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SACRAMENTO—Among all the hoopla surrounding California’s $143-billion-85-days-late budget—the state is faced with a $15.2 billion budget deficit, and Gov. Arnold Schwarzenegger recently warned that the state could be forced to seek $7 billion in emergency federal loans— may be yet another hand waiving objection.

John Shirey, executive director of the California Redevelopment Association, believes local governments will be hit with an effective “double whammy” by the $350 million earmarked in the budget as a “redevelopment takeaway.”

This takeway, as Shirey describes it, is something he believes will impact developers and commercial projects in redevelopment areas, and Shirey says the CRA is contemplating filing a law suit to stop what it believes is an unconstitutional move.

“We don’t’ like the $350 million take of redevelopment funds,” says Shirey. “We feel it is not only unconstitutional, it is poor policy. Our funds are about the only source of capital right now. When banks won’t make loans and projects are sitting idle, to take away from redevelopment agencies money that could be invested is the wrong approach to the economics of the state right now—we need more investment, not less.”

Shirey adds: “We’re still considering whether we’re going to bring suit against the state. California’s constitution says property tax revenues that are tax increment funds must go to redevelopment agencies, not to bail out the state from its own fiscal problems.”

The possible suit would seek to overturn the payments, Shirey says, adding, “we would be seeking to show that this raid of funds is unconstitutional.”

The way it stands, each of the state’s individual redevelopment agencies will have to decide how to deal with paying nearly 8% of their share of the toll. And as Shirey puts it, “Some agencies have reserves, some agencies don’t.”

The argument has been made that the “takeaway” in the budget amounts to only about 7.7% of an agency’s funds, but “that simply is a misleading statement,” Shirey notes. “Redevelopment funds are in affect spoken for.”

When you consider that 20% of an agency’s budget is set aside for housing, and another 20% agencies must pass through to other local agencies, as well as the large amount of debt that agencies must issue, putting them then on the hook for hefty debt service payments, “that 7.7% might represent one-third, or one-half, or in some cases more, of what it is that they actually have available for discretionary monies,” Shirey argues. “When you add it all up there’s a small percentage available for new investment.”

And there are the smaller agencies that don’t get much tax increment to begin with, and typically they are already heavily leveraged, so “therefore they may not have enough money to make their payment.”

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

As it stands, the smaller cities will be on the hook for a half-a-million-dollars or more. Davis, in Northern California, for example, will be required to pay the state more than $650,000 over the next year. In Southern California in Long Beach, California’s fifth largest city, “it’s going to cost us $6.5 million,” says city manager Pat West. “It’s going to stop a lot of projects that are funded and moving forward.”

Additionally, it will curtail the city’s redevelopment efforts by all but putting a stop to an envisioning process to find ways to complete an ongoing $1 billion renaissance in that city’s Downtown that has been progressing steadily for the past eight years, West says. “It’s going to stop our ability to be entrepreneurial and work with businesses and developers,” adds West. “Thank God it’s only one year.”

Starting May 10 of next year redevelopment agencies have to make those payments, and Shirey argues, it will be a double whammy on them because declining property values will yield less tax increment for agencies. “We expect those slowdowns in revenues to begin this fiscal year,” Shirey says.

For agencies that can’t make the payment, they must go into a shutdown, which means they will not be able to undertake new activities. And that, Shirey notes, means that “Developers will get the stop sign.”

Each year redevelopment agencies have a target painted on their backs, Shirey says.”We are worried every year,” he says. Last year’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.”

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

“Redevelopment is an attractive target because there’s money there,” Shirey answers. “It’s the same reason that John Dillinger used to rob banks, because there’s money there.”

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