The Morning Report
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Major news organizations around the state are talking about new Governor Jerry Brown’s now-official proposal to eliminate the state’s 400 redevelopment agencies, including, presumably, San Diego’s. (I say presumably because sometimes state redevelopment rules don’t apply to San Diego.)
I wrote last week about how the plan would dramatically reshape how San Diego pays for everything from police and fire services to big buildings.
Check out a readable summary of the proposal directly from Brown’s budget. It’s clear Brown believes redevelopment agencies have strayed from their original purpose of eliminating blight to improve rundown neighborhoods.
Relieving blight is intended to be accomplished in a limited time. [Redevelopment agencies] were not intended to become a permanent source of business subsidies.
Of course, Brown’s proposal has a long way to go before it becomes a reality. Here are four questions I’d like to answer as the effort moves forward.
1. When’s Mardi Gras?
Brown’s plan eliminates redevelopment agencies once the state Legislature approves it. That means, Brown’s plan says, the agencies would be unable to create “new contracts or obligations” after that point.
It also means redevelopment agencies have a limited window to get stuff done under the existing rules. If this proposal is serious, expect agencies to scramble to put projects in the pipeline.
Peter Detwiler, staff director for the California State Senate’s Committee on Local Government, called it “the Mardi Gras effect” after the bacchanal celebration that occurs prior to Lent.
“It’s sort of human nature if you know there’s a deadline that’s going to eliminate or curtail something, then you might do more of it before you run out of time,” Detwiler said.
Detwiler added the last time there was a major change in state redevelopment law in the mid-1990s, there was an explosion of activity before the new rules took effect.
Brown says he wants the agencies to disband by July 1. It’s questionable that’s enough time for the city to push through two big local projects planned to use redevelopment dollars: a new Chargers stadium and another Convention Center expansion. But there are some major efforts, such as a waterfront revitalization plan, that could happen by then.
Also, there’s likely to be some wrangling over what’s considered an existing contract or obligation. Detweiler says he believes that will mean outstanding bond debt or existing contract with a developer. Other steps in the development process, such as the completion of environmental reviews, likely wouldn’t meet the standard.
2. What Happens to the Chargers?
Eliminating redevelopment also kills San Diego’s ability to build a new downtown football stadium, right?
Not necessarily — although the city would have to do it differently.
Public funds for the new downtown Chargers stadium were supposed to come from the downtown redevelopment kitty, a funding source eliminated under Brown’s plan.
But Brown does throw in a sweetener to local governments. He’s proposing a ballot measure that would lower the threshold for voter-approved special taxes for building projects to 55 percent instead of a two-thirds majority.
This way, local governments could still build redevelopment projects if voters give them the OK. A special tax for a Chargers stadium, for example, would have a better shot of passing with a lower threshold for approval.
My colleague Scott Lewis has written about how the two-thirds requirement for a special tax has made stadium financing in California next to impossible.
3. Will Wall Street Explode?
As we reported last week, redevelopment agencies have more than $28 billion in outstanding bond debt. Under Brown’s proposal the agencies go away. What happens to that $28 billion?
Brown and his budget director Ana Matosantos took pains to say that every contract and bond obligation will be met. However, Matosantos didn’t offer specifics on whether a city or a brand new city-created agency would assume the debt.
“It’s whatever ends up being the successor agency that’s going to continue to meet the debt service obligation,” Matosantos said at a press conference on the governor’s budget.
One red flag jumps out for bond holders. Redevelopment agencies can have different bond ratings than cities. Someone who bought highly rated, or low risk, debt likely won’t be pleased if an agency with a lower rating assumes the obligation.
4. What About Prop. 22?
In November, state voters approved Proposition 22, which was designed to block the state’s ability to take redevelopment dollars. Last year, the state took $1.7 billion.
How does its passage affect Brown’s plan?
Brown doesn’t seem to think it will at all. The logic is this: If you eliminate redevelopment agencies, you’re not taking their money. You’re simply allowing the property taxes the agencies collect to go to cities, counties and schools, where they would otherwise.
The Legislature, Matosantos said, could eliminate the agencies with just a majority vote.
“Redevelopment agencies are a creature of statute,” she said. “If the legislature eliminates redevelopment agencies, then it’s just property tax.”
Please contact Liam Dillon directly at firstname.lastname@example.org or 619.550.5663 and follow him on Twitter: twitter.com/dillonliam.