John Shirey, executive director of the California RedevelopmentAssociation, believes local governments will be hit with aneffective "double whammy" by the $350 million earmarked in thebudget as a "redevelopment takeaway."

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This takeway, as Shirey describes it, is something he believeswill impact developers and commercial projects in redevelopmentareas, and Shirey says the CRA is contemplating filing a law suitto stop what it believes is an unconstitutional move.

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"We don't' like the $350 million take of redevelopment funds,"says Shirey. "We feel it is not only unconstitutional, it is poorpolicy. Our funds are about the only source of capital right now.When banks won't make loans and projects are sitting idle, to takeaway from redevelopment agencies money that could be invested isthe wrong approach to the economics of the state right now—we needmore investment, not less."

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Shirey adds: "We're still considering whether we're going tobring suit against the state. California's constitution saysproperty tax revenues that are tax increment funds must go toredevelopment agencies, not to bail out the state from its ownfiscal problems."

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The possible suit would seek to overturn the payments, Shireysays, adding, "we would be seeking to show that this raid of fundsis unconstitutional."

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The way it stands, each of the state's individual redevelopmentagencies will have to decide how to deal with paying nearly 8% oftheir share of the toll. And as Shirey puts it, "Some agencies havereserves, some agencies don't."

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The argument has been made that the "takeaway" in the budgetamounts to only about 7.7% of an agency's funds, but "that simplyis a misleading statement," Shirey notes. "Redevelopment funds arein affect spoken for."

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When you consider that 20% of an agency's budget is set asidefor housing, and another 20% agencies must pass through to otherlocal agencies, as well as the large amount of debt that agenciesmust issue, putting them then on the hook for hefty debt servicepayments, "that 7.7% might represent one-third, or one-half, or insome cases more, of what it is that they actually have availablefor discretionary monies," Shirey argues. "When you add it all upthere's a small percentage available for new investment."

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And there are the smaller agencies that don't get much taxincrement to begin with, and typically they are already heavilyleveraged, so "therefore they may not have enough money to maketheir payment."

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Shirey says the CRA is preparing to begin conducting a statewidesurvey of agencies to see just where they stand.

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As it stands, the smaller cities will be on the hook for ahalf-a-million-dollars or more. Davis, in Northern California, forexample, will be required to pay the state more than $650,000 overthe next year. In Southern California in Long Beach, California'sfifth largest city, "it's going to cost us $6.5 million," says citymanager Pat West. "It's going to stop a lot of projects that arefunded and moving forward."

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Additionally, it will curtail the city's redevelopment effortsby all but putting a stop to an envisioning process to find ways tocomplete an ongoing $1 billion renaissance in that city's Downtownthat has been progressing steadily for the past eight years, Westsays. "It's going to stop our ability to be entrepreneurial andwork with businesses and developers," adds West. "Thank God it'sonly one year."

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Starting May 10 of next year redevelopment agencies have to makethose payments, and Shirey argues, it will be a double whammy onthem because declining property values will yield less taxincrement for agencies. "We expect those slowdowns in revenues tobegin this fiscal year," Shirey says.

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For agencies that can't make the payment, they must go into ashutdown, which means they will not be able to undertake newactivities. And that, Shirey notes, means that "Developers will getthe stop sign."

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Each year redevelopment agencies have a target painted on theirbacks, Shirey says."We are worried every year," he says. Lastyear's budget contained no "takeaway" of funds, but, Shirey says,"we've had three in this decade already and there were three in the'90s. Every year it seems like the issue does come up."

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Why does Shirey think redevelopment is such an attractive targetwhen the state is down on funds?

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"Redevelopment is an attractive target because there's moneythere," Shirey answers. "It's the same reason that John Dillingerused to rob banks, because there's money there."

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