Saturday, January 22, 2011

The Audacity of Being Jerry Brown

One significant element in the 2011-12 State Budget submitted to the Legislature by Governor Jerry Brown on January 10, 2011, was a proposal to eliminate the local government redevelopment program known as "tax increment financing" and use the funds to offset $1.7 billion of state Medi–Cal ($840 million) and trial court ($860 million) costs.

The State of California invented tax increment financing in 1952. California cities and counties maintain over four hundred TIF districts with an aggregate of over $10 billion per year in revenues, over $28 billion of long-term debt, and over $674 billion of assessed land valuation (2008 figures).

The theory is simple. When a redevelopment project is carried out, it creates an increase in the value of real estate through new investment, new or rehabilitated buildings, for example. This increased site value and investment generates increased property tax revenues. The increased tax revenues are the "tax increment" which is used to repay debt incurred to finance the redevelopment project.

This past week, Brown spent time explaining his ideas to California city officials. One, Yuba City Mayor John Dukes, noted that the governor was being "a little bit hypocritical" given that he lives in a downtown Sacramento loft that was built using redevelopment funds.

According the LA Times:
In show of strength, more than 100 mayors and city council members from throughout California came together Friday to protest Gov. Jerry Brown's plan to shutter their redevelopment agencies, calling it an illegal money grab and warning that they will sue the state if it is adopted.

Standing together with labor activists and business executives at the Sacramento Convention Center, the city leaders said they would vigorously oppose the governor's redevelopment proposal in the Legislature and, if necessary, in the courts....

Evan Westrup, a spokesman for the governor, said later Friday that the state had done a "thorough legal review" of the redevelopment proposal before it was made.

"We are confident that the governor's budget proposal is legally sound," Westrup said. "Redevelopment agencies were created by an act of the Legislature, and they can be eliminated by an act of the Legislature. It's time for all of us, including local government leaders, to set aside narrow perspectives and turf wars and act as Californians first to address the state’s budget deficit."
Ah, well, Brown was Attorney General, so I guess they did a "thorough legal review." But at the same time Brown was elected, 60.7% of the voters gave him instructions in the form of Proposition 22 which put the following language in the State Constitution:
SEC. 25.5. (a) On or after November 3, 2004, the Legislature shall not enact a statute to do any of the following:

(7) Require a community redevelopment agency (A) to pay, remit, loan, or otherwise transfer, directly or indirectly, taxes on advalorem real property and tangible personal property allocated to the agency pursuant to Section 16 of Article XVI to or for the benefit of the State, any agency of the State, or any jurisdiction; or (B) to use, restrict, or assign a particular purpose for such taxes for the benefit of the State, any agency of the State, or any jurisdiction, other than (i) for making payments to affected taxing agencies pursuant to Sections 33607.5 and 33607.7 of the Health and Safety Code or similar statutes requiring such payments, as those statutes read on January 1, 2008, or (ii) for the purpose of increasing, improving, and preserving the supply of low and moderate income housing available at affordable housing cost.
I don't know if the Legislature could work around that language. Maybe. But....

It's sufficient language put in our Constitution by the voters three months ago to keep things tied up in court for over a year. In other words, while over the next few years we ought to examine tax increment financing created by the Legislature in 1952, Brown stuck this local revenue theft gimmick into his budget proposal that has no chance to reduce the 2011-12 General Fund budget deficit if for no other reason that it will be tied up in court.

It's unfortunate that Brown has wasted this critical time by not presenting a balanced budget that would show us what the problem is. I will reiterate what the difference would be between his gimmicky General Fund expenditure budget and a real balanced budget:

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