Brown Redevelopment Fund Seizure Pushes City Tax Increase

Last month, the City Council of Culver City, California, gathered steps from where “The Wizard of Oz,” “Gone With the Wind” and other Hollywood classics were filmed, to declare a state of fiscal emergency and ask voters to raise the sales tax by half a cent for 10 years.

Culver City, whose famed Metro-Goldwyn-Mayer studios now bear the name of Sony Pictures, is struggling to make up $7.5 million a year in lost revenue. The money flowed through a city agency responsible for rebuilding decayed neighborhoods until Governor Jerry Brown killed redevelopment programs statewide and snatched their tax funds to cut California’s deficit. The higher sales levy would generate $8 million a year.

“Unfortunately, the economy is still slumping and the state was once again successful in pushing its budget issues onto the backs of local government and we have a very significant and real problem,” Jeff Muir, Culver City’s chief financial officer, told the council at a July 16 meeting.

Three California cities -- Stockton, Mammoth Lakes and San Bernardino -- have filed for bankruptcy protection in the past six weeks as the recession and the foreclosure crisis depleted property-tax revenue and forced cuts in staff and services.

Stockton and San Bernardino officials said the state raid on redevelopment funds helped push them into bankruptcy court. At least six cities, including Culver City, have put measures on the November ballot to raise sales taxes to make up the loss of redevelopment money.

Proposition 13

The California Legislature authorized cities to create redevelopment agencies in 1945 and their use expanded significantly in the 1970s after voters approved Proposition 13, according to the state Legislative Analyst’s Office. The proposition capped real-estate levies at 1 percent of the most recent sale price, restricting local authority over property taxes.

However, California still allowed municipalities to designate redevelopment zones to erase urban blight with government assistance for new projects. Rising property values in those areas brought higher taxes. While most cities funneled that money back into the redevelopment areas, some put it toward expenses that other cities cover with general operating funds.

Brown, a 74-year-old Democrat, was faced with an estimated $26.6 billion budget deficit last year when he signed legislation abolishing about 400 redevelopment agencies statewide. The law took effect in February.

‘Slush Fund’

“Redevelopment was, in large part, a wasteful slush fund that subsidized things like golf courses and mermaid bars instead of funding essential services,” Brown spokesman Gil Duran said in an Aug. 2 e-mailed statement. “Therefore, it seems illogical to blame local financial woes on the termination of a wasteful program.”

Projects ranged from rehabilitating buildings in downtown San Diego to refurbishing a golf course in Palm Desert. The city of Parlier used redevelopment money to buy a daycare center, state Controller John Chiang said in a 2011 report.

In Culver City, the $7.5 million in lost funds went to support its redevelopment agency or its goals, Muir said. About $3.3 million paid for 24 employees in housing and redevelopment positions, while another $1.2 million helped pay for police, code enforcement and graffiti removal, Muir said.

“While there were instances of questionable costs or investments in certain jurisdictions highlighted during the ‘campaign’ to eliminate redevelopment, we feel strongly that Culver City was an example of how redevelopment was meant to work,” he said in an e-mail response to questions.

Parking, Restaurants

Some redevelopment funds went for public parking and downtown infrastructure improvements that “have resulted in it becoming a very popular restaurant and entertainment destination in the region,” Muir said.

“While the city acknowledged the need to wean the general fund from the RDA support it received, it was anticipated the city would be able to ease into this over a number of years, and it was not anticipated that all of the support would go away,” Muir said at the council meeting.

The elimination of redevelopment wasn’t the only reason to pursue a sales-tax increase, Muir said. The city’s decision was also driven by the impact of the recession, he said. Losing the redevelopment funds caused city leaders to consider the proposal sooner, he said.

“Cities are already struggling with labor costs, retirement obligations, retiree medical costs,” David Skinner, managing principal at the law firm Meyers Nave LLP in Oakland, said in a telephone interview. “It just makes it all the more difficult for cities to do what people expect them to do.”

Wine Country

In Fairfield, near Napa Valley’s wine-growing region, the city council on July 26 agreed to ask voters to add a 1 cent sales tax to tackle a $7.75 million deficit following the loss of $35 million annually in redevelopment funds.

“They ended redevelopment to secure funds to deal with their budget mess,” David White, Fairfield’s director of finance and deputy city manager, said in a telephone interview. “The impact for us has been an organization that’s gone through four to five years of budget cuts and the prospect of future cuts that threaten the life and character of this community.”

Fairfield’s tax would generate $12 million to $13 million “to support local needs that cannot be taken away by the state,” according to the July 26 meeting agenda.

Sales-tax increases are also being sought in Sacramento, the state capital; La Mirada, near Los Angeles; Healdsburg, in the Sonoma County wine region, and Paso Robles, in the Central Coast wine country.

Millions Lost

“We lost $8.5 million over four years to the recession in sales tax,” La Mirada City Manager Tom Robinson said in a telephone interview. “We lost $58 million overnight to the redevelopment kill.”

That included a $30 million loan from the city’s general fund to the redevelopment agency, he said.

The impact of Brown’s decision was felt in San Bernardino, which on Aug. 1 became the third California city since June to file for bankruptcy.

“In my opinion, that was the straw that broke the camel’s back,” City Attorney James Penman told the San Bernardino City Council on July 10, referring to the loss of redevelopment funds. “When that was cut off just recently in the last few months, that was pretty much it.”

Brown’s office disputed Penman’s assertion.

“It’s understandable that some will seek to blame others, but City Hall will have to answer for failing to live within its means,” Duran said in an e-mailed statement at the time.

Stockton, which filed for Chapter 9 protection in June, also attributes its bankruptcy in part on the elimination of its redevelopment agency.

“I don’t think that’s pushing them toward bankruptcy,” California Treasurer Bill Lockyer said in a July 24 interview. “It’s the downturn in the economy principally and there were some local agencies that could shift some money around to meet emergencies from redevelopment and that stopped.”

To contact the reporter on this story: Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editor responsible for this story: William Glasgall at wglasgall@bloomberg.net

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