Sacramento’s housing earthquake: Part 2, tomorrow is another day

January 4, 2012 | California, Law, Local budgets, Proposition 13, Real estate taxes, Redevelopment, US News

By:David A. Smith

 

[Continued from yesterday’s Part 1.]

 

Yesterday’s post opened the New Year with the earthshaking news, reported among other places in the Los Angeles Times, that the California Supreme Court both upheld the California legislature’s elimination of the state’s redevelopment agencies (RDAs) and invalidated the reconstitution alternative the legislature had offered.

 

Are we in trouble now?

 

Elimination of RDAs and their stream of Housing Set Aside Funds means that new affordable housing production in California will either have to cost less, to provide fewer non-housing social services (thereby allowing more hard debt), or to target higher-income poor people (thereby allowing rents closer to LIHTC cap).  Any way one slices it, it’s a seismic shift that should immediately impact California’s Qualified Allocation Plan.

 

Maybe rethink the strategy?

 

“All counties will benefit in the sense that they will ultimately receive this money back as general fund money,” Williams said, although some have their own redevelopment agencies or agreements with city agencies to share revenues.

 

“What happens now is the state subsidizes redevelopment agencies by backfilling losses to school districts when schools lose money to redevelopment,” Williams said.

 

Bulldozed

(Bob Chamberlin / Los Angeles Times)

Fred Reyes and his children Natalie, 4, and Nicholas, 7, stand in the vacant lot where his mother’s home of nearly 40 years had stood before the city of Santa Ana acquired it and knocked it down. “You’d think by now something would have been done” with the land, Reyes said.

 

That’s politically irrefutable, and it’s a shame the RDAs failed to see this coming.  Evidently they were blinded by their own herd extinct.

 

Nothing to see here, folks

 

Steven L. Mayer, a lawyer for the redevelopment agencies and the League of California Cities, declined to second-guess their legal strategy to sue to overturn both the law eliminating redevelopment and the compromise measure to require revenue sharing.

 

Three men who lost big: Scott McKenzie of the California League of Cities, Steven Mayer their lawyer, and Ray Kennedy, California Redevelopment Agencies

 

The court decision struck down the compromise, revenue-sharing law on the grounds that it violated Proposition 22, passed by voters in 2010 to limit the state’s fiscal powers.

Others were less forgiving.  As a San Francisco Chronicle story put it:

 

Adding insult to injury, the court used the association’s own law to prove its argument.

 

That law was Proposition 22, passed by voters in 2010, which prohibited state lawmakers from taking funds dedicated to local services to close the state’s budget deficit. It was sponsored by the association to protect, in part, redevelopment – but turned out to be the program’s undoing.

 

See my Proposition 22?

 

“It backfired pretty massively,” said land use attorney Michael Kiely, a partner at the Sheppard Mullin firm in Los Angeles. “It kind of reminds me of that scene in the movie ‘Raiders of the Lost Ark,’ when Harrison Ford is facing a guy with a big sword who is waving it around like a maniac, and Harrison Ford just shoots him.”

 

See my ruling?

 

“Hindsight is always 20-20, isn’t it?” Mayer said.

 

An old Wall Street saying comes to mind: Bulls make money, bears make money, pigs get slaughtered.

 

Most redevelopment agencies would have continued to exist if the compromise law had been upheld, an alternative the agencies vastly preferred to being shut down altogether.

 

The RDAs decided they were too potent to compromise, so they played all or nothing with their propositions and litigation … and they lost both ways.

 

We’ve got to win one of two, don’t we?

 

All seven justices agreed that the legislature’s elimination of RDAs was Constitutional; six of the seven likewise agreed that the back-door reprieve measure (AB 1X27), which would have allowed RDAs to survive I they revenue-shared with the state, was Unconstitutional under the California constitution.

 

Chief Justice Tani Cantil-Sakauye dissented on that part of the ruling, complaining the court majority read Proposition 22 too broadly.

 

The chief dissenter

 

While I have yet to study the chief justice’s dissent, the passage quoted is not promising:

 

“Although the system of redevelopment in this state has been far from perfect, it certainly is worth noting redevelopment projects like the restored Public Market Building in downtown Sacramento, the Bunker Hill project in downtown Los Angeles, Horton Plaza and the Gaslamp Quarter in downtown San Diego, HP Pavilion in San Jose, and Yerba Buena Gardens in downtown San Francisco,” the Chief Justice wrote.

When a lawyer is citing policy benefits, you know she’s on weak ground because she’s not citing the law. 

 

She called the compromise bill an attempt to “balance the benefits of continued redevelopment with the need to fund vital local government services.”

 

Remember, it’s five billion a year the RDAs had been controlling, and it is being recaptured by the state to fund schools.

 

Was there a better spend than school funding?

 (Bob Chamberlin / Los Angeles Times)

The San Gabriel Valley city of Irwindale spent $87 million from 2000 to 2008 but produced only 42 homes and 62 rehabilitated units. Some of the money was spent on this industrial land next to a gravel pit and warehouses, a site that officials now acknowledge was unsuitable for housing. New plans call for a hot-sauce factory.

 

Advocates for the agencies are expected to return to the Legislature to ask lawmakers to recreate them, probably under some sort of revenue-sharing agreement.

 

Good luck with that.

 

“We hope the Legislature goes back to fix this,” said Chris McKenzie, executive director of the League of California Cities. “This is a tool the state cannot afford to lose.”

 

I’ve seen this political disbelief before. 

 

It didn’t happen … did it?

 

Seventeen years ago, in a statewide referendum, the voters of Massachusetts rescinded local authority to enact rent control.  Among the rent control diehards of Cambridge and Brookline, there was the same shock and astonishment that something so cataclysmic could occur – and if it did somehow occur, then it must somehow be undone.  This could not be happening.

 

Some legislators who have long been critical of redevelopment said Thursday they would oppose any effort to revive the agencies.

 

Having taken the challenge, spent the political capital, and won decisively, those who passed the law initially will be in no mood to reverse their previous votes and turn victory into defeat.

 

Not if they have to tackle questions like this one.

A money mystery

(Bob Chamberlin / Los Angeles Times)

A property partly cleared for redevelopment in Lynwood sits fenced and vacant. Officials testified in depositions that they could not fully account for how they had spent millions in affordable housing funds.

 

“Redevelopment has become a cash cow for developers, NFL team owners and big box stores who have been on the public dole for a long, long time, subsidized by these redevelopment funds,” Assemblyman Chris Norby (R-Fullerton) said after the court’s ruling.

 

Norby’s tired of public cash cows

 

The agencies “should have shut up” instead of suing to overturn the laws. “Now they’ve lost it all,” he said.

 

By suing to invalidate both 1X26 and 1X27, the RDAs spurned the compromise that would have let them keep part of a loaf.  Maybe their complete elimination is bad policy.  Maybe it’s overkill, and more than the legislature intended (after all, the legislature did pass the half-a-loaf legislation).  None of that matters any more – the RDAs are gone, and the legislature will not restore them.

 

He suggested that supporters of redevelopment may be fighting a lost cause.

 

“Where will the money come from?” he asked. “The state’s broke.”

 

For supporters of affordable housing, it’s time to accept the new reality.  From this decision there is no going back.

 

Tomorrow … is another day!