Redevelopment fallout reverberates across Sonoma County

The looming elimination of redevelopment agencies has been greeted in Sonoma County with wildly divergent reactions.

Local government officials express horror, warning of "carnage" to budgets, delays for critical community projects and setbacks for economic recovery efforts.

School officials are encouraged, expecting to enjoy a larger slice of the property-tax pie.

And critics of redevelopment are downright giddy, convinced the agencies strayed far from their original blight-fighting mission, threatened private-property rights and now deserve their fate.

But one thing everyone seems to agree on is this: California's breakup with its 400 redevelopment agencies promises to deeply impact Sonoma County and dramatically alter the priorities and funding of local government.

"This is a big hairy deal," said John Haig, the Sonoma County government's redevelopment manager.

As Highway 12 winds south through the scenic Sonoma Valley, it passes picturesque vineyards and forested hillsides that hide luxurious estates.

Just outside the city of Sonoma, however, the scenic vistas recede, blocked by a jumble of modest homes, aged apartments and businesses crammed near the busy roadway.

The county formed a redevelopment area in 1984 to address basic needs. Highest on the priority list has long been sidewalks, streetlights and parking, improvements aimed at making the highway safer for residents and visitors and more attractive to businesses.

It's been a slow process. After years of planning, the second phase of that plan is ready to go. County supervisors last year committed up to $13 million for the project. Bids are nearly ready to go out.

But the demise of redevelopment has left the project frozen; money set aside for it is at risk of being diverted, and longtime backers are disheartened.

"It is difficult for me to accept that a modest dream of sidewalks along our main community thoroughfare may never be realized," said Steve Cox, chairman of the committee that offers input on the project area.

Many projects at risk

Gov. Jerry Brown's plan to eliminate redevelopment agencies as a way to free up property tax revenue to help solve the state's budget crisis is roiling communities across the county.

A new police station in Cloverdale. A homeless shelter in Guerneville. A new Highway 101 overpass in Santa Rosa. Upgrades to the aging Healdsburg Memorial Bridge.

These and dozens of other projects and programs across the county are in jeopardy following a state Supreme Court ruling two weeks ago. That decision upheld the legislation that directs the abolishment of the agencies but also blocked a compromise plan that would have allowed them to continue operating on a smaller scale.

That has left local officials scrambling to understand the legal and financial implications. They're racing to meet a Feb. 1 deadline to dissolve their agencies, while pleading for more time to wind down operations in an orderly way.

"We're lobbying for a stay of execution and we're getting ready to inject ourselves," said Bill Arnone, chairman of the board.

In the meantime, proponents are talking up the accomplishments of redevelopment, questioning the fairness of shifting local property tax to the state, and eyeing ways to preserve the core services.

But redevelopment is proving to be a difficult client to defend. Its complex taxing scheme is not easily understood. Examples of abuse, such as the $17 million Palm Desert spent rehabbing a golf course, don't help, either. Nor do audits that conclude the lack of accountability and transparency at redevelopment agencies creates a "breeding ground for waste, abuse and impropriety," as state Controller John Chiang reported.

Put that track record up against the competing demands for schools and the state's massive budget deficit, and it's easy to see that redevelopment advocates are in a tough spot.

"We don't have a redevelopment champion outside of city officials, who are perceived as whining, and developers, who have been perceived as enriching themselves," said Dave Gouin, the city's director of economic development and housing. "And everybody else doesn't understand it."

Agencies created in 1945

Normally, when property values rise, all taxing agencies - counties, cities, schools and fire districts - receive a proportionate share of the revenue. In redevelopment areas, most of the increase, known as the "tax increment," goes to the redevelopment agency.

There are 10 such agencies in Sonoma County, one for each city and one for county government. The county operates three such areas, in Roseland, along the lower Russian River and in the Springs area north of Sonoma.

This year, the areas are expected to generate just over $51 million in tax-increment revenue for redevelopment proposes. That's after $19 million in "pass throughs" designed to alleviate past concerns raised about redevelopment's increasing share of property taxes.

Of the $51 million, $33 million has already been distributed this fiscal year. In the wake of the court ruling, the remainder will go into a trust fund that county officials have established to handle debt payments, some of which stretch for decades.

It's unclear how much that debt service actually is, and thus precisely how much other taxing agencies in each redevelopment area would stand to gain, said Donna Dunk, interim Sonoma County auditor-controller-treasurer-tax collector. "If redevelopment doesn't get it, somebody does get it," Dunk said.

But how much and to whom? "Those are the questions we don't have any answers for right now," she said. "And it won't be known until we get more guidelines from the state."

Generally speaking, revenue will be retained to pay off existing debts, such as long-term bond payments for work already completed or under way. Projects to which the agencies are already committed, defined as those with an "enforceable obligation" to a third party, will also be allowed to go forward.

But everything redevelopment agencies had on their drawing boards stays there. It doesn't matter how much money the agency budgeted, earmarked, or otherwise agreed to spend on them. If the money wasn't committed as of Jan. 1 of last year, it is at risk.

That's of particular concern to communities like Healdsburg, which just borrowed $13.5 million through a bond sale last year, but hasn't formally committed it to specific projects. They include $1.4 million for the rehabilitation of the Healdsburg Memorial Bridge and $1 million for the first phase of an $8 million recycled-wastewater irrigation system that was expected to begin construction this year.

A $1.5 million beautification program to accommodate pedestrians, reconfigure parking, create "pocket parks" and add trees along Center and North streets also is on hold, according to assistant City Manager Mickaelian.

They city has spent $300,000 preparing for the project, but has no construction contracts.

"That set of plans becomes a $300,000 paperweight, potentially. How is that effective use of taxpayer money?" Mickaelian said.

An agreement for the city to use $5.5 million in redevelopment money to buy the old Foss Creek School site for permanent use as a community center also is in limbo.

Schools benefit debated

Schools are the largest beneficiary of property tax revenue, absorbing about 50 percent of every dollar. Whether the demise of redevelopment agencies will help schools much or at all is a matter of strenuous debate.

School districts are theoretically protected from the loss of property tax revenue from redevelopment by Proposition 98, which set minimum funding levels for schools. But in recent years, as its budget woes have mounted, the state hasn't had the money to pay.

The state has failed to pay $18 billion it promised to schools since 2007, and Brown has said he will cut $4.8 billion from schools if taxpayers don't approve his package of fall tax hikes, said Steve Herrington, Sonoma County superintendent of schools.

The governor has said that if redevelopment goes away and local property taxes are allowed to flow naturally to schools, the state would be off the hook for about $1 billion in education payments this year.

That does not guarantee that the state will increase its funding for schools, argue redevelopment supporters.

"The schools are not going to get one more dime out of this," said Kathleen Millison, city manager of Santa Rosa.

That may be true in the short term, but long term the change will provide an "indirect boost" to schools, Herrington said.

"It's not a windfall to us," he said. "I think it's a structural correction that 20 years from now will be a benefit to schools, if they don't go back and amend it again."

Some argue that the cities and county will benefit, as well, from the demise of redevelopment agencies because they will see additional tax revenue flow to them for general uses. Gouin, the Santa Rosa redevelopment director, contends that any increase will be minuscule compared with the $12 million the community may lose.

That's the amount of the agency's available cash, money it attempted to hurriedly commit last year to projects in a process the state says is invalid. Precisely how Santa Rosa's redevelopment agency assets will be liquidated will be up to a seven-member oversight board dominated by representatives of the underlying taxing districts whose revenues were diverted to fund the agency. They include county government, schools and Santa Rosa Junior College.

Each of 10 "successor agencies" designated to take over from the soon-to-be-defunct redevelopment agencies will have its own oversight board.

Santa Rosa will get two seats on its board, one appointed by the mayor and one representing the employees of the former agency. The board's responsibility is to "dispose of all assets and properties of the former redevelopment agency" in a way that is "in the best interests of the taxing entities."

Herrington, as schools superintendent, said he will be sitting on the county oversight board. He said redevelopment agencies have done much good work in their communities and made them better places.

But he believes they have strayed from their intended purpose of eliminating blight. He notes that in many cities, a significant number of general government employees' positions are funded through redevelopment revenue.

"It wasn't meant to pay for salaries. It was meant to fund projects, capital improvements," Herrington said.

Purpose has shifted

That perception that redevelopment has drifted from its original purpose is well founded, said David McCuan, professor of political science at Sonoma State University.

As cities and counties have faced budget pressures, they've leaned more heavily on their redevelopment funds, finding new and novel ways to fund staff throughout their organizations, McCuan said.

Critics say redevelopment has also strayed by getting overly cozy with developers.

"What started out as a remediation tool for blighted areas, slums really changed a lot over the years, and the redevelopment money got used for a lot of other things, primarily subsidizing new for-profit development," Kay Tokerud told the Santa Rosa City Council.

She and others seized on efforts by Simon Properties Group, the largest mall owner in the nation, to get the city to use redevelopment dollars from the Gateways area to support a $27.6 million parking garage as part of a mall facelift.

That never happened, but the agency did loan $2.2 million to the mall last year to help it upgrade its utilities and attract new tenants. The majority on the City Council supported the deal, but others dubbed it a "sweetheart deal" for a huge corporation.

Now the debate is shifting to what should replace redevelopment agencies, if anything. Assemblyman Jared Huffman, D-San Rafael, said he would support legislation to keep the agencies functioning, but with stricter guidelines.

"Everyone agrees that redevelopment dollars should not be handed to strip mall developers," he said.