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Explainer: The end of redevelopment agencies


[Jump to the most recent update below]

The gist: In late December, the California Supreme Court upheld legislation that ended a roughly 60-year-old program intended to combat blight. As a result, more than 400 redevelopment agencies are slated to dissolve by tomorrow.

How did redevelopment agencies work?

Redevelopment agencies gave local governments – usually cities, but sometimes counties – the ability to capture a greater share of property taxes. After an area was declared a redevelopment project area, the share of property taxes that goes to schools and other local agencies was frozen. All of the growth in property taxes from that point until the redevelopment area expired – usually 50 years – went back to the redevelopment agency.

What’s happening?

The Legislature passed two bills in June 2011 that laid the groundwork for redevelopment agencies’ demise.

The first bill, AB 26, ended the agencies and laid out a complex process for how they are supposed to be dissolved. The second bill, AB 27, gave local agencies an out: If they agreed to pay a large share of their funding to schools, they could continue to operate.

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Redevelopment agencies and cities sued, claiming the bills were unconstitutional.

In a move that shocked many cities, the court decided the state had the authority to quash redevelopment agencies, but it also took away the option to pay to keep the redevelopment agencies open. The court ruled that AB 27 violated a voter-approved constitutional amendment, Proposition 22, which limited the state's authority to direct how redevelopment agencies used their share of property taxes.

Dissolving a massive, multibillion-dollar program is messy and unprecedented. Each city is now grappling with a different set of circumstances – from the amount of outstanding debt to the number of projects under way.

Why did Gov. Jerry Brown push to end redevelopment agencies?

Brown argued that the state could no longer afford redevelopment in a budget crisis. Redevelopment is contentious because of the financial advantage it provides redevelopment agencies and their community sponsors, primarily cities, over school districts, counties and other property tax recipients. He argued that the money would be better spent directly on schools and core city and county services, such as police and fire protection.

The state also has been footing the bill indirectly. Since voters approved a proposition requiring minimum funding for education in 1988, the state has had to make up the difference for some of the money reallocated from schools to redevelopment agencies.

There also have been examples of abuse and questions raised about how effective redevelopment agencies have been at combating blight. A few examples were noted in a recent report by the state controller.

Why are cities objecting?

By ending redevelopment agencies, the state has effectively seized control of billions of dollars of property taxes previously controlled by the cities that established redevelopment agencies.

In addition, many critics of the decision are pointing out flaws in how the Legislature has proposed dissolving the agencies. The California Redevelopment Association is concerned that the process will lead to litigation, bond defaults and a waste of public funds. Additional concerns of the California Redevelopment Association are on its website.

Upcoming timeline:

Sen. Alex Padilla, D-Van Nuys, introduced a bill, SB 659, that would postpone some of the upcoming deadlines by several months, but Brown has indicated that he won't support any legislation for a delay. Senate President Pro Tem Darrell Steinberg, D-Sacramento, said last week that the effort to extend the life of local redevelopment agencies was "not going to happen."

If the bill doesn’t pass, here’s an overview of the upcoming hurdles:

Tomorrow (February 1): Redevelopment agencies are officially dissolved. In January, local officials had to determine the successor agency – usually the city that created the redevelopment agency. If the city does not want to serve as the successor, it gets complicated. (Check out this example in Los Angeles if you’re curious.)

March 1: Each successor agency must finalize a schedule to pay off any existing debts and obligations. The county auditor-controller is in charge of setting aside a portion of the property taxes that previously went to redevelopment to pay off the redevelopment agencies' obligations.

April 15: Successor agencies must submit their payment schedules to the state Department of Finance and state controller for approval.

May 1: To supervise each redevelopment agency’s closure, seven-member oversight boards are formed. The boards will consist of two members appointed by the county board of supervisors, two members appointed by the mayor for the city that formed the redevelopment agency, one member appointed by the largest special district in the former redevelopment area, one member appointed by the county superintendent of education to represent local schools, and one member appointed by the community college chancellor. The board is supposed to be representative of the agencies that share property taxes, but counties and schools will have much more control than the city, Bill Fulton of the California Planning & Development Report points out. None of these members will receive additional compensation for their service.

How do I follow what's happening?

  • We’ll be highlighting work from media outlets around the state in our regular updates (see below).
  • For breaking news, check out the Twitter #redevelopment hashtag. We'll also post updates at @CaliforniaWatch and @KendallTTaggart.
  • The California Planning & Development Report blog has some great coverage.
  • Here’s a good overview of redevelopment the Legislative Analyst's Office published in February 2011 and new report (and video) in published in February 2012 that gives additional context.
  • The Contra Costa Times has a good Q & A as well.

What should we be covering? Let us know.

The latest:

March 8, 2012: End of redevelopment leaves budgets in limbo

In the confusion following the end of California redevelopment agencies in February, an estimated $2 billion in the hands of local officials is in limbo. Before redevelopment agencies were dissolved, the state Department of Finance was responsible for reviewing budgets for the 400 now-defunct agencies to ensure spending was limited to the legal requirements. But about half of those budgets – which originally covered September through December and were extended through June – never received a careful review when they were submitted in August. If there hadn't been a delay in dissolving redevelopment agencies or they had been able to continue operating, it might not have mattered. But now each successor agency has to submit retroactive budgets covering Jan. 1 through June 30 to the Department of Finance by April 15. Read more in our daily report.

March 7, 2012: Redevelopment's demise strands $2 billion set aside for housing

Over the years, redevelopment agencies -- which were officially eliminated February 1 -- accumulated a wealth of property tax money dedicated for public housing. But what happens to that money -- whether it will spent on housing or join other redevelopment agency funds to be redistributed to schools and local governments -- is unclear. The state Senate passed Senate Bill 654, carried by Senate President Pro Tem Darrel Steinberg, which would keep the housing money intact. The bill is now pending in the Assembly. Read more at the Sacramento Bee.

Feb. 14, 2012: End of redevelopment creates $900 million problem for schools.

Complications in transferring money from dissolved redevelopment agencies to schools have created an unanticipated three-month delay and a $900 million funding gap for school districts, officials at the California Department of Education confirmed late last week to Cabinet Report. Acting on directions from the governor’s Department of Finance, CDE officials said they will make smaller payments to schools that will continue through the end of the fiscal year. Lost funds would be made up by August. The delay could create cash flow problems for schools. Read more at the Capitol Weekly.

Feb. 8, 2012: Cities are still hoping the Legislature will address some of the challenges in dissolving redevelopment agencies. Assembly Speaker John Perez, D-Los Angeles, has introduced AB 1585, which would change certain provisions of the redevelopment dissolution bill, AB 26. Some of the key changes include:

  • allowing successor agencies to temporarily increase their administrative budgets, which are currently capped at 5 percent of their property tax revenue for the first year
  • allow cities to recoup loans made to their redevelopment agencies prior to Dec. 31, 2010. The state controller estimated cities and counties have loaned their redevelopment agencies more than $4 billion (to learn more, see our daily report on the topic)
  • allows cities to continue certain housing functions previously performed by the redevelopment agency

Feb. 2. 2012: End of redevelopment agencies traps $4B in local government loans. 

More than 400 redevelopment agencies were officially shuttered yesterday, leaving a trail of uncertainty – and a potentially staggering debt load.

Across the state, cities and counties have loaned more than $4 billion to their redevelopment agencies over the past few decades, but according to the law governing how agencies will be dissolved, they may not be able to recover that money. (Read more in our daily report.)

Feb. 1, 2012: The Governor announced the board members responsible for winding down redevelopment agencies that were not taken over by local officials. In January, cities and counties had to decide if they wanted to serve as the successor for the now defunct redevelopment agencies. While most decided to oversee the process, some local officials in Los Angeles, Ventura, Stanislaus, and Merced opted out. To check out the appointees, visit the Governor's website. For more on the handful of cities that decided not to serve as successors, check out the California Planning and Development Report.

Jan. 31, 2012: California Senate preserved redevelopment money for housing today.

The state Senate approved a bill, SB 654, to allow cities and counties to build affordable housing using $1.36 billion held for that purpose by agencies that are closing. Republicans refused to support passing it as an urgency measure, so it will not take effect until Jan. 1, 2013. It now heads to the Assembly. Read more at the Los Angeles Times.

Jan. 31, 2012: Department of Finance webinar on the end of redevelopment agencies begins at 11 am.
Tune in at http://www.dof.ca.gov/. Questions may be submitted via e-mail beginning at 10:30 to redevelopment@dof.ca.gov

Jan. 27, 2012: Sacramento County Superior Court Judge Lloyd Connelly rejected a request brought by 12 cities to stave off the dissolution of redevelopment agencies.

The California Supreme Court didn’t consider the legal arguments raised in the lawsuits led by the cities of Cerritos and Carlsbad when it issued its ruling in December. The cities had asked for a court order blocking enforcement of the measure pending the outcome of their cases.

The case is City of Cerritos v. California. Read more at the The Sacramento Bee and Bloomberg.

Jan. 27, 2012: In a letter [PDF] to Gov. Jerry Brown, the League of California Cities urged the governor to correct problems in the legislation outlining how redevelopment agencies should be dissolved, citing concerns about bond defaults, loss of taxpayer funds and violations of federal law.

Jan. 26, 2012: Three major bond-rating agencies are nervous about redevelopment bonds.

In the last two weeks, Moody's, Fitch Ratings and Standard & Poor's all have expressed concern about the process of shutting down redevelopment agencies. The agencies are responsible for assessing the credit-worthiness of borrowers. Fitch and Standard & Poor's both cited the short timeframe for redevelopment agencies to dissolve as part of their concern.


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