Not too long ago, we were writing about the possible demise of redevelopment law in California as a land use planning and policy tool. However, since the Governor made his proposal to eliminate Redevelopment in January, the legislature has responded with tepid support and a discussion of less radical reforms to the system. While the Governor’s proposal is still alive, there is a growing belief that it may never see a vote. The California Planning & Development Report recently published a good summary of where we stand as of today. A synopsis of that is below…for more detail go directly to CP&DR’s website at http://www.cp-dr.com/node/2940. The focus of recent legislation proposals is reform, not elimination, of redevelopment.
SB 286 – A Broad Reform Proposal
SB 286 incorporates a package of redevelopment reform measures developed by the California Redevelopment Agency (CRA). The CRA reports that SB 286 would add specificity to the types of information needed for making findings of blight. The blight finding is one of the primary determinations that must be made before any redevelopment agency can begin the process of establishing a redevelopment area. The new blight finding rule reads as follows:
“This finding shall be supported by empirical and, to the greatest extent feasible, quantifiable evidence demonstrating the prevalence of specific conditions…on specific properties that are so substantial that they cause a reduction of, or lack of, proper utilization of the entire project area. Evidence shall be reasonable in nature, credible, and of solid value. Conclusions not based on documented evidence of specific conditions shall be deemed insufficient.”
The change to the blight finding requirements is very significant. Raising the bar by requiring much more detailed evidentiary showing the project area is so blighted that there is a demonstrable “reduction of, or lack of, proper utilization of the entire project area” will certainly give agencies pause when considering establishing a new project area. This is a much higher standard than the existing provision that says the legislature must simply find that the area is blighted and that it would serve the general health and general welfare of the public. One wonders if, for example, the existing Transbay Redevelopment Plan would have been able to meet this more stringent standard.
In addition, SB 286 would:
- limit the percentage of total land area of a jurisdiction which may be included in project areas (the max would be 25% of total land area of a City);
- exclude the schools’ share of property taxes in new project areas formed after January 1, 2012;prohibit uses of tax increment for specific purposes such as golf courses and never before developed parcels of land if they consist of 20 acres or more;
- prohibit uses of tax increment for the purpose of financing a professional sport stadium, unless the financial assistance is approved by a majority of voters;
- add new requirements to five-year implementation plans and require agencies to focus activities on state priorities such as job creation, cleaning up contaminated property, basic infrastructure needs, and affordable housing;
- require development of performance indicators to measure agency success; require performance audits of agencies and provide funds for those reviews; and specifically prohibit the use of tax increment for non-redevelopment, non-agency operating costs.
These other reforms further respond to the major criticisms of the current Redevelopment Law by ensuring that redevelopment funds are not put towards inappropriate uses or used for greenfield development, that tax revenue is not diverted from educational entities and that there is adequate oversight of the redevelopment process. These additional reforms will likely have a greater impact on suburban or rural cities and counties, and should have a limited impact in San Francisco.
SB 450 – Focus On Affordable Housing Money
A much less sweeping bill than SB 286, SB 450 focuses on the use of affordable housing funds generated by Redevelopment Agencies. The bill would restrict the use of the Low- and Moderate-Income Housing Funds for planning and general administrative expenses. Specifically, only 15% of monies deposited in the housing funds could be used for planning and general administrative purposes. This change would respond to the criticism that only a limited amount of affordable housing money actually gets spent on the acquisition, construction, rehabilitation or preservation of affordable housing.
The bill would also provide funding for audits of redevelopment agency housing programs by the Department of Housing and Community Development, to allow the State Controller to conduct reviews of redevelopment agency audits and recommend suspension of auditors that are not conducting audits in accordance with the applicable standards and guidelines. The bill would also recalibrate the required distribution of affordable housing funds to housing for certain levels of affordability and would also give California courts the power to temporarily prohibit a Redevelopment Agency from issuing debt if they find that an agency has failed to comply with requirements for replacement affordable housing.
An Alternative Proposal
Back in March the CRA announced an alternative to killing redevelopment. CRA still believes its alternative proposal could make it into the final agreement. CRA believes this change alone could raise more money over 10 years than Governor Brown’s plan of elimination of redevelopment altogether. The basic concept CRA is proposing, not surprisingly, keeps the general framework of the existing redevelopment law, but with some seemingly minor changes focused on getting money to schools:
- Redevelopment agencies can voluntarily suspend their housing set-aside for FY 2011-12. An equivalent amount of funds must then be contributed to local school districts in project areas. In exchange for this contribution of funds for FY 2011-12 to local schools, the agency will be allowed to extend the project area’s life by two years.
- In addition, or alternatively, agencies could voluntarily contribute up to 10 percent of their tax increment revenue stream to local school districts for 10 years.
We’re curious how schools outside of project areas will react to this proposal…
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.
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