July 31, 2011 - From the July, 2011 issue

Demise of Redevelopment In California Will Be Litigated

Gov. Jerry Brown and the Legislature finally approved a budget that eliminated redevelopment agencies in California. Or did they? The Legislature passed two bills, one of which, ABx1 26 suspends RDA activities, dissolving RDAs effective October 21, 2011. The second bill, ABx1 27, allows RDAs that make payments to the state to stay in business. While RDAs decide whether or not to "opt-in," the California Redevelopment Association (CRA) and the California League of Cities are suing the state to overturn the two laws. To decipher the tactics and future of redevelopment, TPR presents the following interview with CRA Executive Director John Shirey.


John Shirey

TPR last interviewed you in February, when the prospects for redevelopment were dim, but not hopeless. In June, however, the Democratic Legislature and governor signed a budget that directly impacted CRAs. What do you believe the impact of the budget will be on CRAs across the state of California?

The final budget included two trailer bills, one of which abolishes redevelopment agencies in California. The second bill says they can live on if they come up with large sums of money, which we are terming "ransom payments," to stay in business. We think that both those bills are unconstitutional. If there is a ray of hope here, it's the fact that they are unconstitutional, and we will be challenging them in court.

What will be the essence of your legal challenge to these two trailer bills?

That these bills violate the will of voters, who, in November of last year, voted for Proposition 22. Proposition 22 protected local government funds and very specifically called out redevelopment funds for protection from the state, which has previously taken or redirected those funds. Proposition 22 said that the state can no longer take those funds and redirect them for state purposes. Those two pieces of legislation very directly violate Proposition 22, which has provisions in the California constitution.

How did California get to a place where a Democratic Legislature and a Democratic governor resulted in a legislative session that so savaged redevelopment agencies?

It's driven by the state's terrible budget situation and their desperation to come up with anything and everything that they think is a solution for closing that deficit. Sadly, they turned down legislation that we developed that would also provide funding assistance structured in a way that would be constitutional. They chose to fight with local government rather than compromise and work with us. That's probably the most disappointing part of the outcome. Why our state officials think it's preferable to fight rather than work with local government, I don't understand. I'm sure most local officials are equally baffled by their attitude.

TPR interviewed Long Beach Mayor Bob Foster in May, who also was frustrated by the actions of the governor and the Legislature. Mayor Foster made a proposal that he thought would gain bi-partisan support by allowing redevelopment agencies to move forward, focusing more on economic development than they have in the past. What happened to that proposal by Mayor Foster and the building trades?

That proposal was never seriously considered by the Legislature. One reason was that it was fairly complex. We took some of the ideas and turned them into a proposal, SB1X 24, which was very simple to understand and straightforward in its implementation. That didn't get serious consideration because it would have given redevelopment agencies extensions on the life of their plans. Clearly, certain staff and officials in the capitol did not want to do anything that would help local government or help local redevelopment agencies, so they also turned down our simpler and easier to understand proposal. None of those efforts were successful in the face of really deep-seated opposition to redevelopment and local government in the capitol.

Much of the discussion during the spring in opposition to the governor's proposal argues that redevelopment should be reformed. But it's unclear what major reforms to redevelopment were actually on the table. Can you elaborate on some of the reform proposals?

We proposed a number of reforms to legislators. Some of the ideas came from legislators, others from our members and board of directors. Currently on the table is SB 450, which would provide reforms to the housing programs administered by redevelopment agencies. A couple of key provisions of SB 450 would limit the amount of money that could be spent on administrative overhead. Another provision would put controls on how long agencies could hold property before developing it. That legislation is working its way toward the governor for signature.

The other reforms we proposed that would have focused redevelopment activities more on state priorities-such as economic development, cleaning up brownfields, or developing affordable housing-have been set aside. We have offered both money and reforms, but those offers have been turned down in favor of draconian measures that are clearly unconstitutional.

As we discussed in our February interview, redevelopment agencies are one of the last remaining economic development tools available in this state. But you also said that economic development was centered on housing and retail. In efforts to preserve industrial land in L.A., the former redevelopment director of CRA/LA, Cecilia Estolano, noted that the city had lost 57,000 jobs over the last 45 years and added a million residents, all with a robust redevelopment agency in place. What gives the public a sense that redevelopment agencies could ever succeed in building economic clusters and long term, high-wage job clusters?

Part of the inspiration for our reform package this year came from those efforts in L.A. In fact, we had included proposals that would assist industrial and manufacturing businesses in California with financing and equipment procurement so those manufacturing and industrial businesses in California could be more globally competitive. Overall, the kinds of things that redevelopment agencies can do to assist industry are fairly modest. Nevertheless, we saw some things that we could help with, and the state turned a deaf ear to those proposals. Those proposal are nowhere to be found right now.

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As a former city manager and now the leader of the redevelopment efforts statewide, is there a political constituency for this kind of investor-led economic development strategy? There doesn't appear to be.

There is a constituency for jobs. Jobs ought to be everyone's priority. Some portion of new jobs ought to come from new innovations and new technology. Perhaps it's unrealistic to think about jobs in terms of the industrial revolution, but we need to move to the new frontier. That's where redevelopment can be helpful, and that's where our focus needs to be.

I continue to be disappointed that our state leaders don't have economic development as part of their priorities. We should be doing what the president has talked about in terms of the innovation economy. If there is any place in this country where the innovation economy can flourish, it is California. The impetus could be there if we had more leadership statewide. We're too focused on the crisis at hand and not focused enough on growing our economy, providing more jobs, and, in the process, helping our governments balance budgets.

What are redevelopment agencies across the state now doing in response to the actions of the Legislature and governor?

First, they are trying to recover from the bitter disappointment that their own legislators would once again turn on them by voting for this legislation. But redevelopment professionals are doing what they always do, which is trying to figure out how they can put together enough money to make these payments so that they can stay alive. They are hoping that our lawsuit against the state will be successful, but, at the same time, they are preparing for the worst in case they have to make these huge payments. They are trying to figure out how to come up with money, but, at the same time, they are canceling projects, they are delaying projects, and they are reducing the scope of projects, which means that there won't be more money going into the economy, supporting more jobs, and getting the economy moving again.

They are in a survival mode. They are trying to figure out how to keep the doors open until they can either get relief through the courts or there is a new attitude on the part of the governor and the Legislature.

Many of the agencies in the months leading up to the action on the budget transferred funds out of their agencies. What is the status of those transfers, and what do you predict will happen with the transferred money?

This legislation gives the state authority to challenge transactions made since January 1, 2011, which I will describe as internal in nature (that is, transfers from the agency to the host city our county or to some other internal agency or organization). If agencies go out of business on October 1, 2011, we can expect the state to attempt to reverse those transactions, no doubt leading to more litigation.

If we have an opportunity to talk again in the late fall what do you think will be on our plate?

Legal actions will on our plate. I wish it were otherwise. I wish that we were talking about how to make redevelopment more important, how to make it more successful, and how to make it play a stronger role in building California's economy. Regretfully, we will be talking about continued disputes between the state and local cities and counties and ongoing litigation.

Mayor Villaraigosa of Los Angeles has stated that he might be interested in taking on elements of Proposition 13, whether or not the governor and the state wish to do so. What are your thoughts on that idea, having served in local government and now leading the redevelopment association?

I was in local government when Proposition 13 passed and saw many of my fellow employees and colleagues shown the door because they got laid off as a result of Proposition 13. As it turned out, that was the least of its damage. Prop 13 has had detrimental effects on California ever since it passed, but I've also grown pessimistic that it will ever change. It continues to be the third rail of politics-touch it and you will die-but I am behind Mayor Villaraigosa in his efforts to try to reform Proposition 13 in a way that will gain public support.

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