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Governator Goes After Redevelopment Funds

Aug 5, 2008

While the newspapers today are full of stories about Gov. Schwarzenegger's proposed "temporary" sales tax increase, the papers are not mentioning a proposed permanent shift of money away from local redevelopment agencies.

The California Redevelopment Association is sounding the alarm about the proposed $200 million shift, which would apparently come in the form of increased, mandatory pass-through payments to school districts. According to the CRA, this would amount to a little more than 4% of gross tax increment that local redevelopment agencies receive every year. The proposal reportedly originated in the Legislative Analyst's Office.

Compared with Schwarzenegger's plan to raise $5 billion annually with a sales tax increase, the redevelopment tax shift sounds like peanuts. But to redevelopment agencies that have issued debt based on certain revenue expectations (in other words, all redevelopment agencies), the governor's proposal is worrisome.

Fearing that the state would tap local revenues to help solve the state budget crisis, the League of California Cities recently launched a new website that features video clips from several years ago in which the governor repeatedly promises to leave local revenues alone.

However, the political difficulty inherent in the sales tax increase makes the redevelopment tax increment look like low-hanging fruit.

For several years, we've seen lawmakers pass "get out of town" budgets. Everyone knows the budgets are hokey, but lawmakers just want to get back to their district or campaign or go on vacation anything besides work on California's complicated system of raising and spending money. This year, I predict we'll see a "get to the convention" budget. The Democratic National Convention starts August 25, and no Democrat wants to miss this blowout. (The Republican National Convention is scheduled the following week.)

Legislative update

The governor on Monday signed a bill that specifically authorizes local governments to defer collection of development impact fees until as late as the close of escrow on the sale of new buildings. The bill, AB 2604 (Torrico), was the third and final piece of what the California Building Industry Association calls a "homebuilding stimulus package."

Cities and counties typically impose impact fees, which pay for transportation improvements and various public facilities, when they issue building permits. That system has proven deadly to builders who are seeing many buyers cancel the purchase of new units built on speculation. The CBIA says deferral of impact fees until a housing unit is sold helps builders' cash flow and will boost speculative building.

A handful of agencies have already begun deferring fees. The bill signed by the governor is not mandatory on local government, so one wonders how much it will get used. Local governments have their own cash flow issues, and they are still expected to provide the infrastructure to serve new homes.

The other pieces of the CBIA package were SB 1185 (Lowenthal), which automatically extended the expiration date of subdivision maps by one year, and AJR 45 (Coto), a resolution that urged Congress to pass housing legislation. The governor signed SB 1185 last month. The Assembly passed AJR 45 about five weeks ago, and Congress has since approved a housing package that contains many of the provisions requested by the building industry.

Paul Shigley

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