The California Community Redevelopment Law was first enacted in 1945, substantially expanded in 1951 and added property tax as a funding source in 1952. When a city or county establishes a redevelopment project area to address urban blight, the property tax revenue growth is distributed to the redevelopment agency (“RDA”) rather than the other local agencies for a period of 50 years. More recently, RDAs have been required to pass through some of their revenue to the local agencies that the incremental tax revenue was diverted from, specifically school districts. The ability to shift revenues via these pass through agreements was significantly constrained by the approval of Proposition 22 in November 2010.
Given California’s significant budget problem, the Governor’s proposed 2011/12 budget reflects many significant measures including dissolving existing RDAs. This would mean that tax increment revenue would be used to offset general fund costs in 2011/12. After 2011/12, property tax increment would shift to local agencies and any fund balances related to the required RDA low and moderate income housing set aside would shift to local housing authorities. As part of this change, the Governor proposes a constitutional amendment to allow local voters to approve tax increases and general obligation bonds for redevelopment purposes by a 55% majority. Further, there are provisions to fund debt service and existing RDA contractual obligations.
One of the reasons RDAs have been targeted relates to the Prop 98 education funding mandate. In 1988, Prop 98 was approved which required that the state spend 40% of the general fund on schools. When RDAs establish project areas, those funds are diverted from school districts. While some of the funds are returned to schools via pass through agreements, the state is still required to backfill the remaining property tax revenue.
Strengths of the proposal include the general fund offset for 2011/12 and increased accountability and transparency for future redevelopment activity. Note that redevelopment agencies can be created without the consent of the local agencies which are affected, and can issue bonds without voter approval.
Weaknesses of the proposal include questions regarding the state’s authority to dissolve redevelopment agencies, the difficulty of ascertaining the amount of existing bond and contractual debt and the undefined future responsibility for low and moderate income housing. RDAs are currently required to set aside a portion of tax increment revenues specifically for the purpose of funding low and moderate income housing.
Budget hearings are being held at the time of this writing and the administration is drafting statutory proposals. Meanwhile, debate rages on regarding the economic impact of redevelopment activity and potential job loss related to the proposal. There is certainly more to come on this topic. The budget proposal can be found at http://www.ebudget.ca.gov/. Other organizations have prepared analyses of the proposal, including the Legislative Analyst’s Office (www.lao.ca.gov) and the California Redevelopment Association (www.calredevelop.org).
For more information: Contact Sara Mares at firstname.lastname@example.org