BILL ANALYSIS
SENATE LOCAL GOVERNMENT COMMITTEE
Senator Patricia Wiggins, Chair
BILL NO: SB 93 HEARING: 3/4/09
AUTHOR: Kehoe FISCAL: No
VERSION: 1/22/09 CONSULTANT: Detwiler
REDEVELOPMENT SPENDING FOR PUBLIC WORKS
Existing Law
Redevelopment agencies use their extraordinary statutory
powers to eradicate blight, promote economic development,
and provide affordable housing. To guide these activities,
local officials must adopt a plan for each project area.
Every five years, a redevelopment agency must adopt an
implementation plan.
State law generally prohibits redevelopment agencies from
constructing residential, commercial, industrial, or other
buildings. However, redevelopment agencies may construct
the foundations needed for those buildings. Further, a
redevelopment agency can pay for public works projects if
the agency's legislative body (e.g., the underlying city
council or county board of supervisors) determines that:
The public works benefit the project area or the
immediate neighborhood. When substantially all of the
land in a project area is publicly owned, the
legislative body can determine that the improvement
benefits an adjacent project area.
No other reasonable means of financing are
available.
Paying for the public works helps eliminate blight
inside the project area (or provides affordable
housing) and is consistent with the agency's
implementation plan.
State law declares that these determinations are "final and
conclusive." Redevelopment plans adopted after October 1,
1976 and redevelopment plans amended after that date to add
territory to a project area must provide for the
acquisition of the land or the construction of the public
facilities.
When the underlying city or county or another public
corporation pays for public works, a redevelopment agency
can contract to reimburse the city, county, or other public
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corporation and pay off the contract with property tax
increment revenues. When a parking authority, joint powers
entity, or public corporation pays for public works and
then leases the property to the underlying city or county,
a redevelopment agency can contract with the city or county
for reimbursement.
Background
In May 2005, the San Diego City Council adopted a
redevelopment plan for the 990-acre Grantville
Redevelopment Project Area. In July 2005, San Diego County
sued, alleging that the area didn't meet the statutory
tests for physical blight and economic blight, that the
area wasn't predominantly urbanized, and that officials
failed to show that redevelopment was essential to
eliminate any blight.
In June 2008, the County and City agreed to a settle the
lawsuit challenging the Grantville Project Area. The San
Diego Redevelopment Agency will pay nearly $31.4 million
from the Grantville Project Area to the City of San Diego
for downtown transit line improvements. The Centre City
Development Corporation (the quasi-government entity that
manages redevelopment in downtown San Diego) will pay the
County of San Diego nearly $31.4 million for the North
Embarcadero Project Improvements on County-owned property.
The Centre City Development Corporation reported that the
payments to the County will be 80% of the property tax
revenues that the County would have received from the
Grantville Project Area. The July 2008 formal settlement
agreement noted that state law allows redevelopment
officials to pay for public works outside the project area
if local officials make determinations.
At Senator Kehoe's request, the Attorney General reviewed
the settlement agreement and raised two issues. First, the
AG questioned whether Grantville funds should pay for the
downtown trolley projects. Second, the AG noted that the
settlement agreement "might also be construed as an effort
to bypass legal restrictions on the use of redevelopment
funds to settle litigation." In September 2008, a local
citizens group sued the City over the settlement agreement.
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The case is pending; there is no trial date.
Proposed Law
Before a redevelopment agency can pay for public works
either inside or outside a project area, Senate Bill 93
requires the agency's legislative body to find, based on
substantial evidence in the record, that:
Significant blight remains in the project area.
The blight can't be eliminated without the public
works.
There is no other reasonable means of financing the
public works, including general obligation bonds,
revenue bonds, special assessment bonds, and
Mello-Roos Act bonds.
Paying for the public works is consistent with the
redevelopment agency's implementation plan.
SB 93 repeals the statutory declaration that local
officials' determinations are final and conclusive. The
bill repeals the October 1, 1976 time restriction, thereby
requiring any redevelopment agency that wants to pay for
public works to include the land and facilities in its
redevelopment plan. SB 93 repeals the authority for a
redevelopment agency to pay for a public corporation's
public works projects. The bill limits the financing of
public works paid for by a parking authority, joint powers
entity, or public corporation to contracts before January
1, 2009. SB 93 inserts consistent references to publicly
owned land, buildings, facilities, structures, or other
improvements.
Comments
1. Over the line . The controversy over San Diego's
Grantville redevelopment project shows how easy it is for
local officials to use current law and pay for public works
that aren't related to eliminating blight. Spending over
$30 million on transit and parks projects miles outside the
Grantville project area strains credibility. If blight is
the gateway to redevelopment, then how can local officials
commit decades of property tax increment money to public
works projects that don't eradicate physical and economic
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blight in the project area that generates the revenues? SB
93 reins in profligate redevelopment spending on public
works by requiring local officials to link the projects to
the blight. By requiring explicit findings, backed by
substantial evidence in the record, SB 93 restores public
confidence that redevelopment money will be well spent in
those blighted areas that will really benefit from
redevelopment's help.
2. Inside, outside . By tightening current law, SB 93 may
keep local officials from funding legitimate public works
projects that benefit residents and property owners in
redevelopment project areas. Just like current law, SB 93
applies to public works projects regardless if they are
inside or outside a redevelopment project area. If
legislators want to prevent another Grantville situation,
they would be wise to tighten the statutory criteria for
funding public works outside the project areas that
generate the revenue. However, the bill's tougher criteria
also apply to public works projects located within project
areas. The Committee may wish to consider whether there
should be two sets of criteria: the current statutory
criteria would apply to infrastructure inside a project
area, while the bill's tougher criteria would apply to
public works projects outside the project area.
3. More sunlight, more disinfectant . One criticism of the
Grantville settlement agreement is that the residents,
property owners, and taxpayers had very little information
about the agreements' terms before local officials acted.
They were surprised by the agreement that will send over
$30 million from Grantville to the City of San Diego and an
identical amount from downtown redevelopment efforts to the
County of San Diego's property. The Committee may wish to
consider requiring public notice and public hearings before
redevelopment officials can enter settlement agreements
over the adoption of redevelopment plans and plan
amendments. As Justice Louis Brandeis wrote nearly a
century ago, "Sunlight is said to be the best of
disinfectants."
4. Too tough ? When a blighted neighborhood needs better
streets, new water lines, or sewer improvements, the
infrastructure doesn't stop at some artificial boundary.
Streets, sidewalks, and pipes connect neighborhoods to one
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another, to downtowns, and to distant water and wastewater
facilities. Sometimes it makes sense for a redevelopment
agency to pay for a new a fire station that's just outside
the project area that generated the property tax increment
revenues. The Committee may wish to consider whether SB 93
should make some concessions for infrastructure projects
that are outside redevelopment project areas but near
enough to primarily benefit the project area's residents
and property owners.
5. Coronado redux ? From the mid-1980s until the
mid-1990s, the Legislature experimented with a
redevelopment reform to protect the State General Fund.
When forming a new redevelopment project area, local
officials had to convene a "fiscal review committee" and
show the other local governments how the diversion of
property tax increment revenues would affect them. Based
on this information, local officials could bargain for
"pass-through" payments that would allow them to keep some
of the future property tax increment revenues that would
otherwise go to the redevelopment agency. Legislators
later learned that county officials would threaten to sue
redevelopment agencies over their "blight" declarations,
but withdraw the threatened litigation if the redevelopment
agency gave the county government a satisfactory
pass-through payment. A project that wasn't really
blighted could slip through once the county dropped its
suit. The most striking example of this practice occurred
when Coronado officials declared all of the civilian
property in the city to be "blighted," and then reached
pass-through agreements with the other local governments,
except for the schools. Because the State General Fund
backfills school districts' property tax losses, the
schools were unaffected. In effect, Coronado used State
General Fund money to subsidize its redevelopment efforts.
The major 1993 redevelopment reform bill swept away the
fiscal review committees and replaced the local bargaining
with fixed pass-through formulas. The Grantville
settlement agreement looks a lot like the abandoned fiscal
review committees in which a county sues over the "blight"
designation, but withdraws its challenge after the parties
reach a fiscal agreement that benefits the county. Without
stronger criteria for paying for other local governments'
public works projects, redevelopment officials may follow
the Grantville model and return to bargaining that fails to
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protect the State General Fund.
Support and Opposition (2/26/09)
Support : American Federation of State, County and
Municipal Employees AFL-CIO, California Rural Legal
Assistance Foundation, Western Center on Law & Poverty.
Opposition : Unknown.