Who Has the Final Say on What's Good for Your City?

The office of the state's Legislative Analyst - which provides the Legislature with non-partisan analyses of fiscal and policy issues - has released its take on the end of redevelopment. And it turns out that the end is not an end at all, but only the start. (You can read the entire report here.)

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Early on, the report lays out the sorry history of the state's financial chaos, starting in 1972:

(P)assage of Chapter 1406, Statutes of 1972 (SB 90, Dills) created a system of school "revenue limits," whereby the state guarantees each school district an overall level of funding from local property taxes and state resources combined. Thus, if a district's local property tax revenues do not grow - due to redevelopment or for other reasons - the state provides additional state funds to ensure that the district has sufficient funds to meet its revenue limit. Second, Proposition 13 in 1978 (and later Proposition 218 in 1996) significantly constrained local authority over the property tax and most other local revenues sources. These measures did not, however, reduce local authority over redevelopment.

Here and elsewhere in the report, the Legislative Analyst's Office (LAO) builds a rationale for the end of redevelopment by implicating redevelopment agencies (and the cities that created them) in the unresolved conflict between the state's guarantee of school funding and the the state's inability to balance its budget.

(Cities have a spectator's interest in the issue of school funding and had nothing to do with the irrationality of the Legislature's fiscal decisions.)

The Legislature could have devised other taxing strategies to achieve school funding equity or given school districts more authority to raise revenues or taken steps to restrain its own spending, but Prop. 13 left the Legislature with limited and politically unappealing options. Flummoxed, the Legislature continued its unsustainable ways, becoming addicted to highly volatile income tax receipts (in good economic cycles) and massive borrowing (in bad times).

By itself, redevelopment had little to do with financing schools or preventing state deficits. Combined with SB 90 in 1972 and Prop. 13 in 1978, however, redevelopment changed in both perception and purpose. From the perspective of the state, redevelopment represented sequestered revenue that might otherwise backfill the state's guarantee of school funding. From the perspective of cities, redevelopment - although limited by the Legislature - provided a sheltered revenue stream in an era of repeated state takeaways of local revenue. As the LAO report tells it:

With fewer fiscal checks and less revenue authority, cities (joined by a small number of counties) no longer limited their project areas to small sections of communities, but often adopted projects spanning hundreds or thousands of acres and frequently including large tracts of vacant land. Some jurisdictions placed farmland under redevelopment. At least two cities placed all privately owned land in the city under redevelopment.

In the LAO's telling, the sins of the few (those two cities and the ambiguous "at least") are called on to justify (in part) the punishment of the many. What's missing is an honest evaluation of California's irrational system of government financing - a system that drove cities to shelter as much local revenue as possible under redevelopment. Cities can be blamed for using the blunt instrument the Legislature gave them. But if all you have is a hammer, as the saying goes, everything looks like a nail.

The Legislature now recognized the growing imbalance between state sovereignty and local autonomy, as represented by tens of millions of dollars in redevelopment revenue the Legislature could not touch. Cities, too, saw protection of municipal revenue as a platform on which larger issues of local control might be presented to anxious voters. In the LAO's account:

Beginning in the 1990s, the state began taking actions in its annual state budget to require RDAs to shift some of their revenues to schools to offset the state's increased costs associated with redevelopment. . . . These state budgetary actions occurred nine times between 1992 and 2011. Concerned about the magnitude and frequency of these budget shifts, redevelopment advocates (along with groups interested in transportation and other elements of local finance) sponsored Proposition 22. Among other things, this initiative measure (approved by the state's voters in November 2010), limits the Legislature's authority over redevelopment and prohibits the state from enacting new laws that require RDAs to shift funds to schools or other agencies.

The LAO fails here to illustrate the actual scope and depth of the citizen/local government coalition that led to the adoption of Prop. 1A in 2004 and Prop. 22 in 2010. These measures were in response to the state's extraction of billions of dollars in local revenues and the multiple failures of the Legislature since 1978 to manage the state's finances and not, as the LAO report implies, primarily to protect redevelopment authority.

In effect, the voters changed the state constitution to constrain the Legislature's reach in order to favor of the kind of government voters actually trusted: their city and city council members.

For worried state legislators and Governor Brown, that constraint had to be weakened, and not because the end of redevelopment will magically end the state's deficit or because new revenues will now suddenly appear. (The end of redevelopment redistributes revenues in ways that will relieve some of the state's education costs and pay off some of the state's deficit. But both of those outcomes come at the expense of cities.)

The LAO's report makes for illuminating reading for anyone concerned about the future of California's cities:

Redevelopment in 2011 bore little resemblance to the small, locally financed program the Legislature authorized in 1945. Statewide, the RDAs received more property taxes in 2011 than all of the state's fire, parks, and other special districts combined and, in some areas of the state, more property taxes than the city or county received. Redevelopment also imposed considerable costs on the state's General Fund because the state backfilled K-14 districts for property tax revenues distributed to RDAs. Overall, redevelopment cost the state's General Fund about as much as the University of California or California State University systems, but did not appear to yield commensurate statewide benefits.

Here is the heart of the issue. Who will determine what benefits you, your neighborhood, and your city more? You might naively think that the government closest to you and your neighborhood might make that choice, that elected officials you can see at city council meetings might be best able to see your needs clearly.

"Statewide benefits" means whatever the Legislature wants it to mean, subject only to constitutional initiatives and the state Supreme Court. The LAO report notes (with apparent concern) that:

Shortly after passage of [the legislation ending redevelopment], proposals began to surface to separate some of redevelopment assets for use for statewide objectives, such as affordable housing, economic development, and environmental programs. These proposals in turn, raise difficult policy and fiscal questions for the Legislature to consider. Specifically, which level of government should make the decisions over these assets? . . . The proposals pose equally difficult fiscal issues. Specifically, ending redevelopment shifts some funds that formerly would have been allocated to RDAs to other local agencies. Many cities relied on RDA funds to pay city expenses and now are experiencing fiscal stress due to the redirection of these resources. Under ABX1 26, some of this fiscal stress would be offset by the city receiving its share of the distributed cash and assets. Reserving some of this cash and assets for statewide objectives, in contrast, would reduce the funds the city would receive from the dissolution of redevelopment.

"Statewide objectives" - not local interests - are now paramount, even when the objectives of the state Legislature are poorly framed, developed in a culture of political back scratching, and adopted with no public participation at all. But the LAO could hardly speak to these fundamental issues. The LAO is non-partisan, but it's (by necessity) biased toward the interests of the Legislature

Redevelopment in its final form wasn't pretty or even wholly defensible, except as a strategy to keep government revenues as local as possible. State constitutional initiatives - Prop. 1A and Prop. 22 - weren't entirely in the best interests of all Californians, except as ways (failures it turned out) to limit further damage to cities and neighborhoods after repeated cycles of local revenue takeaways by the state.

And now the Legislature - while the LAO mildly frets - is already looking at new ways to further its own interests at the expense of your city and your neighborhood.

D. J. Waldie, author, historian, and as the New York Times said in 2007, "a gorgeous distiller of architectural and social history," writes about Los Angeles on KCET's SoCal Focus blog.

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People in glass houses shouldn't throw stones. LA County is the massive net beneficiary of State largess -- though in unexpected and probably counter-productive ways.

In the aftermath of Prop 13, Los Angeles County allocated only a quarter of its property taxes to fund its schools, with the remainder going to cities, the County, and special districts. Elsewhere (Orange, San Mateo, Santa Clara, Monterey Counties, for example), twice as much -- 50% -- of all property tax was allocated to schools, with the remainder going to our cities, counties, and special districts. Because of this drastic imbalance, a disproportionate amount of State tax goes to backfill your LA County schools, while we fund our own. Yup, here in San Mateo County, over half of the school districts are completely locally funded -- including gritty South San Francisco -- while, as California taxpayers, we are also backfilling San Marino, Malibu, Rancho Palos Verdes, Santa Monica, and other wealthy neighborhood schools.

Of course, this has flipped around to bite your wealthier districts. Only Beverly Hills is locally funded in LA County -- and it (the second most expensive zipcode in the nation with $2K/kid of oil revenue) can only come up with $12K/student ... about the national average, but well ahead of the rest of LA school districts. We, meanwhile, raise the same $12K as Beverly Hills, while the truly wealthy districts around us raise $14-18K per student. San Marino and Palos Verdes eat your hearts out!

Meanwhile, Malibu-Santa Monica, there's hope. Thanks to the redevelopment dissolution, you may, finally, kick into locally funded ('basic aid') status this year. Your local property taxes may, finally, start to propel your schools forward (increasingly, as the mountain of redevelopment debt is paid down). Enjoy! In a year or so, you'll catch up to South San Francisco. (Oops, no, you won't -- they had even more redevelopment than you. Sorry.)

True local control will only occur when voters can actually change allocation of local funds to those areas they support. Now we have a shell game in which everyone claims to be paying for education, while siphoning moneys off to satisfy their own electorate. (Ever wonder where "ERAF" went? The so-called Educational Revenue Augmentation Fund that cities and counties screamed about in the 90's? It was all repurposed for Vehicle License Fee reduction backfill -- and now, in LA County, goes right back to the cities and county. But do you see "Vehicle License Fee" backfill in any budget? Nope. Just schools. Which aren't getting any revenue augmentation from it at all.)

Local control? LA, you'll need to swallow the bitter pill of local responsibility as well. But, once you swallow it, you may find that being out from under the yoke of the public purse is worth it.