During the budget agreement cities threatened lawsuits against the state if the state followed through with a suspension of Proposition 1A which was passed by the voters to prevent the state from raiding monies that are designated for cities and counties. While the cities and counties were able to get a devastating take away from transportation funds, the state prevailed in taking monies from redevelopment and also Prop 1A. Cities and counties are now in the position where they will have to decide whether or not to sue the state.
The city recently had to close a $3.5 million budget deficit. The city might be tempted to use one-time monies in the form of reserve in order to plug the new hole. And if this were a one-time take away from the state as it is currently advertised or a loan, that might be the right thing to do. The problem is if the state ends up taking away this money again next year, which seems likely at this point, a lot of the city’s reserve could be eaten up very quickly.
This is yet another reason the Vanguard was pressing the city so hard to deal with the structural issues of employee compensation rather than rely on programmatic cuts to close the original deficit.
It remains our concern with the statewide furloughs and salary cuts along with those from UC Davis that the city of Davis faces a far worse fiscal situation next year even as the economy appears to be on the verge of improving nationally with the report that GDP only dropped by 1% last quarter.
The league of California Cities believes that the taking of the money from redevelopment is illegal and will also cost 198,000 jobs as it diverts money that would go to contracting and construction projects.
“Although the budget signed into law by Gov. Arnold Schwarzenegger earlier this week includes several “wins” for cities, the League remains concerned about the constitutionality and economic impact of the redevelopment agency take. The FY 2009-10 budget seizes $1.7 billion in redevelopment revenue and an additional $350 million in FY 2010-11, totaling $2.05 billion.”
In an editorial in the league’s newsletter, they argue that this is illegal.
“The Sacramento Superior Court in April 2009 ruled unconstitutional the redirection of $350 million in redevelopment funds to the state’s general fund for FY 2008-09. The California Redevelopment Agency (CRA) is preparing another lawsuit against the state on the constitutionality of this new seizure and is currently seeking plaintiffs from its agency members to join the suit.”
Moreover, the money taken by the state will cost jobs.
“CRA has calculated what the loss of redevelopment funds will mean to the economy. For FY 2009-10, CRA estimates that if these funds were invested in local communities for affordable housing, improved infrastructure, community facilities, it would support about 164,000 full- and part-time jobs in construction and related sectors of the economy. The $350 million loss next fiscal year CRA estimates would support nearly 34,000 jobs.”
While cities will undoubtedly challenge the state in terms of the takeaways, the potential impact on already fiscally stressed cities and counties could be extraordinary. The problem of course faced by the state is that no one was willing to discuss new revenue and the two-thirds vote pretty much precluded it. That meant that the state had to find $26 billion in budget cuts. It sounds good to talk about the state living within its means, which means budget cuts in tough economic times, but cutting programs and money means that people will lose jobs, people will lose benefits, and the people most harmed by that are the poor, elderly, children through education cuts, and cities and counties.
The league of cities estimate on job losses from the cut of redevelopment money is probably a bit high as many cities will not be deploying that money immediately. However, the number illustrates the impact of budget cuts. And that is “just” $2 billion in cuts. Multiply that out across the state for the full $26 billion and before that the $40 billion and you end up with the proposition of losing a lot of jobs in the state which will hurt the economy.
We still really do not know what the impact on the economy will be from these sorts of cuts. The voters passed Proposition 1A precisely to avoid the state raiding local funding every time they had a budget crisis and yet here we see the state doing the same thing even with the passage of Prop 1A. Will the courts be willing to back up the local governments? If they are not, the proposition might as well be null and void.
What remains even more clear is that Davis needs to get its own fiscal house in order so we are not at the mercy of the state on these kinds of issues.
—David M. Greenwald reporting