One of the big worries voiced by local governments back in August was that the state would try to balance its budget on the backs of already strapped cities and counties.

In September, when a state budget was finally passed, trailer bill AB 1389 also was approved. It authorizes a one-time amount of $350 million from redevelopment funds statewide to be redirected.

For local governments in Santa Barbara and San Luis Obispo counties, that means approximately $3 million will be taken from redevelopment agencies and instead be applied to Educational Revenue Augmentation Funds (ERAF).

Redevelopment agency (RDA) funds are used for building affordable housing, revitalizing rundown areas, infrastructure, community facilities and debt repayment.

Santa Maria focused its redevelopment efforts on the downtown mall area, and now has about $2.7 million in annual debt service payments, according to Tim Ness, Santa Maria city manager.

Although the city’s RDA funds should cover most of that amount, in reality Santa Maria only receives about

$1.1 million a year. This fiscal year, it’s anticipating $94,620 less than that because of the mandated allocation to ERAF.

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“When the state goes after RDA, we end up paying that out of our general fund,” which is where money for police, fire and other public services comes from, Ness said.

Other cities, such as Lompoc, do not spend or allocate RDA money until it has been received, according to Gary Keefe, Lompoc RDA executive director. This year, the Lompoc RDA has lost $198,091, bringing the total amount to about

$1.6 million.

“Of course it hurts, it’s a lot of money to a small town,” Keefe said. “No projects will be under budget or unfunded, but it means there will be some project down the road that we won’t be able to do.”

Redevelopment is primarily funded through tax-increment revenue, which is the increase in reassessed property value once the RDA begins revitalizing focused areas.

“Frankly, (RDA funds) are the only thing that local governments have left to try to deal with development issues in the community,” said John Shirey, executive director of the California Redevelopment Association. “Basically, this is the best self-help tool, the most important thing at their disposal.”

RDA funds in Buellton are devoted to revitalizing Avenue of Flags to attract new businesses, but the second phase of the project had already been put on hold by a cautious City Council before the state cuts came down, according to Kathy Wollin, the city’s finance director.

The $40,406 cut translates to $10,000 less for future low-cost housing projects and a $30,000 decrease to the capital-improvement fund, which could be applied to any RDA project, Wollin said.

The CRA estimates that the $350 million cut will translate to 31,000 lost jobs, a $4.35 billion decrease in business sales and revenues, and a $208 million decrease in tax revenues.

“These funds are the primary and largest source for economic development and revitalization,” said Vyto Adomaitis, the executive director of redevelopment, neighborhood services and public safety for the city of Goleta. “It seems counterproductive to take money from funds that help create and retain jobs ... and make the community better.”

The city of Goleta RDA lost $166,936, Santa Barbara RDA had $1.4 million cut and the RDAs in San Luis Obispo County, which include Paso Robles, Grover Beach, Arroyo Grande, Atascadero and Pismo Beach, lost a total of $751,046.

The CRA felt that the state’s decision to redirect local property tax revenue from RDAs to ERAFs was more than counterproductive; it believed the move was unconstitutional.

The association filed a lawsuit Dec. 4 seeking to block parts of AB 1389 because the state constitution requires that redevelopment funds can only be used for specified redevelopment activities, and raiding those funds unconstitutionally impairs bond contracts, according to Kathy Fairbanks, spokeswoman for CRA.

Since the Community Redevelopment Law was adopted in 1952, RDA funds have been redirected from cities and counties on seven other occasions, but this time, “we just decided that enough is enough,” Shirey said.

ERAFs came about in 1992 when the state was in a similar serious deficit, and required money to fulfill its funding obligation to education, according to the League of California Cities.

The state enacted legislation that shifted partial financial responsibility to local government, and the gap was filled by local property tax revenues that could have gone to parks, libraries, infrastructure and to keeping local taxes and fees affordable, according to the League of California Cities.

December 21, 2008