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Editorial: How to cope without redevelopment funds?

When the state Supreme Court sanctioned legislation backed by Gov. Jerry Brown to wipe out more than 400 redevelopment agencies, Menlo Park's Las Pulgas agency, which has poured $75 million into east Menlo Park, found out that it will be wiped out, too, as of Feb. 1.

Las Pulgas, which includes most of the city east of U.S. 101 and a swath along Willow Road, was formed in 1981 to fight blight, and was funded by taking increases in property taxes — which last year amounted to more than $10 million — to fund itself and pay for capital projects. It is money from this "incremental" tax revenue that has enabled the city to build the Belle Haven senior and community centers, a soccer field and swimming pool, and other improvements such as roads and sidewalks throughout the community.

In touting victory after the court's ruling, Gov. Brown said the state will be able to reclaim $5 billion a year from the soon-to-be-defunct agencies, and funnel $1 billion back to schools, which gave up millions of dollars in taxes they would have received that instead went to the district. In an Almanac op-ed piece last March, Menlo Park resident Jennifer Bestor charted how local schools were short-changed by the districts over the years. She claimed that over half of Menlo Park's redevelopment "had 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."

A follow-up opinion piece by then-City Manager Glen Rojas disputed some of Ms. Bestor's claims, saying she did not acknowledge how the improvements paid for by redevelopment funds added to the area's increased property values.

Regardless of who gained or lost on the Las Pulgas redevelopment district, the high court's Dec. 29 ruling ends the property tax shift that has been in place since 1981. But the legacy of the district will live on for years through the bonds issued for capital improvement projects. Of the $10.2 million a year generated by district taxes, $5.2 million will go to pay off bonds, and about $3 million will be spread out to various schools and special districts as their part of the normal property tax distribution. The court ruling means that the city will lose another $1.5 million that will be allocated in the same fashion to the schools and special districts.

In a Jan. 3 memo prepared for Acting City Manager Starla Jerome-Robinson, Finance Director Carol Augustine minced few words in describing the impact of the court's decision. The unexpected ruling unwinds what Menlo Park and many other cities thought would be a stop-gap measure to allow the agencies to hang on by paying the state hefty fees to remain open. The court ruled that strategy was unconstitutional, leaving the city's plans for affordable housing, narcotics code enforcement and transfers to help defray overhead expenses up in the air.

"Obviously, the Supreme Court's decision will have a catastrophic impact on the city's capital and operating budgets for years to come," Ms. Augustine said, adding that the "city's new Public Improvements Fund (with a July 1, 2011, balance of $7.8 million) designed to fund capital and other large projects within the redevelopment area, will be dissolved, creating a huge funding shortfall in the city's five-year CIP (capital improvement plan)."

The council must work quickly to make sure the city is able to move forward and continue to meet its obligations to the Belle Haven community, as well as other residents of Menlo Park. So far, there is no indication from city leaders about how they will cope with the huge revenue loss, or whether staff layoffs would be considered. But as Ms. Augustine said in her memo, "the implications for the city's budget are severe."