At the start of 2012 California had over 5,000 local governments, from counties and cities to school and fire districts. But this February, over 400 of those governments are slated to disappear, almost overnight, as the state officially closes the book on local redevelopment agencies.
It’s the latest move in the effort by Sacramento lawmakers to find a new way to balance the state’s budget, and shift $1.7 billion from community redevelopment agencies (or RDAs as they’re often known) to the state’s general fund.
“It’s really about the money. The state in its fiscal crisis is upset that across the state 12 percent of the property taxes are being collected and utilized locally in redevelopment for local purposes. It’s about control, local control of course, and about local money and the state not having access to it,” says Donna Kunz, Community and Economic Development Director for the City of Bakersfield.
But what exactly is redevelopment, other than one of the least understood parts of government?
It all began in the years after World War II, when California’s cities looked for ways to deal with blighted older neighborhoods, and declining property values. The Legislature authorized the formation RDAs to provide financial incentives for new development, using the proceeds from future property tax dollars, something called tax increment. California Deputy Treasurer, and author of the book California Crackup, Mark Paul, offers a little more in-depth explanation.
“Tax increment funding is a way of diverting growth of property taxes in an area from other services to the redevelopment agency. What happens is a cap is placed on the property taxes that come from the properties in that area, and all subsequent increases in property taxes from that area instead of going to schools to the county or the city government, flow to the redevelopment agency to use.”
And agencies would use that money on everything from buying land to resell to developers, to funding affordable housing, or replacing old water and sewer infrastructure. The new developments funded by RDAs would have a higher assessed value than the old blighted conditions, and that additional property tax revenue would over years, pay off the debt incurred to provide the incentive. Agencies overall have broad powers. They can issue bonds without getting voter approval, and can exercise eminent domain.
“It’s hidden in the background with money that’s sort of shuttered around out of sight, and that’s one of the reasons it’s become so enormously popular with local officials because it allows them to do things that otherwise they wouldn’t probably be able to do,” says Paul.
Cities like Fresno and Bakersfield, which are both trying to revitalize their downtowns, have used redevelopment on everything from Community Regional Medical Center and Chukchansi Park in Fresno, to Mill Creek Park and the Parkview Cottages in Bakersfield.
So why are those incentives necessary in the first place? It turns out that it often costs more to build in an established older area, than it does on the edge of town, and redevelopment dollars have been effective in generating new investment and affordable housing in otherwise depressed areas.
“What you have in downtown are the infrastructure that was built 50, 60 sometimes even up to 100 years ago, cannot meet the needs. For example a major water line may be in excess of a $1 million cost,” says Kunz.
And costs like that, when combined with high land values compared with land on the urban fringe, makes building downtown more expensive.
“Until recently land prices have been a lot more expensive in our downtown, and rents are typically lower than other parts of town, so that creates an economic challenge to develop in those areas.”
That’s Darius Assemi, President of Granville Homes, a Fresno developer who has completed a number of mixed used projects in the Mural District north of Fresno’s Fulton Mall with RDA support. Assemi, whose company is also corporate sponsor of this station, says redevelopment has been an important tool in helping to revitalize downtown, helping to close the gap and make downtown more financially competitive.
“It’s afforded developers to get into a part of downtown which has been blighted, which has until recently been not too desirable to live in or to have an office in.”
And while agencies in other parts of the state have been criticized for lavish spending on things like golf courses and a mermaid bar, Assemi says that hasn’t been the case here in the Valley.
“The Fresno RDA has done an excellent job in getting projects out of the ground that would not have otherwise had the opportunity to get built, and Iron Bird Lofts, Fulton Village, Broadway Lofts, that Reza [Assemi] built, are great examples of what the RDA has done here in Fresno,” says Assemi.
So how did a program that was so popular with cities up and down the state get almost completely dismantled last month? For years, Sacramento made up for the property tax revenue that otherwise would have gone directly to schools and other local governments. All that changed in the final years of Governor Arnold Schwarzenegger’s administration, when record budget deficits became the norm, and the Legislature turned to redevelopment agencies and their billions as a possible solution.
“Under Schwarzenegger, the state started to say we’re not going to let you do that anymore, because we don’t have the money anymore to backfill what you’re taking from the schools,” says Paul.
Unhappy with what they perceived as Sacramento taking local money, in Fall 2010 the agency took the issue straight to California voters.
“So the redevelopment agencies responded with Proposition 22, which said basically that the Legislature no more could stop those diversions from happening,” says Paul.
So if the Legislature couldn't stop the diversions, Governor Brown decided that the way around Prop 22 was to end the agencies all together. When the Legislature approved Governor Brown’s budget last year, it voted to end redevelopment agencies, but in a companion bill, allowed them to continue in a reduced form if they agreed to make additional payments to schools and local governments.
The agencies claimed this was a violation of Proposition 22, and the issue wound up before the California Supreme Court. On December 29th the justices ruled that the bill which eliminated the agencies was constitutional, but the companion bill which allowed them to continue, was a violation of Proposition 22, effectively closing down the agencies in February.
So what does this mean for the Valley and development in local downtowns? We asked Donna Kunz.
“The loss of redevelopment is losing a critical tool chest that we have used in the past… What’s going to happen is it’s going to slow things down. I’m proud that we have the momentum, we got a lot of things done, but we were far from being finished.”
But while the agencies are closing down soon, some of their projects will continue, according to Kunz.
“It does provide for redevelopment agencies across the state to finish projects that they had underway and under what they call an enforceable obligation contract.”
Darius Assemi says that while this move may make some projects more challenging to build, there’s already a lot of momentum in the downtown revitalization that won't go away.
“So the Mural District is slowly taking shape, and we think we’re almost at a tipping point, where there’s great entertainment venues, great choice in new architecture.”
But one thing is certain, the current shakeup in redevelopment is a big change for local governments.