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State Budget May Spare Redevelopment

With negotiations over the 2003-04 state budget ongoing, it appears that redevelopment agencies will avoid the major financial hit proposed in January by the Davis administration. Adjustments to the current 2002-03 budget did move $75 million from redevelopment agencies to school districts. However, a Davis administration proposal for the state to take all unencumbered housing funds from redevelopment agencies went nowhere in the Legislature. The Senate version of the 2003-04 budget approved in late May contained another one-time shift of $250 million from redevelopment agencies to school districts. The Assembly version of the budget contained no shift after Assembly Budget Subcommittee 4 Chairman Rudy Bermudez (D-Norwalk) ordered a proposed $100 million shift removed from consideration. The question of the tax shift away from redevelopment agencies was headed to a two-house conference committee, and could even make it to the table during anticipated Big 5 budget negotiations involving the governor and party leaders from each house. Neither house showed support for the administration's proposal to make redevelopment agencies subject to the Educational Revenue Augmentation Fund (ERAF) property tax shifts permanently. The administration had proposed phasing in the ERAF property tax shift so that about half of redevelopment revenues eventually would be sent to school districts (see CP&DR, February 2003). Local government lobbyists in Sacramento, however, were quick to point out that a budget had not been adopted, so they were not about to slow their efforts to protect local revenues. "We remain on edge because it's never over until it's over," said California Redevelopment Association (CRA) Executive Director John Shirey. "What gives us pause is the bigger issue, and that is the $35 billion to $38 billion budget deficit." Until there is agreement on the budget, state officials could still come looking to local governments for money, Shirey said. Jean Korinke, a lobbyist for the League of California Cities, agreed. "Until the bill is actually signed by the governor, anything can happen," she warned. When the budget will hit the governor's desk is anyone's guess. No one expects the Legislature to complete its work by the June 15 constitutional deadline. But lobbyists and Capitol insiders said they believe a budget stalemate would not extend past July, in part because of a recent state Supreme Court ruling that limits pay for nearly all state employees if the state does not have a budget when the fiscal year starts on July 1. Another factor is pressure from Wall Street financiers, who want as much certainty as possible. Their opinions matter a great deal these days because the budget will likely rely on some form of debt. As the budget debate continued, the state was attempting to peddle $11 billion in short-term notes to cover cash-flow needs, the largest such debt issuance in American history. The concept of shifting property tax increment from redevelopment agencies to schools is not one that Republicans support, said Sen. Dick Ackerman (R-Tustin), vice chairman of the Senate Budget Committee. "When people set up redevelopment agencies, they set up the agencies for a particular purpose, and it's not fair for the state to change the rules on them," Ackerman said. Additionally, new redevelopment agencies are obliged to negotiate with other taxing entities including school districts about the allocation of tax increment, so the state need not get involved, Ackerman said. Redevelopment funding is especially important to cities and counties because establishment of a redevelopment project area allows the local government to keep increases in property tax revenues. This is one of the few ways that cities and counties can boost property tax receipts. Lobbyists said they have found a fairly receptive audience in the Capitol this year. The CRA has emphasized the economic development aspects of redevelopment. "We have a number of legislators who look beyond the critics of redevelopment who see that it creates a lot of jobs, and that it provides housing," Shirey said. Of course, the proposed tax shift away from redevelopment agencies is not the only budget proposal that could impact local governments, although the idea might have the most immediate impact on land use planning and development. The administration's proposed "realignment" from the state to county of many social service responsibilities worth about $8 billion annually has been watered down a great deal. Vehicle license fees (VLF), which go entirely to cities and counties, appear likely to return to their pre-1998 level. The state cut the fees twice starting in 1998 but has "backfilled" the reduced amount to cities and counties. A Davis administration proposal to eliminate the backfill met stiff resistance; however, state lawmakers might attempt to add conditions to the VLF revenues that impact local land use planning. Requiring cities and counties to meet certain housing goals is one possible condition. While the VLF debate involves about $3 billion annually, a proposal to eliminate the state's Williamson Act subventions would have saved the state only $39 million in 2003-04. The governor's May revision reversed course and contained the subvention. Elimination of the subvention in which the state replaces property tax dollars lost by counties because of tax breaks given to owners of farmland and timber land would have most affected poor, rural counties. Shirey and other representatives of local government said they might be willing to accept a one-time financial hit in exchange for future constitutional protection of revenues. Local governments would most like to see that protection come in the form of a constitutional amendment possibly like Proposition 98, which ensures schools get a certain percentage of state spending. During the League of California Cities' first-ever extraordinary session of the general assembly in May, delegates approved a resolution in which the organization promised to support increased local "contributions" to the state budget only if the Legislature placed on the ballot a constitutional amendment protecting local sales and property taxes and VLF revenues. Last year, the League and the California State Association of Counties considered an initiative that would provide this protection. However, it appears that lawmakers on either side of the aisle might be willing to carrying a constitutional amendment. Both Senate Minority Leader Jim Brulte (R-Rancho Cucamonga) and Assemblyman Darrell Steinberg (D-Sacramento) have talked to local government representatives about the idea. How the budget division between Republicans and Democrats will impact local government revenues is unknown. A Republican-prepared budget proposal cut only $500 million from local government revenues, and that was done by eliminating some state mandates, Sen. Ackerman said. Democrats, especially Davis, have been cool to the GOP proposal. Contacts: State Sen. Dick Ackerman, (916) 445-4264. John Shirey, California Redevelopment Association, (916) 448-8760. Jean Korinke, League of California Cities, (916) 658-8245. Assembly Budget Committee website: http://www.assembly.ca.gov/acs/newcomframeset.asp?committee=4
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