Almanac

Viewpoint - March 16, 2011

Guest opinion: Redevelopment agencies siphon funds from schools

by Jennifer Bestor

What do all the arguments about Gov. Jerry Brown's plan to take funds from redevelopment agencies, including Las Pulgas in Menlo Park, have to do with us?

Quite a lot, as it turns out. In fact, over half of Menlo Park's redevelopment has been paid for by our schools. We never said, "Let's shortchange the schools to address urban blight!" But that's what we've done for 30 years.

Created in 1981, the Menlo Park-Las Pulgas Redevelopment Agency covers Menlo Park east of U.S. 101 plus a thin wedge up Willow Road from 101 to Middlefield Road. Circumventing post-Proposition 13 apportionment of local revenue, RDAs were able to take any increase in property taxes in their coverage areas — whether that appreciation was due to improvements, inflation, real-estate bubbles, or blight reduction. By declaring this area blighted, the Menlo Park-Las Pulgas RDA was able to commandeer all property tax appreciation (over 10 percent now of the city's total property tax base), negotiate minimal funding pass-backs to other affected local services, fund itself, and float $75 million of bonds to finance RDA activities.

You might wonder why local services were willing to take less than their allotted share. Two crucial facts were that education consumed around half of each property tax dollar and, at that time, the state was backfilling any loss of property tax for all school districts.

Loophole met moral hazard. School districts, thinking that they would be made whole, signed away almost all of their tax share, while outside agencies with some negotiating power (the county, the fire district) gave up 30 to 50 percent. The city, meanwhile, nominally gave the RDA almost all its share, knowing that the City Council (sitting as the Redevelopment Commission) could return RDA funds to support city programs, police activities, public works, and other initiatives that either addressed blight or improved economic conditions in the area.

I had thought that the state was hitting up everyone to pay for education. Never before had I understood that the cities have been siphoning school funding to pay for blight reduction.

Here in Menlo Park, children in the elementary and high schools now directly bear the cost of over $1.5 million of our redevelopment activity. For the past decade, the Menlo Park City School District and Sequoia Union High School District have been funded by local property taxes, with no state backfill. The RDA takes $1.8 million ... and hands back a paltry $0.010 million to Menlo Park City School District ($10,000) and a mere $0.15 million to Sequoia Union High School District ($150,000).

Unmentioned in these numbers is the fact that the redevelopment area is not an industrial wasteland. Resident along Willow Road are 95 Menlo Park City School District students (on whom we spend $665,000 of our fixed district property tax pool) — while over 340 Menlo-Atherton students live along Willow and in Belle Haven ($3.4 million of high school district's pool). They and their classmates have been shorted the quality education for which we taxpayers assumed we were paying.

The two other affected local school districts, Ravenswood and Redwood City, are technically backfilled by the state, whose largess has been invisibly funding another $2.8 million of our redevelopment activity. But, as we have seen with the endless cuts out of Sacramento, California's pockets have been picked dry. Thus, the end result of all these funding shifts is that both districts have watched their basic funding per child drop over recent years.

So parents vote with their feet. Not surprisingly, state-funded districts in San Mateo County have seen a 5 percent drop in enrollment over the past decade (Ravenswood is down 19 percent; Redwood City is down 3 percent), while locally funded districts have climbed 11 percent (the Menlo Park City School District is up 28 percent).

By the early 1990s the state inevitably noticed that its pockets were being picked and began to assess the cities, counties, and special districts for what was called "Educational Revenue Augmentation" (ERAF) to fund education, and two years ago to raid RDAs for "Supplemental ERAF." So the funds that had been wrested from our local school and service districts into the RDAs and cities, in turn are wrested from the RDAs and cities to fund the schools.

By the time you read this, Sacramento may have decided for us how to extract communities from this self-defeating cycle. Whatever it does, the Menlo Park-Las Pulgas RDA won't actually end before 2031, a period when half of the RDA area tax revenue ($94 million) will go to repay the $63 million of debt that the RDA is carrying, plus interest, and also possibly $11 million of additional indebtedness due to an ill-timed attempt to hedge the interest rate on that debt.

We need to ensure three things moving forward:

First, it is time that the unencumbered half of the RDA property tax revenue reverts to our established local services. Fifty cents on the dollar isn't that great, but the schools have been getting just 14.

Second, Sacramento cannot be allowed to say, "Locally funded districts like the Menlo Park City School District and the Sequoia Union High School District are rich enough, so we will just channel funds we take from RDAs to the poor revenue-limited districts." Locally funded districts experience disproportionate enrollment growth because they are California's best hope of remaining competitive with the world, not just with other states at the bottom of the national school funding scale.

Third, redevelopment works are worthy, sufficiently worthy to be funded explicitly by Menlo Park voters. The problem is the means, not the end. Menlo Park residents need to discuss what redevelopment activities we want and how to pay for them, and not let the city hit up the schools when no one notices.

Please let your City Council members, State Assemblyman Rich Gordon, and State Sen. Joe Simitian know your thoughts. This is a local issue. And let's continue this discussion in the Almanac's Town Square.

Jennifer Bestor is a Menlo Park resident who writes occasionally on school tax issues.

> Go to AlmanacNews.com/square to visit Town Square.

Comments

Posted by Interested, a resident of Menlo-Atherton High School
on Mar 19, 2011 at 4:15 pm

Redevelopment Authorities combine all the worst features of government intervention. They take taxpayer money, seize property by eminent domain, and support projects and developers with political "juice."

Inevitably, these activities punish the poor (whose "blighted" neighborhoods are destroyed, and favor the rich (who develop and own the new properties).


Posted by Paul Collacchi, a resident of another community
on Mar 20, 2011 at 9:45 am

It's not clear that Jennifer has really made her case. It may be there, but she hasn't made it. Here are some facts that need to be negotiated and then Ms. Bestor must do the research and make the actual calculations.

-Menlo Park, the city, only gets $.12 on every property tax dollar paid, the rest goes to a variety of public entities, School Districts, and The County, which gets the lion's share.

-Property tax valuations are severely limited by Prop 13, particular commercial properties which rarely turn over, or whose owners can use partnership loopholes to transfer ownership without increasing tax bases.

-RDA's allow cities to claim most of every "incremental" tax dollar paid, but the basis is still limited by Prop 13 (or is it?). If so, then school districts stand to only lose maximally .88 of 1% per year, and really that's not true either, because the County gets the biggest chunk of the remaining $.88 not allocated to the city.

-School districts can and do assess parcel taxes independently, but must convince voters to support those taxes. Shouldn't it be the case that what schools could not obtain through property taxes they could obtain through parcel taxes, and, were there higher property taxes, there would also be LOWER parcel taxes. (My property taxes in Menlo Park have increased considerably more than the max allowed by Prop 13 because of School District parcel tax increases.) Arguably, losing "automatic" property tax increases and forcing schools to obtain voter approval through parcel taxes is slightly more efficient, anway, but Ms. Bestor has not made the case that Menlo Park school districts failed to recoup lost property tax revenues in the form of parcel tax revenues.

-Many RDA properties would otherwise pay taxes to "RWC" school districts not Menlo Park school distrcits, that's part of what the Menlo Gateway debate was all about. Yes, these districts are schools for sure, but it's not clear that Menlo Park school districts are losing out to the RDA, as the editorial implies.

-Yes, the system is messed up, but not because of RDA's per se. It's well known, and even Howard Jarvis has said so, that the (unintended) commercial property benefits and loopholes are a negative consequence of Prop 13 that are inefficient and unintended.

Count me among those who see many otherwise unusual behaviors by public entities and players (including my own chronic resistance to non-sales tax producing office buildings) that are a direct consequence of Prop 13.

Prop 13 is the local equivalent of Medicare. It's the elephant in the living room of fiscal decision-making that no-one wants to deal with. Fix prop 13, and many bizarre city behaviors will eventually disappear. Until then, non-property owners are subsidizing city services that go to property-related costs, and residential property owners are subsidizing services for commercial property owners.



Posted by Poster, a resident of another community
on Mar 20, 2011 at 10:38 am

There is another thread on this topic: Web Link


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 20, 2011 at 12:07 pm

Jennifer Bestor is a registered user.

Paul, thanks for your thoughtful questions.

First of all, I agree with you completely that Prop 13 caused unusual behaviors by local and state governments, along with a series of subsidies (e.g., residential to commercial) that make no sense. A thoughtful revision of the state's tax structure that protects older homeowners without creating a wildly uneven playing field for businesses and young families would curb lots of bizarre tax-driven behavior.

Second, please look at the diagram attached to the article. A picture is supposed to be worth a thousand words – but it's worthless if no one looks at it! You will see the exact proportions of tax that would go to each entity (including the City) if the RDA did not exist, based on the specific TRA (tax-rate area) allocations for each affected area applied to the parcels in that TRA. Included are only the twenty-nine TRAs for the RDA, namely 08-003, -007, -009, -108. Each TRA allocates a slightly different percentage to the City, around 10% in the RDA area. It is lower than the Menlo Park average you cite because an unusually high percentage (32%+) is allocated to the elementary school district for these TRAs.

Third, yes, the assessment basis within the RDA is limited by the same Prop 13 rules as elsewhere. This contributes to the difficulty in evaluating whether the RDA, in fact, has added extra value. Rapid turnover in a failing neighborhood can easily created higher total assessed value today than in an improving neighborhood where owners choose to hang onto property longer.

As an aside to 'Interested,' the core TRA for Belle Haven is 08-092, which shows somewhat higher appreciation than the rest of residential Menlo – which would make it appear that the $175M investment is improving the area – however, the percentage of homeowner-occupied single-family residences has dropped from 64% to 49% since 1985. This drop is seen throughout California, but is proportionally twice what is seen in Menlo Park as a whole.

Fourth, Paul, yes, school districts can obtain via parcel taxes what they lose in property tax. But that is what started me down this analytical path. We have (as you note) large parcel taxes here in Menlo Park. And we pay high state taxes, of which something like 40% goes to "education." And, for those of us who didn't own our current homes 25+ years ago, we pay relatively high property taxes, of which (nominally) 17% goes to the schools (in my TRA – 08-001 – where your old house is, it's 31%). We also contribute heavily to the school PTOs and the Educational Foundation. We pay and pay and pay for our schools – but still can't seem to stick our local noses above the national average!

Why? That was what started me, a few years ago, analyzing commercial vs. residential property shifts. Then, when Brown was elected, he went after RDAs. ?!! If anyone understands the post-Prop 13 revenue landscape, it has to be Jerry Brown. So I looked at ours. And this is what I found.

Furthermore, while my chart shows the Menlo RDA effects on all the underlying districts (Redwood City, Ravenswood, Sequoia and MPCSD), what you won't see are the effects from all the other RDAs on them – Sequoia, for example, has six others in their district. Ravenswood has three. Redwood City two. I would love to include the full data for each, but am still waiting to hear from the RDA authorities on their pass-backs. (The staff in Menlo Park has been very responsive.)

I hope I am making some progress convincing you, Paul, that RDAs – conceived in the tax environment of 1981 – are having a direct negative effect thirty years later on our school children. Worse yet, they are contributing to state spending that is uncontrollable without punishing even more school children.


Posted by R.GORDON, a resident of another community
on Mar 21, 2011 at 9:46 am

R.GORDON is a registered user.

"Interested" asked a SIMPLE question whose answer was buried in piles and mounds and heaps of rhetoric by the usual contributors.

INTERESTED deserves more. So does everyone who is not grouped in the
the bunch who "do not favor the poor" but, rather the rich "who develop and own the new properties".........
The image of those who are playing in this County is that of a sole person in whites is serving a tennis ball to a non-existent opponent.
There are just too many people who are out of touch. Complaining still about Prop.13 is almost a bad joke.


Posted by Paul Collacchi, a resident of another community
on Mar 25, 2011 at 11:25 am

Hi Jennifer,

You don't have to do any work to convince me its time to close down the RDA. I helped oversee it for eight years and it became clear then that although the RDA can generate additional monies for improving the infrastructure of a sub-community, which *is* important, the RDA is really limited in its ability to address the soul of the sub-community.

Unfortunately, saying we should terminate the RDA and actually terminating it are difficult, in part because, I think the RDA has issued bonds whose security ratings and payment is dependent on the tax increment structure now in place.

But here's your deeper issues as I read it: "We pay and pay and pay for our schools – but still can't seem to stick our local noses above the national average!"

In my view, getting "bang for each buck" is really a completely different issue than "recapturing every last buck".

You can count me as someone who supports shutting down the RDA (over time if necessary), and no, not if it suggests defaulting on or reneging on outstanding liabilities, but I think the City should create an exit strategy and execute on it, even if it takes 30 years (the lifetime of the existing) bonds.

I am not into school policy and never have been. So your deeper question of how to get schools to perform is way out my comfort zone, but I'm sure I personally would not hold out the hope that recapturing every last lost school revenue from the RDA would impact the ability of a school system to deliver efficiently on those revenues. Yes, it might given them more resources on which to deliver inefficiently, but ... that is not really the issue.

Run for office. I did. Local office is still an office in which individuals can get elected solely on constituent funding without resource to special interest funding. You can make an impact, at least for the time in which you are in office.


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