CITY HALL — Santa Monica officials will scramble to determine the fate of $267 million in high-priority redevelopment projects in the wake of a California Supreme Court decision Thursday that allows the Legislature to dissolve redevelopment agencies across the state.
The court took opposing stances on two pieces of legislation passed earlier this year with the intent to fill a $1.7 billion hole in the state budget on the backs of redevelopment agencies — organizations created under state law to reform blighted areas.
Those agencies get their funding through tax pass-throughs, or portions of tax money that would otherwise go to fund schools, police and fire departments or other local public services.
Under the terms of the legislation, money for all projects under contract prior to Jan. 1, 2011 was safe. The remainder would be up for grabs unless cities chose to pay what many called “ransom payments” to the state for the right to keep the redevelopment agencies open.
Santa Monica sought to protect its Redevelopment Agency by drafting an agreement in August 2010 for what was originally $283 million worth of projects including the Pico Neighborhood Library, renovations on the Santa Monica Civic Auditorium, an early childhood education center, two fire stations and a $57 million overhaul of Santa Monica High School.
That agreement was fully consummated at the Dec. 13 City Council meeting when the council approved the transfer of $267 million in funding for construction and several affordable housing projects.
It seems city officials were ahead of the curve.
When word of Gov. Jerry Brown’s Jan. 1 cutoff became public, City Manager Rod Gould told the Daily Press, “Sometimes it’s good to be lucky, and sometimes its better to be good. This time, it’s a little of both.”
Now, city officials will have to figure out if those projects, which are in various stages of development, are safe given the State Supreme Court’s decision on the two bills.
The first, Assembly Bill 1X 26, allows the state to dissolve redevelopment agencies and keep the tax revenues that fund them. The court had no issue with that, calling the bill “a proper exercise of legislative power.”
Eliminating the agencies would save the state more than $1 billion in this year’s budget by keeping tax revenues that otherwise get passed on to the agencies, said H.D. Palmer, spokesman for the California Department of Finance.
That money, comprised of property tax money, will go to fund K-12 schools. It will not constitute and increase in funding, however, because an equal amount will be shifted to fill the budget gap for the 2012 fiscal year, Palmer said.
The court did not, however, uphold the second bill, AB 1X 27, which permitted redevelopment agencies to stay in business if they paid the state to benefit schools and special districts.
These “ransom payments,” as they were known in City Hall, were deemed unconstitutional under Proposition 22, an initiative passed in 2010 which authors hoped would prohibit state grabs of local funds.
Axing that component will mean more property taxes for schools, Palmer said, although not necessarily an increase in funding unless voters pass a proposed tax increase in November 2012.
The safety of Santa Monica’s projects depends on the strength of the contractual obligations that city officials initiated in August 2010.
“That’s what we need to go through in great detail. We need to determine whether or not any of those projects were affected,” Gould said.
Projects will move forward in the interim, regardless, Gould said.
“We believe that we have the right and responsibility to continue progress on those projects that are underway,” Gould said.
While the immediate impacts of the decision are unknown, the long-term loss of the Redevelopment Agency will deal a hefty blow to projects in the city, including affordable housing.
The agency provided financing for 950 units of affordable housing in the city over the last decade, said Andy Agle, director of Housing and Economic Development at City Hall.
As such, redevelopment represents the second largest funding source for affordable housing in Santa Monica, next to the federal government.
“Having a significant source of funding for affordable housing is critical,” Agle said. “This is an expensive place to live, and it’s really because of redevelopment that we’ve been able to create so much low- and moderate-income housing.”
The fight for redevelopment isn’t over yet.
California legislators are already rallying in support of redevelopment agencies, promising to find another way to bring the agencies back.
Assembly Speaker John A. Pérez (D-Los Angeles) released a statement saying that the Assembly was “disappointed” that the courts blocked the creation of replacement redevelopment agencies.
“Despite the court’s action blocking our creation of smaller (agencies) that protected affordable housing, we remain committed to finding affordable housing solutions and making smart economic development investments in our local communities,” Pérez wrote.
That gives some hope to Jim Kennedy, the executive director of the California Redevelopment Association, the organization that represents the over 400 agencies in California.
“What we know from the legislative record very clearly is that the legislature never intended to abolish redevelopment,” Kennedy said. “We need to find some way to keep redevelopment in place so that it can continue to address jobs, economic development, affordable housing, transit and all of the kinds of things that redevelopment does well.”
Opponents of the move, like Board of Supervisors Chairman Zev Yaroslavsky, came out in favor of the court’s decision, saying that redevelopment agencies in the state developed a bad reputation as sources of funding for commercial projects rather than projects that benefited local communities.
“If redevelopment is to continue into the future, it must be based on its original purpose — to end blight,” Yaroslavsky wrote in a statement.