News - September 21, 2011

Council members hold their noses, vote to pay state for redevelopment agency

• City opts in to "pay or perish" policy.

by Sandy Brundage

On Tuesday night, Menlo Park joined 86 other California cities, including Foster City, Millbrae, and Belmont, by voting to pay the state millions of dollars to keep its redevelopment agency open.

Describing state Assembly bills 26 and 27 as "pay or perish" legislation, Menlo Park Finance Director Carol Augustine laid out in stark terms what faces the city in light of the state's desire to dissolve redevelopment agencies and redistribute the tax revenue.

"Also known as extinction or extortion," she told the council during its Sept. 13 meeting.

In short, if Menlo Park doesn't cough up $3.5 million, the state will shut down its redevelopment agency (RDA).

After that first payment, the city's ongoing obligation would be about $829,000 a year, according to Ms. Augustine. If tax increment revenue doesn't increase enough to cover the added expense plus the agency's projects, the city's general fund would bear the brunt of closing the gap, she said.

Redevelopment agencies, sometimes described as economic engines, were formed to fight blight through mechanisms such as affordable housing and code enforcement. Gov. Jerry Brown pushed for their elimination, arguing that diverting $5 billion in property tax revenue to RDAs left the state short on money needed for schools.

A seven-member board composed of representatives from the city, special districts, and the county would oversee redistributing that money to other agencies.

"It would mean significant change, and take away control from this council," Councilman Andy Cohen said during the meeting.

According to city staff, the accomplishments of Menlo Park's RDA include cleaning up blight to persuade businesses such as Pacific BioSciences, now one of the city's top 25 revenue producers, to relocate to the Willows area; maintaining undeveloped properties; and funding drug-prevention and gang-intervention programs run by the police department.

In response to the governor's plan, last spring Menlo Park created ongoing contracts using RDA funds to tie that money up, hoping that the state can't take assets already allocated to programs such as code enforcement, but no one knows yet whether that strategy will pan out. It also created a new agency, the housing authority, to run the city's affordable housing program.

The League of California Cities and the California Redevelopment Association filed a lawsuit challenging the constitutionality of the bills, arguing that Proposition 22, passed in November 2010 by 60.7 percent of voters, made it illegal for the state to take money from local funds such as redevelopment revenue.

The California Supreme Court issued a stay on the legislation in August and will make a final ruling by the time the city's first payment comes due in January.

However, should the court decide that the legislation is legal, the deadline for choosing to pay to keep the RDA will have passed, leaving cities in a quandary. "This could result in the dissolution of the Agency under the Dissolution Act even though the City desires that the Agency continue in existence," the staff report states.

The fate of the new housing authority also hangs in the balance should the court uphold the legislation. Ms. Augustine told the Almanac that the city doesn't know whether the contract between the city and the authority would hold up, so "it is unclear as to what would happen to the housing authority, and what agency would carry out the housing programs previously provided by the RDA's housing fund (and) authority."

As colleagues said they were holding their noses, Vice Mayor Kirsten Keith made a motion to pass the ordinance, and the council voted 5-0 in favor. The issue should return to the dais on Sept. 27, when council members are expected to actually authorize the payment. Menlo Park has filed an appeal of the $3.5 million fee, but the state hasn't indicated yet whether it will reduce the bill.


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