Blog

When I was mayor of Oakland, I built a lot of good things. I liked redevelopment. Didn’t quite understand it; seemed kind of magical. It was the money that you could spend on stuff that they wouldn’t otherwise let you spend.

— California Governor   (and former Oakland Mayor)  Jerry Brown, quoted on NPR.

Oakland’s operations budget just shrank by $26 million.  What is the City going to do about it?  That’s a big part of what was at stake in the Redevelopment Agencies’ lawsuit against the State, which the State won today.

Here’s what happened:  California has about 400 redevelopment agencies.  Their mission is to clear and replace blight and to provide low and moderate income housing.  The Oakland Redevelopment Agency, like many others, is run by the City Council, whose members are also directors of the agency.  Although  Oakland has not yet published a Redevelopment Agency Budget for 2011-12 (and it isn’t clear to us if the City Council has adopted such a budget), the Oakland Redevelopment Agency Budget for 2010-11 was about $127 million. By law, redevelopment agencies are funded primarily by “tax increment,” the portion of property taxes generated by increasing the assessed value of redeveloped property.  Planned redevelopment projects in Oakland include the Coliseum and MacArthur BART transit villages and Oakland Army Base development.  A new A’s stadium has been discussed as a potential redevelopment project if the A’s do not leave for San Jose, although there is some doubt about whether there could be sufficient funding for any significant portion of a stadium.

But Oakland didn’t just use it’s redevelopment funds for tearing down and building things.  About $26 million per year from the Redevelopment Agency goes toward Oakland’s operational expenses.  RDA funds pay for 17 police officers, large portions of the City Council and Mayor’s offices, more than 10 employees each in the City Administrator’s and City Attorney’s offices and 83 employees in CEDA.  All told, for 2011-12, RDA funds are budgeted to pay for 159 FTE’s outside the Agency.

For years, the legislature would routinely reroute tax increment monies to the State to help balance California’s budget.  So in 2010, the agencies sponsored, and the voters passed, Proposition 22, which amended the State Constitution by prohibiting the State’s  “raiding” of redevelopment funds.

To balance this year’s, and future years’ budgets, the California legislature passed two redevelopment-related bills.  The first (AB 26X1)  abolished redevelopment agencies effective October 1 of this year, stopping new projects and rerouting the tax increment not needed for existing agency debt to schools and other districts.  The second (AB27X1) exempted cities and counties from the dissolution  if they made annual payments to the state to be allocated among schools and districts.  According to the State Department of Finance, Oakland’s payment for 2011-12 would be $39.6 million.  Clearly, AB27X1 was intended to mitigate the impact of AB26X1.  We understand Oakland planned to pay this out of redevelopment funds.

This morning, the California Supreme Court issued its ruling upholding the abolition of the agencies.  But it also invalidated the mitigation measure as a violation of Proposition 22.

Regardless of what one thinks of the redevelopment process or the Oakland RDA, this seems to constitute an enormous hit to the City’s General Purpose fund.  The $26 million loss is more than 2 1/2 times the amount of the recent, failed parcel tax.  Put differently, the total budget for the mayor, city council, city administrator, city clerk and city auditor totals about $24.7 million.  The loss of redevelopment dollars the City planned to use for operational expenses is even more than that.

Throughout 2011, Mayor Quan has repeatedly warned of the dire consequences of having to make the payments required by the now voided   AB27X1.  But the recently released Adopted Policy Budget for the City (warning — large, slow-loading file) does not appear to contain any contingency for losing the RDA altogether.  It has been clear at least since the Supreme Court’s hearing that this was a distinct possibility.  Oakland needs to hear from its leadership what the plan is to fill the void.