Cities in California are ready to sue the state over a redevelopment trailer bill the Legislature passed last month that opponents say contains unconstitutional sales and property tax clawbacks.
Last week, the League of California Cities board unanimously voted to sue the state over the constitutional validity of Assembly Bill 1484, legislation that authorizes the state Department of Finance to "clawback” city sales taxes and city property taxes to satisfy the state's funding demands imposed on legally separate redevelopment successor agencies by AB 1484.
The Legislature approved the bill June 27.
The legislation demands local successor agencies, formed after the dismantling of RDAs, to make payments to local taxing agencies, such as the county or schools, or have sales tax payments suspended to cities by the state Board of Equalization.
A deadline was set for July 12 for cities to make the payments but has now been pushed back to the middle of August. The state dissolved the agencies to tackle its deficit last year and anticipates netting more than $3 billion by the action.
Redevelopment agencies were used by cities to build affordable housing, clean up blighted areas and create jobs.
The process has been more than a little confusing, local officials told the Daily Journal.
"It is totally understandable the confusion in this area. The changes in redevelopment are unclear for all. The deadlines keep changing, the rules keep being altered and there is such divergent interpretation of all aspects of the dissolution,” San Mateo City Manager Susan Loftus wrote in an email to the Daily Journal.
In San Mateo, the city will likely lose some properties it purchased with its redevelopment funds such as the vacant Kinko's site at Fifth Avenue and Claremont Street.
The city will not be able to afford to buy it at fair market value, Deputy Mayor David Lim said.
"It is an already bad situation and we are going to lose properties,” he said. He does not anticipate, however, the city losing any core services due to the dissolution of RDAs.
In San Carlos, the city's Wheeler Plaza mixed-use residential project is at risk because two of the five parcels in the downtown project area were purchased by the city's RDA, City Manager Jeff Maltbie told the Daily Journal.
"It has been difficult,” Maltbie said about winding down the agency. "The laws implemented are not very well thought out. It is difficult to understand the specifics of all these actions although we understand the spirit of it.”
Cities contend the state cannot touch local tax revenue after the passage of Proposition 1A in 2004 and Proposition 22 in 2010.
Questions on oversight
Linda Koelling, former mayor in Foster City, is now on the city's oversight committee for its RDA successor agency.
While she is no longer on the City Council, she has fought the state's actions against "raiding” local tax revenue for the past two years.
"The whole process for dismantling is absurd,” Koelling told the Daily Journal.
She is also concerned by the extended powers the state Department of Finance has been given with the legislation.
As she sits on Foster City's oversight committee to find ways to protect city assets while meeting state mandates, she says that ultimately the state will have final say on dissolution and that local oversight boards will be mostly ignored.
She questions why oversight boards are even needed if the state continues on its current path.
"It is disappointing the way different taxing agencies have tried to take from cities,” she said.
The state's actions, she said, will cripple Foster City's ability to build affordable housing and create jobs.
"What they are doing is making the rules as they continue to play the game,” Koelling said about Gov. Jerry Brown and state lawmakers as they tackle California's $9.2 billion deficit.
Local legislative support
The bill was supported locally in the Assembly by Fiona Ma, D-San Francisco, Jerry Hill, D-San Mateo, and Rich Gordon, D-Menlo Park.
The bill went a long way toward helping the state meet its budget this year, Gordon said.
"AB 1484 was a trailer bill that included over $3 billion in budget solutions, and was a critical piece of the recently-signed state budget,” Gordon wrote the Daily Journal in an email.
For Hill, the decision to support RDA dissolution will ultimately help the state's schools avoid drastic cuts.
"We prioritized economic development when times were good. But when times go bad, that money is needed to maintain our schools. The state decided it can no longer backfill education,” Hill told the Daily Journal.
Cities in San Mateo County did well with redevelopment, he said, and the Legislature will work on restoring some of the housing components lost with the dissolution of redevelopment.
In the state Senate, Leland Yee, D-San Francisco/San Mateo, and Joe Simitian, D-Palo Alto, also supported AB 1484.
The league's Executive Director Chris McKenzie contends the legislation will jeopardize public safety and other critical city services.
"We also strongly believe the sales tax and property tax clawback provisions violate the Constitution and are inconsistent with other parts of AB 1484 that declare that redevelopment successor agencies are separate and apart from city governments,” McKenzie wrote in a statement.
Koelling thinks the state needs to figure out other ways to solve its deficit rather than "raid” local tax coffers.
"Local government cannot be the fall guys for the inept governing in Sacramento,” she said.
AB 1484 gives the state Department of Finance the authority to divert local sales and property taxes and impose $10,000 per day fines, putting local public safety and other vital services at risk while ignoring the state Constitution, according to the League of California Cities.
The state's nonpartisan Legislative Analyst Office reported that projections of redevelopment revenue in the budget is overly optimistic given the amount of local redevelopment debts that must first be paid.
The LAO further characterized AB 1484 as a significant expansion of the authority of Department of Finance, including the unprecedented ability for it to delay and divert local sales and property taxes to satisfy the state's cash demands.
"In my opinion, this entire exercise brought on by the governor's decision to continue to take funds from local government is terribly confusing and a waste of time and money. It takes from one agency and gives to another, the old shell game, pass it back and forth. He should concentrate on the pensions issue and trying to encourage companies to do business in California, not raising taxes,” Koelling said about Gov. Brown.
The state's haste to pass the budget trailer bill without consulting with cities will promote more conflict and litigation, McKenzie said.
"We had hoped this year that state and local officials could pull together and fashion a trailer bill that truly worked for cities while balancing state needs. Unfortunately, the passage of this flawed measure ... without the involvement of local officials in its drafting will only perpetuate conflict at a time when a more collaborative approach would have promoted unity,” McKenzie wrote in a statement.
Redevelopment agencies were funded by property tax revenue in designated areas. With dissolution, tax revenue, unless obligated by contracts such as bond payments, is supposed to be distributed to other local agencies such as school or fire districts.
Bill Silverfarb can be reached by email: email@example.com or by phone: (650) 344-5200 ext. 106.