Should California Redevelopment Agencies give funding to school districts?

As the Oakland School Board moves forward with its plan to close five elementary schools in order to save $2 million, the California Supreme Court is considering whether redevelopment agencies should be required to give up some of their funding to support school districts and county services.

Redevelopment agencies are designed by cities and counties to attract business investment through tax incentives and community revitalization. But amid a worsening budget crisis, Governor Brown is giving higher priority to “core” government services, such as education, than to redevelopment projects.

At issue are two new laws signed by Brown in June. The first, AB 1×26, dissolves all redevelopment agencies in California and dedicates $1.7 billion of their funds toward resolving the state’s budget crisis. The second, AB 1x 27, establishes a statewide “voluntary redevelopment program,” which local agencies can join for a fee in order to continue work on their existing projects. The fee, called a “community remittance,” would be used to support school districts and county services that were heavily impacted by the state budget cuts.

Since California Redevelopment Agencies are funded by property taxes, these community remittances would come from property taxes, as well. In Alameda County, 13 cents of every property tax dollar is earmarked for redevelopment agencies, according to the county assessor. Under the new law, a portion of that money would also support schools districts and various services.

In Oakland, that amounts to about $40 million in the first year and $10 million every year after that. While it’s still unclear exactly how much of that money would go to OUSD, proponents say any new revenue stream would go a long way towards resolving some of district’s budget issues.

“I have no qualms about asking redevelopment agencies to contribute to the communities in which they’re planning to reap some economic benefits of their own,” said Peter von Ehrenkrook, 51, a 5^th grade teacher at Santa Fe Elementary, one of the 5 schools slated for closure. “Any funding streams would be helpful.”

But OUSD is unlikely to see any extra funding while the court determines the constitutionality of the governor’s plan.

Shortly after Brown signed the plan into law last June, the California Redevelopment Association filed suit against the state on behalf of redevelopment agencies across California. The CRA, an organization that represents the interests of all 397 California redevelopment agencies, charges that both new laws violate Proposition 22, a constitutional amendment passed by voters in 2010 that prohibits the state from seizing local government funds.

The Supreme Court subsequently stayed the measures and, on Thursday, heard oral arguments in the lawsuit in an expedited, one-hour hearing.

During the hearing, lawyers representing CRA attacked the constitutionality of the laws. CRA’s lead counsel, Steven Mayer also argued that the payments required by the “voluntary redevelopment program” were “no more voluntary than a bank robber’s demand to turn over the money when they say ‘Your money or your life.'”

Meanwhile, the California Teachers’ Association (CTA), a union representing public school teachers in California, addressed the court in support of the new redevelopment laws.

In a phone interview after the hearing, CTA spokesperson Sandra Jackson argued that diverting money from redevelopment agencies would ease some of the financial constraints suffered by schools after repeated budget cuts—and might stave off future cutbacks.

“If these laws don’t stand, then that’s going to leave a huge hole in public education funding,” Jackson said. “If revenues don’t reach a certain level, then we are certainly looking at mid-year cuts.”

So far the prognosis doesn’t look good. According to a report released by State Controller John Chiang Thursday, October revenues were $810.5 million below projections for the month, and expenditures for the year are over budget projections by $1.7 million.

The dissolution of redevelopment agencies is a key part of Brown’s budget plan for the coming year, as it would contribute much-needed funds to school districts and counties.

If the court rules in favor of redevelopment agencies, the state will have to reconsider its budget strategy for the next few years.

Conversely, if the court rules in favor of the state, redevelopment agencies will be faced with a tough choice: Disband, or hand over a big chunk of change in “voluntary” community remittances.

“If  [the court] determines that the two bills are constitutional, that is the law of the land and agencies will have to make their own determination of whether they’re going to continue in existence and make their voluntary payments,” said Jim Kennedy, the CRA’s interim executive director.

For most redevelopment agencies in California, long-term survival is worth the financial burden of paying community remittances. According to survey information collected by CRA, about 90 percent of the state’s 397 redevelopment agencies are willing to make the necessary payments in order to stay in existence and see their projects through.

Oakland’s Redevelopment Agency is no exception. After some initial hesitation, the City Council passed an ordinance in September authorizing the agency to make the required payments under the new laws, if they are upheld in court.

“If both laws are upheld, we would definitely buy our way back into existence,” said Gregory Hunter, the deputy director of Oakland’s redevelopment agency. He acknowledged, however, that the $40 million payout required under the new laws would significantly limit the scope of the agency’s work and diminish its ability to attract private development to the city. The agency has hundreds of open redevelopment projects in nine different project areas of Oakland, ranging from relatively small building improvement grants to multi-million dollar transportation projects.

Though a sizable cash infusion could have a monumental impact on Oakland schools, the Oakland Unified School District has refrained from taking a formal position on the governor’s plan. The district’s spokesperson, Troy Flint, acknowledges that the issue is even more complex than it might appear on the surface.

While additional funding would be welcome, he said, officials are skeptical about whether the redevelopment funds would supplement—rather than supplant—existing state funding for schools.

“I don’t think anyone can assume any new funding stream would be supplemental or additive, given the way that funding for education has been stripped over the years,” Flint said.

The impact of the new laws on local redevelopment efforts is also a concern for the school district, Flint said.

“The bottom line is that public education needs more funding but if that funding comes at the expense of the neighborhoods where those kids live, it’s self defeating,” Flint said. Redevelopment efforts improve quality of life, which itself has an impact on students’ ability to succeed academically, he added. If quality of life declines as a result of the new laws, “it mitigates any benefit we might receive from the extra funding.”

But some community members argue that education and development aren’t mutually exclusive and can work in tandem to improve a community.

“The schools are inherently tied to the quality of any kind of redevelopment in a community,” said Timothy Terry, 46, a paralegal who, as a child, attended two of the Oakland schools slated for closure. As schools perform better, property values increase, he said. “It makes perfect sense to have community development money involve the schools” because “investing in schools is investing locally.”

“Fostering public schools is a no-brainer to me,” said Santa Fe teacher von Ehrenkrook. “If you’re developing communities, the first place you go is schools. And I can’t see how closing a public school would be beneficial to any redevelopment program.”

Ehrenkrook said that, if the school district gets the money, he hopes it will be directed toward keeping small community schools, like his own, open.

But Flint said he doubts any new funding stream would alter the school board’s decision about the school closures.

“I’m sure it would change the nature of the discussion,” he said.   “But it’s important to know that the school closures are not just about cost savings, but also about management and reducing the district to a manageable size … I can’t say unequivocally that a large influx of money would stop the school closures.”

The Supreme Court plans to rule on the case by January 15—before redevelopment agencies are set to begin their first payments to the state.