When 5.7 million people say they want to shield local funding from grabbing hands – as they did in November -- that should be the end of the story. At least, that's what California's redevelopment agencies would hope after this annus horribilis in the redevelopment world.

First the State Legislature ordered the transfer of $2.05 billion in tax increment, with the majority paid this past May and the balance due this coming May. As a result, redevelopment staff were laid off, projects went dormant, and agencies are wallowing in debt.

"In three or four years we'll be in a very good financial position," said Harry Mavorgenes, Executive Director of the San Jose Redevelopment Agency. "But surviving the next year or two is going to be the challenge."  "Surviving" is how just about every other redevelopment official describes the coming year.

The passage of Proposition 22, the Local Taxpayer, Public Safety, and Transportation Protection Act, has pulled redevelopment away from the brink of a nervous breakdown.  It forbids any further transfers like this year's State's Supplemental Educational Revenue Augmentation Fund (SERAF) payment, which was earmarked last year for school use and next year for funding trial courts. But members of the redevelopment community, especially those at the California Redevelopment Association, are not yet ready to let down their guard.

"Do I think people in the Capitol try to find ways around Prop 22? Certainly I do," said CRA Executive Director John Shirey. "There's no end of creativity under the dome.  I am sure there are people both in the Legislature and in the Department of Finance to get around it."

Agencies are not resting easy either.

"It is a weight off our shoulders, but I am not comfortable that it's going to remain in place for more than a few years," said Long Beach Redevelopment Director Amy Bodek.  "The way the California Legislature is dealing with the budget is pretty abysmal, and they're going to look for band-aid approaches in the future."

On the one hand, the CRA has appealed the May court ruling by Sacramento Superior Court Judge Lloyd Connelly that affirmed the legality of Assembly trailer bill ABX 426 and hopes that a victory will lead to a wholesale refund. On the other hand, the CRA has told its members to prepare to pay up in May, especially because nobody knows when the ruling will come out. And the later it comes out, the more the situation turns in favor of the state.

"My sense is the state's going to drag this on," said Mavorgenes. "Because once we send the money over there, it's going to be very hard to get it back."

If the 2011 payment goes through, it will be a symbol of what Shirey considers the dysfunction of the State Legislature. ABX 426 was passed under the premise that redevelopment funds would at least be earmarked for local schools but in designating the next payment for trial courts, it has become all the more evident that the funding take was simply a matter of offsetting the state's enormous general fund deficit.

"It was clear all along that the reason they took redevelopment money was to simply balance the state budget," said Shirey. "It didn't have anything to do with some motive to help education."

That analysis gets little argument from officials in Sacramento.

"Everyone understands the financial implications of the financial shift," said Marianne O'Malley, director of General Government at the California Legislative Analyst's Office. "No one is pretending that the transaction occurred for reasons other than to offset state General Fund costs." 

Nonetheless, this year's payment has already set up what some in the redevelopment community are saying could turn into a showdown between redevelopment and education interests in the state. In a Dec. 13 update on the CRA website, Shirey noted that the California Teachers Association, which opposed Prop. 22, may be mounting a campaign to once again make redevelopment monies available for schools.

CTA spokesperson Sandra Jackson said that the CTA board has not met since October and therefore has come out with no official statement on Prop. 22's passage. Redevelopment officials say, though, that given the state's fiscal situation, all interest groups should be seeking a long-term solution from Sacramento.

"If all we're going to do is fight like wild dogs over the same small bone, I don't think that anyone's going to be getting ahead," said Scott Ochoa, city manager and redevelopment director of Monrovia.

Even aside from a fight to get around Prop. 22, Shirey said that this year will be "a very difficult year legislatively." He said that the scandal in the City of Bell, an unfavorable audit of the use of housing funds, and unflattering stories in the Los Angeles Times have put a target on redevelopment. He said that the CRA will likely introduce its own legislation designed to acknowledge problems such as misuse of housing funds.

"We intend to have our own reform legislation introduced in January because we just simply think that we should take seriously the issues that are laid out in that report.  We can make some changes in law that might encourage our agencies to do a better job. We can't defend agencies that are spending 50-100 percent on planning and admin." 

 He also said that CRA will try to revive AB 2531 which was vetoed by Gov. Schwarzenegger. That bill was designed to broaden the abilities of the Los Angeles Community Redevelopment Agency to aid job creation and undertake other economic development activities not directly related to land use.

Until those solutions arise, many agencies remain in dire straits. Perhaps surprisingly, the some of the least desperate agencies are those few that refused to make their SERAF payment this year. ABX 426 imposes a so-called "death penalty" on agencies that do not pay, meaning that they are not allowed to embark on any new projects. However, agencies—including those in Monrovia, Placentia, and Richmond—that are in violation say that the state has yet to take any action and that it's largely business as usual.

"As we moved forward throughout the year and nothing happened to us, the state didn't contact us…we became less concerned," said Placentia City Administrator Troy Butzlaff. "Maybe this whole thing would be reversed and we wouldn't have to make this payment at all." Butzlaff noted that his agency has had to cut back on acquisitions and may not be able to assemble parcels for a planned commuter rail station.

However, by proceeding with current projects—and not going into debt—these agencies hope to raise enough new funds that they will be able to make their 2011 SERAF payment in due time. Thus, they hope to clear themselves before the "death penalty" would even become a factor.

"I think at the end of the day, what the state wants is money," said Ochoa. "When we get ours, you'll get yours. And I think that's probably good enough."

While other agencies have had to pay tens of millions of dollars, Ochoa said that his city's refusal to pay was not influenced by peer pressure, nor has it prompted any.

"It was kind of a novelty when the story first broke," said Ochoa. "I don't think that anyone begrudges us. I don't know that anybody admires us. People do what they have to do when they're in crisis."

For those agencies that did abide by ABX 426, the year ahead looks only marginally brighter than the one now ending. One of the more common methods of paying their SERAF payments was for agencies to borrow against their affordable housing set-aside funds. These "loans" have to be repaid within five years, meaning that even if Prop. 22 prevents further takes, the SERAF has become more than a two-year issue.

"While the budget impact was over two years, the effective impact for us is going to be over 7 years," said Long Beach's Bodek.

In some parts of the state where economic fundamentals are looking weak, redevelopment agencies are expecting neither to increase their revenues nor embark on the sort of projects that, proponents say, enables redevelopment to spur local economies. In some places, agencies are focusing on job-creation and not even on development or infrastructure. Private developers are, officials say, essentially on their own.

"If we do anything, it's going to be strictly private financing without any redevelopment assistance" said Gus Duran, interim director of the Stockton Redevelopment Agency.

The Central Valley has been hit especially hard. Duran said that his agency wants to rehabilitate some historic hotels in the city's downtown but that doing so is a long way off.

"I think it's going to be five to ten years, especially for Stockton," said Duran. "It costs us just as much to rehab a building here as it would in the Bay Area, but the incomes are not here for people to buy or rent those apartments."


Contacts & Resources 

Amy Bodek, Executive Director, Long Beach Redevelopment Agency, (562) 570-6615

Gus Duran, Interim Director, Stockton Redevelopment Department, (209) 937-8539

Harry Mavorgenes, Executive Director, San Jose Redevelopment Agency, (408) 535-8500

Scott Ochoa, City Manager, City of Monrovia, (626) 932-5501

Marianne O'Mally, Director of General Government, California Legislative Analyst's Office (916) 319-8315

John Shirey, Executive Director, California Redevelopment Association www.calredevelop.org, (916) 448-8760.