Oakland Redevelopment “Gimmick” Fails; City Pays State $32 Million

Monday, May 27, 2013

When Governor Jerry Brown led the charge to kill the state’s 400 redevelopment agencies in 2011, cities, counties and other entities scrambled to avoid transferring the assets to the state, as required by law.

Oakland, already in financial crisis from the crash of 2008, looked to ease its $58 million deficit by selling eight properties, including the Henry J. Kaiser Convention Center, to its own redevelopment agency for $32 million despite warnings that the strategy was illegal.

Oakland Mayor Jean Quan defended the move at the time, saying it’s legal and “it's one of the last gimmicks we have.” Interim City Administrator Lamont Ewell said that without the money, “We would wipe out just about every other service in the city.”

Last week, Oakland succumbed to state pressure and agreed, under protest, to pay $32.4 million to the state and took back the 99-year-old convention center. While the city is still not flush, it was able to put away money in its budget for the not-unforeseen chance that they would have to pay up eventually.   

All state redevelopment agencies were officially dissolved on February 1, 2012, beginning a process of disentanglement that is still ongoing. Before the dissolution of redevelopment agencies (RDAs), they annually received more than $5 billion in property tax revenues. The complex and varied entities had tens of billions of dollars of outstanding bonds, contracts and loans.

Californians pay more than $45 billion a year in property taxes. The revenue is distributed by county auditors to schools, community colleges, counties, cities and special districts. The Legislature authorized them to establish RDAs in 1945, ostensibly for the purpose of allowing cities and counties to target blighted areas for urban renewal, and funded them with “tax increment financing” from property taxes.

Over the years, the nature and scope of RDAs changed, as did the role of property tax revenues after the passage of Proposition 13 in 1978. As Prop. 13’s 1% cap on base property taxes wracked financing of schools, redevelopment funds were regularly shifted to prop them up.

During the debate leading up to passage of the redevelopment legislation in June 2011, redevelopment agencies rushed to issue new debt and transfer assets to other local agencies. The state has been hunting them down and fighting them in court ever since.

In March, the State Controller’s Office took umbrage at the city of San Bernardino’s transfer and withholding of $500 million in assets. The controller took particular objection to the transfer of $108 million to the San Bernardino Economic Development Corp., a nonprofit whose six-member governing board includes three members appointed by the City Council. The city filed for bankruptcy last summer.

The California League of Cities lists 100 redevelopment lawsuits (pdf) on its website, while the Legislature continues to pass new laws dealing with the dismantling of RDAs and the courts sort out the aftermath.

Last month, League of Cities General Counsel Patrick Whitnell told the Associated Press, “I fully expect that lawsuits will continue to be filed for the foreseeable future.”

–Ken Broder     


To Learn More:

Oakland Ordered to Return Millions in Redevelopment Funds (by Matthew Artz, Oakland Tribune)

Oakland Mayor Backs Kaiser Center Budget “Gimmick” (by Matthai Kuruvila, San Francisco Chronicle)

Redevelopment: One Year after Dissolution, Litigation and Dissension (by Jim Miller, Riverside Press-Enterprise)

State Slams San Bernardino in Redevelopment Assets Review (by Abby Sewell, Los Angeles Times)

The 2012–13 Budget: Unwinding Redevelopment (Legislative Analyst’s Office)

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