.The Hidden Costs of Jerry Brown’s Plan

The governor's proposal to eliminate redevelopment agencies could cost the City of Oakland more than $50 million in tax revenues a year and force massive layoffs.

After Jerry Brown unveiled his plan earlier this month to kill redevelopment agencies throughout California, much of the media attention focused on major urban projects that the governor’s proposal would eliminate. Among them is Oakland’s plan to acquire land and make infrastructure upgrades for a new A’s ballpark in Jack London Square. But there’s also a hidden side to Brown’s proposal that has escaped scrutiny so far — even though it could create huge financial problems for the City of Oakland.

The reason is that Brown’s plan not only blocks future revitalization efforts, it prohibits cities from using redevelopment funds to help balance their general fund budgets. In Oakland, the ramifications could be severe. In fact, Brown’s plan could amount to a $50-plus million hit on the city’s already beleaguered finances. “To put it in its bleakest terms,” said Oakland City Administrator Dan Lindheim, “it’s devastating.”

To understand just how devastating requires a bit of background on Oakland’s finances. Throughout the past decade, including when Brown was mayor, the city has increasingly used its redevelopment agency to pay the salaries of public employees who previously had been paid from the general fund. This bit of creative accounting allowed the city to free up money in its general fund for basic city services such as police, fire, parks, and libraries. It also allowed the city in recent years to avoid even deeper budget cuts than it has had to make.

Ironically, Brown has touted his new plan as a way for cities to spend more money on basic services, including police and fire. And that’s why public safety unions are applauding the governor’s proposal. But in Oakland, his plan promises to have the opposite impact. Instead of freeing up more money for police and fire, it will force the city to use its cash-strapped general fund to pay for services currently financed by the redevelopment agency.

So how much will Brown’s plan cost Oakland? It could be as high as $59 million a year, city records show. That means Brown’s plan not only wouldn’t help the city bolster its shrinking police force, but it likely would require Oakland to lay off even more cops — unless the police union suddenly agrees to some major compensation and pension concessions.

Here’s how Brown’s proposal would work: For the past several decades, cities throughout California have created “redevelopment areas” in order to revitalize them. The revitalization efforts are then financed by property taxes generated from the rise in property values in each redevelopment area. Oakland has ten redevelopment areas that are projected to generate $138 million in tax revenues for the city in the 2010-11 fiscal year.

Under Brown’s proposal, that money would be transferred back to the state — except for funds used to pay outstanding debts and existing capital projects in the redevelopment areas. This year, Oakland plans to spend $72.1 million of redevelopment funds on things other than debt and capital projects. In other words, if Brown’s plan were enacted this year, it would mean that Oakland would have to transfer about $72.1 million in redevelopment money to the state.

Some of that cash, under Brown’s plan, would come back to Oakland, but only a small fraction of it. Brown wants to use a significant portion of redevelopment funds in 2011-12 to help balance the state’s budget, and then the following year, the state would begin returning the money to counties to allocate like all other property tax revenue. Alameda County would transfer about 18 to 20 percent of the redevelopment revenue back to Oakland — just as it does all other property tax revenues generated from within the city.

In short, of the $72 million that Oakland would have to transfer to the state each year under Brown’s plan, it would get back just $13 to $14.4 million — a net loss of $57.6 to $59 million annually for the city. For Oakland, that’s huge, especially considering the fact that the city is already facing a $40-plus million projected deficit next year. In other words, Oakland’s $40 million budget hole could suddenly deepen to $100 million if Brown’s plan goes through.

The biggest local beneficiary of Brown’s plan would be Oakland public schools. It would receive about 41 to 43 percent of the $72.1 million that currently goes to Oakland’s redevelopment agency. That means that beginning in the 2012-13 school year, Oakland Unified School District would receive an additional $29.6 to $31 million annually. The rest of the property tax money that currently goes to Oakland’s redevelopment agency would go to the county and special districts.

Now, the City of Oakland can soften some of the negative impacts from Brown’s proposal through massive layoffs of employees from its redevelopment agency — since the agency effectively will no longer exist. But that doesn’t solve the problem of city employees currently paid by redevelopment funds who aren’t really doing redevelopment work. It’s not exactly clear how much that is, but according to some internal city estimates, it could be as high as $20 to $30 million each year.

So whose salaries are currently being paid by Oakland’s redevelopment agency? Well, the employees come from numerous departments, including the city council, the city attorney’s office, the mayor’s office, the city administrator’s office, and the police department. Half of the city council members’ salaries, in fact, are paid by redevelopment funds, and so is a portion of Lindheim’s pay. Lindheim also noted that the redevelopment agency currently funds sixteen police officers who patrol some of the redevelopment areas.

Some observers may have little sympathy for Oakland’s predicament. After all, the city’s creative budgeting may not have even been legal at times — although it’s never been challenged in court. However, it’s also not new. Brown knows this. The city has been paying employees from its redevelopment funds for years, including when Brown was mayor. And if his plan is adopted, there’s no way of getting around the fact that it will force Oakland to make even bigger budget cuts than it already has to do.


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