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City of Santa Monica, Governor Get Ready to Face Off  

By Ann K. Williams
Lookout Staff

January 27, 2011 -- Cities across California are heading for a showdown with the governor this spring, and Santa Monica is among them. There's too much money at stake for it to be any other way.

The state has to fill a hole in its recession-battered budget, and Governor Jerry Brown thinks he's found a way. His plan includes eliminating local redevelopment agencies, a move that Brown says will free up nearly $2 billion a year.

But the City of Santa Monica wants to keep a good chunk of that money. Last year, redevelopment agency (RDA) net assets for Santa Monica totaled more than $156 million, according to an independent audit prepared for the city.

And just one agency, the Earthquake Recovery Redevelopment Project, earned more than $68 million in tax increment revenue – money generated when property values go up. The redevelopment area -- which encompasses roughly two-thirds of the city -- generates revenues by directing increases in property assessment taxes to the earthquake redevelopment fund.

Santa Monica plans to invest $283 million in earthquake RDA projects, on top of $300 million it's already invested. If its plan goes through, that totals more than a half billion dollars for a city of fewer than 90,000 residents.

So it's no wonder City officials are digging in their heels.

“There's no question that the state budget is in a world of hurt,” Santa Monica Mayor Richard Bloom told The Lookout, adding that the state's cash-strapped social programs “need to be addressed quickly.

“I commend the governor," Bloom said, "but $1.7 billion [in savings for the state] is simply not worth it compared to the opportunities that would be lost.”

Bloom's figure -- $1.7 billion -- is what he says the state will gain annually by eliminating RDAs.

Bloom and other Santa Monica officials argue that the economic stimulus and job creation spurred by local redevelopment projects will help the state more than pumping more property tax dollars into its coffers. (See "Santa Monica Officials Alarmed by Governor's Plan to Axe Redevelopment Agencies," January 13, 2011)

Not so, says the governor.

RDAs siphon off 12 percent of the state's property tax dollars, according to his figures, and they then spend them locally, leaving schools and counties across California the losers.

Brown wants to restructure the way local redevelopment is funded to make tax distribution fairer throughout the state.

He laid out his plan in the Tax Relief and Local Government portion of the summary of his proposed budget for fiscal year 2011-12.

“The focus on redevelopment agencies is missing the larger picture,” H. D. Palmer, Deputy Director for External Affairs at the California Department of Finance told The Lookout.

Likening Brown's plan to “a three-legged stool,” Palmer said eliminating redevelopment agencies is just one component of a larger plan to give localities the means to build up their infrastructure, while making sure property tax dollars are parceled out fairly.

The other two legs are getting rid of enterprise zones – a step that wouldn't affect Santa Monica – and a proposition to lower the voting threshold from two-thirds to 55 per cent to pass measures raising money for local development.

Brown's summary sketches out his interpretation of the philosophy behind redevelopment agencies, along with a quick history lesson.

From their beginnings in 1945, RDAs were meant to address blight, he says. Along the way, laws were changed to let RDAs tap into property tax increases – increases that were presumably the result of the RDAs' community improvements.

But as property values in redevelopment areas have risen due to inflation, RDAs have gotten a continually larger slice of the pie, leaving counties, school districts and community colleges in the dust.

“Over the 40 or more years of life for a typical RDA, this shift of revenue can dwarf base property tax revenue,” the summary reads.

In fact, property tax revenue going into Santa Monica's earthquake RDA far exceeds the non-RDA property tax revenue the City receives.

The governor's proposal is an attempt to fix what he sees as this kind of imbalance.

But Santa Monica officials don't see their actions as problematic.

When asked whether the city's RDA is addressing blight, Bloom answered “One of the problems is that very term.”

The philosophy driving RDAs has changed over time, he said. While improving blighted areas might have been “an initial driver decades ago, since then, the definition has been expanded.”

Current earthquake RDA proposals are “community building projects” he said, things like a new library, parks and affordable housing, projects “high on the City's and residents' list of priorities.”

Indeed, one of the things RDAs are supposed to spend money on is affordable housing, according to Brown's budget summary.

“What the governor's budget is talking about is other cities,” Bloom said. “Criticism of commercial projects, or money doesn't get spent at all, or some small cities are ill-equipped to manage redevelopment projects.

“But in Santa Monica, we're doing it right,” he said.

“There might be better ways of doing things,” Bloom added. “But the governor is not talking about reform, he's talking about eliminating RDAs.”

The projects Bloom is talking about in Santa Monica will be funded under agreements between the City and the earthquake RDA.

The largest RDA in Santa Monica was adopted immediately following the 1994 Northridge earthquake.

The money was intended to pay for “affordable housing, retrofitting, community revitalization, preventing future damage,” said Andy Agle, Santa Monica's director of housing and economic development.

It was “about damages from the earthquake and recovering from the earthquake,” he said.

Since the earthquake RDA was established, it's helped pay for a new main library building, the purchase of 13 acres of the RAND Corporation property, the Civic Center parking structure, and shoring up Palisades Bluffs.

In addition to the projects Bloom cites, the City wants to use earthquake RDA funds to build more parking structures, give Santa Monica High School $56 million to build new athletic facilities it will share with the community, and enhance Expo line stations.

The City is moving quickly to safeguard these plans after Brown fast-tracked his budget and announced he wants the legislature to pass it in March.

Two weeks ago, in a hastily called special meeting, the City Council reviewed a set of agreements between the City and the Santa Monica RDA. The council's action was designed to lock in projects before the state legislature can act. The governor's budget allows for “successor agencies” to pay off existing contractual obligations.

“We believe that that creates a bona fide contractual obligation,” Agle said. “Who knows how the state is going to look at it, especially since the state's trying to get all the money it can.”

It is not the first time the City makes such a move. Eight years ago, the City sold the six public Downtown parking structures and shifted several major projects to the City's Earthquake Redevelopment Agency when Gov. Gray Davis unveiled a plan to preclude redevelopment agencies from incurring future debt.

The City's move safeguarded $100 million later used to rehab the Downtown parking structures, assist in building a new Main Library and the new Civic Center Parking structure and shore up the Palisades Park bluffs. (See "City Moves to Safeguard $100 million from State Cuts," January 7, 2003)

As they did eight years ago, municipalities across the state are once again banding together to fend off the governor’s plans. The League of California Cities, an association of city officials, has threatened to file suit if the state axes RDAs.



While improving blighted areas might have been “an initial driver decades ago, since then, the definition has been expanded.” Richard Bloom

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