May Revision and the Redevelopment Dissolution Clean-Up

22 May

On May 14th Governor Brown released the revised state budget for 2012-13. You probably already know that the state’s predicted deficit has ballooned to $15.7 billion (up from the $9.2 billion estimate in the January budget). And you’ve also probably heard that the budget is relying on an estimated $818 million dollars in property tax revenues as a result of the shuttering of the state’s redevelopment agencies.

What’s new with this revision is that the Governor is proposing to sweep all redevelopment housing monies (i.e., funds in addition to the $818 million referenced above) to help address the budget shortfall. Historically, redevelopment agencies were required to set aside 20% of the tax increment funds they collected to spend on providing affordable housing. The budget estimates that there are some $1.4 billion uncommitted dollars in these reserves – and the state wants that money to address its budget shortfalls.

The budget relies on legislation to “strengthen the state’s authority to expedite the transfer of the former” redevelopment agencies’ liquid assets to cities, counties, special districts, and K-14 schools. However, the $1.4 billion figure included in the budget is “subject to considerable uncertainty” according to the Legislative Analysts Office (LAO). Part of the concern is related to the “likelihood that lawsuits will delay distribution” of the funds.

The LAO also notes that the budget problems are likely to be “somewhat larger than the governor estimates.” For one, they note that the administration may be too optimistic about their expected revenues from the state’s former redevelopment agencies. The shortfall could be around “$900 million greater than that assumed by the administration because” of reduced property tax revenue distributions from former RDAs. Likewise, some legislative analysts are saying that the total state deficit may be as high as $17 billion.

There is much uncertainty about the state’s projected revenues and budget shortfalls. What is certain is that there is a long list of budget cuts that will take place if the state can’t address its persistent deficit.

Meanwhile, California’s Department of Finance, recently released proposed budget trailer bill language [PDF] that would clarify numerous elements of ABx1 26, the legislation that dissolved redevelopment agencies (RDAs) on February 1st of this year.

The draft bill ratchets down on cities and attempts to expedite the transfer of cash and other assets to taxing entities like school districts and counties, which have yet to see any windfall from the dissolution of RDAs.

Stay tuned to see how the Legislature reconciles the Brown Administration’s clean-up trailer bill with the Assembly and Senate’s own efforts to modify ABx1 26 and create a new paradigm for economic development and revitalization.

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