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Planning, Development To Feel State Budget Cuts

While California's yawning budget gap remains wide open, the revenue and spending plan eventually approved by legislators will likely have significant ramifications for land use planning and development.
 
Consider these budget-balancing possibilities: The state taking most of the gas tax revenues that cities and counties would get over the next two years for basic street and road maintenance  – a move that would mark a major disinvestment in infrastructure; a $350 million shift in redevelopment tax increment revenues to help fund schools despite a court ruling in April that such a shift would violate the state constitution; and elimination of Williamson Act subventions for the 2009-10 fiscal year, which, if it became permanent, would cost agricultural counties $35 million annually and raise questions about the Williamson Act's long-term viability as a farmland protection tool.
 
There is more. Lawmakers and the governor himself have targeted the Governor's Office of Planning and Research for dismantling, parceling out its functions to existing agencies. Such a move might leave local planners without the technical assistance they need to comply with the California Environmental Quality Act, develop general plans and properly interpret statutes.
 
The 2008-09 fiscal year ended with partisan divisions solidified in Sacramento, and there is no prospect of a thaw in the current budget debate. Democrats want to close an estimated $24 billion budget gap for the just-closed fiscal year and 2009-10 cycle with an approximately 50-50 combination of tax increases and spending cuts, while Republicans oppose any tax increases. Gov. Schwarzenegger appears to be somewhere in between the two, although he has threatened to veto most tax-boosting proposals.
 
A Schwarzenegger proposal to borrow $2 billion in local property tax revenue during the 2009-10 fiscal year, which begins July 1, was taken off the table in mid-June when Republican lawmakers objected. But the plan to take – not borrow – $986 million in Highway User's Tax Account money (the gas tax) earmarked for cities and counties in the 2009-10 fiscal year has gained traction in both parties. The Schwarzenegger-backed plan would take an additional $750 million in 2010-11.  The state would use the money to service transportation debt. The administration also wants to withhold $288 million of Proposition 42 gasoline sales tax money that would otherwise be spent on road projects during the 2009-10 fiscal year.
 
"It's absolutely devastating. It just makes no sense," said DeAnn Baker, a lobbyist for the California State Association of Counties (CSAC). "I don't think I have ever seen county engineers so distraught over something."
 
The cut in money for road upgrades and repairs would more than offset the $600 million in federal stimulus money headed to California regions for transportation projects, Baker said. Revenues generated by the gas tax and Proposition 42 make up 50% to 90% of counties' road funding. The cut in local transportation spending would mean the elimination of about 4,000 jobs in county public works departments alone, and the suspension of such basic activities as repairing traffic signals, operating drawbridges, removing snow and clearing culverts, according to Baker.
 
Scores of cities and counties have adopted resolutions opposing the state's taking of the gas tax revenues, and the League of California cities has released a legal opinion concluding that the seizure of the gas tax would be unconstitutional. The CSAC board of directors even endorsed a 5-cents-a-gallon gas tax increase, but that idea has gone nowhere in the Capitol.
 
The proposal to shift redevelopment agency revenues to schools – first approved last fall – appeared doomed after a Sacramento County Superior Court judge ruled it unconstitutional because the money must be spent on redevelopment activities (see CP&DR Redevelopment Watch, June 2009). But lawmakers say they can fix the legal problem with SB 80, which declares the revenue would be available only to school districts located entirely or partly in redevelopment project areas. Lawmakers and the administration are considering shifting $350 million a year for three years.
 
Despite the language change in SB 80, the California Redevelopment Association continues to maintain that such a shift would be illegal. One reason is that the state's taking of so much tax-increment money would impair agencies' ability to make contractually required payments to bondholders and public entities that have financed redevelopment projects, said CRA Board of Directors President Jim Kennedy.
 
Redevelopment projects are already being delayed because of real estate and credit issues, said Kennedy, who heads Contra Costa County's redevelopment agency. The proposed tax increment shift would further freeze redevelopment activity at a time when the federal government is investing billions of dollars in public projects, he said. The drastic reduction in road and street maintenance funding is one more concern, he said, adding, "The inability to maintain infrastructure adequately is one of those pennywise, pound foolish decisions."
 
A few cities seek to exploit the state's pursuit of revenues to balance its books. The City of Industry, for instance, would have redevelopment agencies turn over a percentage of tax increment revenue to the state in exchange for the state extending the lifespan of redevelopment project areas by 30 years – whether blight exists or not. Industry could use tax-increment financing to subsidize infrastructure for a proposed football stadium. The CRA board opposes the idea, and CRA Executive Director John Shirey, in a recent legislative update, reiterated that stance.
 
"We continue to hear about a few local agencies lobbying for special allowances in exchange for giving up funds. These efforts should be stopped," Shirey wrote. "The reason is simple: Any take of redevelopment funds by the state for non-redevelopment purposes violates the California Constitution and is directly counter to the primary argument in CRA's successful lawsuit against the state."
 
Schwarzenegger's pronouncement in early June that the Governor's Office of Planning and Research (OPR) is a "total waste" virtually kills the agency. Among other things, OPR operates the State Clearinghouse for California Environmental Quality Act documents and maintains general plan guidelines. Because both of these services are required by law, they would have to be parceled out to other agencies if OPR is dismantled.
 
The larger question for local planners is which state agency, if any, would offer a broad perspective on land use planning and provide the technical advice that ORP has given since the 1970s. Both the California Air Resources Board and the California Energy Commission appear eager to assume the role of technical expert, which would be a departure from their traditional roles as regulatory agencies.
 
Elimination of OPR should be worrisome to planning practitioners, said Pete Parkinson, vice president of policy and legislation for the American Planning Association, California Chapter. "You would lose an office that is focused on planning in this state. You can argue about how effective it has been, but that's really a function of the different administrations' priorities and focus," he said.
 
The planning organization has not lobbied strongly for keeping OPR in place, said Parkinson, because the organization must pick its battles carefully and because it recognizes the magnitude of the state's budget problem.
 
Those budget woes, combined with the economic downturn, has created a "giant sucking sound of money disappearing from local governments," Parkinson said. That, in turn, reduces money available for long-term planning, which is a mostly discretionary activity and therefore easier to cut in the face of so many underfunded mandates, he said. Many general plan updates will be set aside, Parkinson predicted.
 
The proposed suspension of Williamson Act subventions should also concern planners, said Parkinson. The act provides for property tax breaks for agricultural landowners who agree not to develop their property. The state reimburses counties for the property tax revenues they lose, which amounts to more than $1 million apiece for big farm counties. The Schwarzenegger administration has proposed eliminating the subvention virtually every budget year, but lawmakers have refused to go along – until this year. Planners and farmland preservation advocates worry that if the subvention is ended for a year, restoring it may be difficult. That could result in some counties pulling out of the Williamson Act program, potentially increasing growth pressure on farmland.
 

Contacts:
League of California Cities: www.cacities.org.
California State Association of Counties budget page: www.csac.counties.org/default.asp?id=235.
California Redevelopment Association: www.calredevelop.org.
Department of Finance: www.dof.ca.gov.
Pete Parkinson, American Planning Association, California Chapter, (707) 565-1925.
Jim Kennedy, California Redevelopment Association, (925) 335-7200.

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