as a nonstarter, and the City Council backed him up. But the mayor and the council should wake up and smell the statewide meltdown. Brown’s plan doesn’t deserve the rubber stamp that many foes of redevelopment on the right and the left are ready to give it, but considering the depth of the state’s fiscal crisis and the dearth of money to make ends meet, it does deserve to be taken seriously. It is most definitely a starter.

Redevelopment agencies are creatures of California law that operate by selling bonds to entice developers into building projects that generate higher tax values. As the projects drive up property tax revenues, the new money — the so-called increment — is used to fund additional projects. At some point along the way, the agencies are supposed to construct affordable housing, but their highest-profile projects always seem to be commercial developments like the Bunker Hill office towers in downtown L.A.

City governments like to think of redevelopment money as their own. But for more than three decades it has been the state’s job to allocate property tax funds among the 5,000 or so local government entities. Twenty years ago, the state propped up schools by shifting to them millions of dollars in tax revenues that otherwise would have gone to cities and counties — and redevelopment agencies. A few years later, it shifted the costs of trial courts from counties to itself. But there was never enough for everyone. It’s like a game of musical chairs, with the chairs being all the available pots of state revenue and the players being cities, counties, school districts and so-called special districts and redevelopment agencies. The players outnumber the chairs, and the music has stopped.

On 10 separate occasions in recent years, Sacramento has dipped into redevelopment agency funds to make ends meet, and in doing so, it has continued weaving the web of bailouts, backfills, borrowing and gimmicks that began when lawmakers initially started protecting local government from deep property tax revenue cuts in the wake of Proposition 13 in 1978.

Cities and counties needed that protection, and when it started to erode, they responded with lawsuits and ballot measures. With last year’s Proposition 22, sponsored by the League of California Cities, voters blocked Sacramento from diverting redevelopment agency funds to schools or other agencies. Brown’s response: Very well, we won’t divert the funds anymore. We’ll extinguish redevelopment agencies, and the money they’ve been getting will become ordinary property tax revenue to be used to repay the agencies’ debt, fund low- and moderate-income housing, offset costs for funding Medi-Cal and trial courts and — importantly — supplement and not offset state spending for K-12 schools and community colleges.

Of course cities and redevelopment agencies are outraged. They are used to getting this money. And it stands to reason that developers too are loath to give up the incentives that municipalities are now able to offer them. But there are several reasons to take Brown’s plan seriously.

First, in the game of musical chairs, one recipient of tax money will likely lose out. Which should it be, if not redevelopment agencies? Counties are administrative arms of the state, and will bear broad new responsibilities under Brown’s proposal to realign government and bring decision-making closer to the people. They will need more funding, not less. Cities already have, through the initiative process, blocked the state from redirecting money that has been used for transportation-related projects to other purposes, such as repaying state transportation bonds. Schools, California’s top priority under the state Constitution, are perpetually underfunded.

Second, there is considerable question about how redevelopment funds have been used statewide. In its “Arrested Redevelopment” series in October, The Times detailed the bumbling of small-city agencies in which redevelopment officials tasked with spending millions of tax dollars to build commercial projects and affordable housing produced few results and lacked accountability. A third of the state’s agencies, which spent a combined $700 million in housing funds from 2000 to 2008, did so without constructing a single new unit, the investigation found. The state lacks the power to enforce laws requiring agencies to produce housing, and lacks the money even to audit required housing construction. Agencies charged with reducing blight sometimes worsened it. Redevelopment officials often seemed out of their depth handling projects that required the expertise of finance and real estate professionals.

Third, even in Los Angeles, where the Community Redevelopment Agency has built more than 13,000 housing units (about a third of them classified as affordable) plus neighborhood-lifting commercial projects, there is often a very cozy relationship between developers with campaign cash to distribute and elected officials with contracts to give out.

And fourth, an end to the agencies need not be an end to redevelopment. Part of Brown’s realignment plan is to allow cities to sell redevelopment bonds on a 55%, rather than a two-thirds, vote of the people.

Naturally, city leaders would rather sell redevelopment bonds without an election; it’s often difficult to persuade voters to back redevelopment projects. But Brown’s proposal at least offers a solution. It shows a way forward for cities as well as the state. Now the burden should fall to Los Angeles, and hundreds of other cities and redevelopment agencies whose budgets and programs are intimately intertwined with the state’s, to craft workable solutions and alternatives that keep California solvent, keep Californians working and put local residents back in charge of their civic destinies.