When you've got a $14 billion deficit, everybody's ox is going to get gored. So the question for the planning and development community in California is not really whether something bad is going to happen. The question is whether it matters very much.
Gov. Arnold Schwarzenegger has proposed a 10% across-the-board cut in all state spending for the 2008-09 fiscal year. The betting line in Sacramento is that he's not really serious about an across-the-board cut, but only wants to goose the Legislature to come up with creative budget solutions.
Here's a prediction: There isn't much left to take away from local governments, so the 2008-09 budget won't have much of an effect on the way the locals view development. The housing market and the general economic slowdown are much bigger concerns.
But here's another prediction: There will be a temptation to use the state's ample bond funds to pay for things that might otherwise have come out of the annual budget. That could mean less infrastructure construction, which, in turn, is likely to have a big effect on growth patterns.
Let's start with local government funding. During the past 20 years, the state has often balanced its own budget by fiddling around with the allocation of property taxes – giving more to schools and less to cities and counties. On occasion, the state has also taken property tax increment revenue away from redevelopment agencies as part of the same kind of deal.
The net effect of practically everything during this period has been to give cities and counties less property tax – and thus increase the trend of "the fiscalization of land use." According to the conventional wisdom – promoted in no small part by yours truly – the less property tax local governments get, the more they must rely on sales tax. Therefore, they compete with one another more intensely to obtain retail stores and repel housing projects.
In the last few years, however, this trend has changed. Local governments are getting a lot more property tax from housing than they did even a few years ago. Partly this is because of the so-called "triple flip" budget shift enacted in 2004, in which the state gave the locals more property tax in exchange for some sales tax and also to "backfill" lost car tax revenue.
The triple flip, along with the housing market, clearly had some impact on local government decisions. Between 1998 and 2006, housing prices tripled. The rising prices, among other things, increased the market for high-density condos. The combination of higher densities (meaning more revenue per acre), higher home prices (meaning revenue based on new assessments or reassessments), and the triple flip (meaning cities and counties get a greater share of the property tax) greatly improved the fiscal impact of housing on local governments.
On top of that is Proposition 1A, the local government-sponsored initiative that passed four years ago. Proposition 1A eliminates the state's practice of balancing the budget by shifting property tax revenue away from cities and counties. The state can "borrow" the funds in a fiscal emergency but must pay the money back eventually.
This has given local governments more confidence that they are going to get to keep property tax revenue created by new development. It's changed local government behavior a little – they are more willing to consider housing projects – but the fundamentals of "the fiscalization of land use" haven't really been altered. A Costco is still a much better deal for a city than anything else.
At any rate, it is unlikely that the state will balance the budget this year by stripping local governments of their property tax money; and so it's unlikely that anything in the state budget mess will affect how the locals approach land use – at least compared with the past.
The only exception might be if the state declares a fiscal crisis, which would give Sacramento the power to borrow property tax money as well as transportation funding otherwise guaranteed under Proposition 42. The state would have to pay this money back sooner or later – but that may not stop the legislators and the governor from taking it now.
But there's another subtle – even insidious – trend developing in Sacramento, and that has to do with how the bond money is spent.
The general fund may be bleeding red by billions of dollars, but at the same time the voters have approved many tens of billions of dollars in bonds to pay for capital projects, mostly for schools, roads, parks and flood control projects. There's a relationship between the budget deficit and the bonds, of course.
When voters approve state bonds, they are not voting for a tax increase, as they are when they vote in favor of local bonds. Rather, they are voting to pre-allocate a small portion of the state general fund to make the bond payments. This is not the main reason that there's a budget deficit, but it's a contributing factor.
The state pays for infrastructure projects – and other planning and development related projects – two different ways. Sometimes the money comes on a "pay-as-you-go" basis from the general fund or special tax sources, and sometimes it comes from bond money. During hard budget times, it can be very tempting for the state to use the bond money instead of tax revenue.
For example, after Proposition 46 passed in 2002, the state quietly began to use bond money to pay for some housing programs that had previously been paid for out of the general fund. It is worth noting that with gas tax revenue down, the state's transportation funds are nearly empty. It seems likely that the state will start using bond funds more frequently for things that used to be paid for out of the annual budget.
That means less infrastructure investment from the state government, which will put more burden on the locals and developers to figure out how to accommodate new growth.
So the game may be changing. It's less about "what they take from us," which has been the local governments' mantra the last few years. The concern of local governments is how they handle what is coming their way. That may not be a problem in a year when nobody is building much of anything. But it is likely to be a problem down the line.
There's never been a weirder time to try to do planning in California.
On the one hand, the state has made climate change a major priority – and it's driving local government efforts in a hundred different ways, ranging from greenhouse gas analyses in environmental documents to switching out light bulbs in city corporation yards.
On the other hand, the state is cutting back all over the place because of the ever-more-dismal budget crisis. And this is going to make it hard for local governments to meet the requirements the state is laying out.
Everybody always loves to complain about the California Environmental Quality Act, but despite all the complaining we don't now much about how effective it really is and what all the CEQA activity adds up to. >>read more
Since January we have witnessed the unusual spectacle of elected local officials throughout the state expressing intense and emotional anger and frustration about the possible end to redevelopment -- and no reaction at all from anybody else.
Nothing from the people in blighted neighborhoods, who supposedly benefit from better housing and more jobs and more retail choices.
Gov. Jerry Brown's proposed state budget will do more than merely plug a $24 billion deficit. According to some, it will also lead to shuttered factories, recidivism among ex-convicts, and the flight of companies and jobs to rival states such as Arizona, Nevada, and Texas. Faltering clothing manufacturer American Apparel could be pushed closer to the brink of bankruptcy.
At least if Brown's proposal to do away with Enterprise Zones is adopted along with the proposed elimination of the redevelopment program.
With state and local government revenues shrinking throughout California, planners are increasingly looking to the federal government – and especially transportation funds – to pay for local planning efforts, especially if they involve infill and transit-oriented development efforts. But the two major possible sources of funding – the transportation reauthorization bill and the climate bill – are both stalled with little hope of passage anytime soon.
The climate bill has been caught, at least for the moment, in the crossfire of the immigration debate. So let's get back to that later and focus instead on the bill that ought to have no trouble passing: the transportation reauthorization bill.
Since Supreme Court Justice John Paul Stevens announced his retirement a few weeks ago, he has been hailed - and reviled - as the Court's "great liberal voice" of the past couple of decades. But especially in land use, Stevens' legacy rests with not only his ardent support of government regulatory power, but also his skill in mustering five votes, on a pretty conservative court, in favor of aggressive use of land use regulation.
The old saying in government is that in order to understand what's going on, you've got to follow the money. In local planning throughout California, that's becoming increasingly easy to do. Local government revenues - property tax, sales tax, development fees, redevelopment funds - are in steep decline.
The distance between California's growing budget problems and California's ambitious environmental protection agenda continues to increase.
The consequences of the state's chronic budget deficit – currently $20 billion per year or more with no end in sight – continue to chew up everything and everybody in its path: local governments, transit agencies, the prison system, welfare recipients, school districts.
Arnold Schwarzenegger has always been a Republican with a twist. As the governor enters his final year – attempting to deal both with economic woes and an ambitious environmental agenda – it appears that nothing has changed. He is going after the California Environmental Quality Act (CEQA) in his own way. It's legacy time for the governor. For better or worse, the Schwarzenegger approach to skinning CEQA may be part of his legacy.
If predictions about the impact of global warming are even half right, a lot of us are going to be quite literally swimming – or at least wading – through our daily lives in 30 or 40 years. Yet in the current debate about how the state should approach "adaptation" strategies, all parties are crouched in their typically unhelpful postures.
California government never fails to amuse. Gov. Arnold Schwarzenegger appears poised to eliminate his own Office of Planning and Research (OPR) and nobody – not even the state's planners – is rushing to the beleaguered office's defense. Yet throughout Sacramento, vultures are hovering, because while OPR itself may not be worth saving, the carcass appears to have value.