11 March 2011
The proposal to eliminate redevelopment agencies by Governor Brown should be of great interest to the housing industry . . . not just cities, counties, school districts and special districts.
The Governor’s budget proposes to:
- Dissolve redevelopment agencies by July 1, 2011.
- Create successor agencies to receive the property tax increment revenues.
- Give local governments alternative methods to promote economic development, including lowering the voter approval threshold for "limited tax increases and bonding against local government revenues to 55 percent."
For this budget year, the Governor proposes that the successor agencies are to pay for the redevelopment agencies’ debt obligations of $2.2 billion. Schools and local governments would continue to receive their required pass-through payments of $1.1 billion per year.
Parts of the property tax increment revenues would offset the State General Fund’s costs for Medi-Cal ($840 million) and trial court funding ($860 million). The remaining $210 million would pay for underlying counties, cities and special districts.
Starting fiscal year 2012-2013 and beyond, the Governor proposes that the successor agencies would continue to pay for the redevelopment agencies debt obligations. County controllers would allocate the remaining property tax revenues to schools and other local governments.
For the housing industry, and in particular, the rental housing industry, the Governor proposes to shift the balances in community redevelopment agencies’ Low and Moderate Income Housing Funds (LMI) to local housing authorities.
Pressure on the rental housing sector to provide for low-income housing could be a tremendous challenge and could lead to new rounds of rent control.
Setting aside the potential dangerous impact of the Governor’s proposals impact on our industry here are some representative questions the Legislature will need to work through during the intense debate on this subject:
- Can redevelopment officials help balance the State General Fund without legislation that dissolves redevelopment agencies in light of recent passage of Proposition 22?
- Can redevelopment agencies continue to issue bonds and create other debts during the time the Legislature debates the issue?
- Will the successor agencies pay for redevelopment agencies’ debts other than bonded debts?
- What is the status of redevelopment agencies’ fully executed contracts with property owners, such as development agreements and owner-participation agreements.
- Who will sit on the surviving agencies and can they make decisions that are harmful to a local government?
- Will cities and counties inherit redevelopment agencies’ powers such as eminent domain following the dissolution of the redevelopment agencies?
- Does the proposed end of the redevelopment agencies mean an end to the requirement to setaside 20 percent of the property tax revenues for low-and-moderate income housing?
- Do some redevelopment agencies have unmet housing obligations that might not be fulfilled if the agencies dissolve? As a consequence, what is the status of approved local government housing elements. Are they now out of compliance as a result of local governments not being able to demonstrate how unmet need will be fulfilled?
- Do local housing authorities have the capacity to assume redevelopment agencies’ housing programs and funding?
Many in the real estate and rental-housing sector have concluded that the Governor’s budget left housing alone. That could not be further from the truth for the rental-housing sector.