On a personal level, the individual's self-control is the restraint from disaster. On a city level, the vote of the people is normally the restraining control. In this state any kind of expenditure you can think of has to pass the muster of an election except one-Redevelopment bonds. Your local city council can vote your property into bankruptcy. The last general obligation bonds left in the state which require a vote of only three people are Redevelopment bonds.
These bonds are supposed to be paid off with new property tax money generated by the new buildings and increased land values. However, it turns out that's not what actually happens. In a two year study conducted by the Public Policy Institute of California of 38 project areas in San Bernardino, Los Angeles and San Mateo counties, only four grew fast enough to be called self-financed. The other 34 were operating in the red. Eventually some of these cities will default on their Redevelopment bonds and some kind of refinancing will have to happen at state level. We are seeing the beginning of trouble with San Jacinto (a small town near Hemet) where bond holders are suing to be made whole again over $300,000 in arrears on $26 million in redevelopment bonds. San Jacinto has no chance of ever repaying that much bond debt. The bondholders are suing past and present city managers, finance directors, and attorneys, plus First Interstate Bank of California and Wells Fargo Bank.
Long Beach has been to the brink several times, but each time another loan from the Harbor Commission bails them out until the next time. The town that has gone critical is Cerritos. In their report to the State Controller's office for the fiscal year ending 1996, their Redevelopment debt was $358 million. The annual tax increment generated to service that debt is shown as just $15 million whereas the interest needed is over $21 million. That shortfall has to be made up from general revenues, i.e., the General Fund which takes from the police, fire and other city necessities.
In 1998 the situation is even worse. While the city has promised to subsidize no new projects, they are looking to the legislature for relief in the form of extending the maximum term Redevelopment bonds can be paid back so they can refinance. They pressured Assemblywoman Napolitano into carrying a new bill, AB 1342, that will add twenty years onto the maximum time allowed by the Community Redevelopment Law Reform Act of 1993 (AB 1290, Isenberg).
Quoting from the Senate Housing & Land Use Committee legislative analyst's report on AB 1342, "In 1995-96, the 940-acre Los Cerritos Project Area produced $4.3 million in property tax increment revenue. Because of the way that local officials applied current law, the Los Cerritos Project Area cannot receive any more property tax increment revenues after January 1, 2010 which is 40 years after redevelopment started. Under AB 1342, local officials can continue to draw property tax increment revenues until January 1, 2034, for a total of 64 years. Further, AB 1342 extends the time limit for 10 more years if the money goes to school construction, hazardous substance clean-up, or local public buildings; that's 74 years. Before the Isenberg reforms, one critic said that redevelopment was the closest thing to perpetual motion ever enacted by the Legislature. How long is long enough?"
Redevelopment and its accompanying bonding is just a credit card for city councils to spend your tax money to subsidize already rich developers. The bonding time is so long now that the property will be run down again before the bonds are paid off. The current council gets all the credit for the expenditure and distant future councils have to take the responsibility for repayment.
We need to take the Redevelopment credit card away from city councils and let the people vote on the bonds. Only when Redevelopment bonds are voted on by the people will this fiscal irresponsibility stop.