Betsey Lynberg had high hopes for a five-and-a-half-acre plot north of Highway 1 once home to the Farm Bakery and Restaurant. The administrator for Santa Cruz County’s Redevelopment Agency pictured a new community center complete with a skate park and garden over the field of dying yellow grass in Soquel. “Part of the concept behind the community center was to have a building—and outdoor spaces surrounding it—that could become a focal point in the community again,” says Lynberg, with “after school programs for people who live in the neighborhood.”
Today most of that goal looks like a pipe dream, even for an agency long trusted with fixing the county’s blight. The Santa Cruz County Redevelopment Agency—which, since opening in 1987, has built 20 miles of sidewalk and 18 miles of bike lanes, planted more than 1,800 trees and secured 1,385 affordable housing units—might be forced to shut its doors in the fall.
In the midst of California’s budgetary tug-of-war, Lynberg and her colleagues are punching at calculators and trying to figure out whether or not their 24-year-old agency can survive another fiscal year. Right now the signs don’t look good. The Santa Cruz County Redevelopment Agency, which last month approved a $110 million string of construction projects, including a new Sheriff’s station and affordable housing projects, will have to pay the state almost $10 million by October to stay in business and annual payments of $2.3 million after that. The order follows the passage of two bills tucked into the state budget package last month. The first one, ABX 1 26, eliminates redevelopment agencies and a second bill, ABX 1 27, allows them to stay alive for the price of a few million dollars, depending on each agency’s size.
Since the statewide Redevelopment Association and the League of California Cities filed suit on July 18, both laws are headed for California’s Supreme Court. Meanwhile, the agency’s future will come to light on Aug. 2 at the County Board of Supervisors meeting, when it’s expected to recommend its own dissolution.
“It’s definitely stressful for folks here because it’s not a particularly good job market,” says Lynberg, letting out a quiet chuckle. After a tearful supervisors meeting in June, she is coming to terms with the likely fate of the agency. “Unless we come back on August 2 and say, ‘Wow, we’ve crunched the numbers and we would recommend changing that plan,’ that is the plan we’re putting in place.”
As currently conceived, the idea is for one employee out of 38 to remain in order to oversee disbursements to private sector contractors for the projects pushed through in June. “The way the legislation is written, a successor agency is set up, and there really is a requirement that someone be here to wind down the financial affairs of the agency,” says Lynberg. Administrative Services Manager Kim Namba will be the last employee standing, overseeing a slate of remaining projects that includes the Sheriff’s station, a Live Oak youth center, sidewalk improvements and makeovers for East Cliff Drive and Twin Lakes State Beach.
Safety Net
The county’s approach stands in contrast to the one the City of Santa Cruz is taking. The city’s redevelopment agency, which helped the town recover from the 1989 Loma Prieta earthquake and the 1955 floods, says it can afford to stay alive for a one-time payment of $4.6 million—what the state roughly estimates the agency pulls in annually from property taxes—and $1.1 million annually after that.
Gov. Jerry Brown first signaled he wanted to eliminate the state’s 400 redevelopment agencies shortly after taking the reins in January. Redevelopment agencies first formed in the 1940s to tackle blight in California’s cities. But Brown, staring at a gaping $26 billion deficit, cited years of abuse as published by both the state Controller’s Office and Legislative Analyst’s Office. The LAO, a nonpartisan arm of the state legislature, encouraged shuttering the agencies earlier this year due to rampant mismanagement and missed payments to education and public safety. “It provides localized economic benefits, but does not necessarily increase statewide economic development,” the report said.
Local officials say Santa Cruz is different. According to District 27 Assemblymember Bill Monning, who represents the Monterey Bay area, neither the county’s redevelopment agency nor the city’s is a typical example of throwing money down the garbage disposal. “I think the ones that are going to be on thinner ice are going to be the ones that are playing fast and loose and were the subject of the LAO’s negative evaluation,” says Monning of redevelopment’s future.
A redevelopment agency operates by first establishing that a given area is “blighted.” Property tax revenues in that area are capped, and the agency divvies up any increases in property taxes between a few different districts. Some of the money goes to schools. Some of it goes to local districts like fire and police and state government. Some of it goes to the local redevelopment agencies and their blight-fighting projects, which supporters say is what send the property taxes rising in the first place.
Most redevelopment agencies have been funding their projects by selling bonds, which the agencies then pay off over time (by buying back the bonds) using the property taxes they collect, in a process analogous to a household taking out a second mortgage in order to fund improvements to the house. And this strategy, to put it mildly, is proving troublesome now that redevelopment agencies will have to pay a cumulative 1.7 billion in order stay alive this year and hundreds of millions statewide of dollars each year after that. It’s created a cash crunch for agencies that have been banking on the future.
Not for the city of Santa Cruz, though. City Manager Martin Bernal says the city will have to make only minor changes in order to stay in business. Unlike the county’s agency, which funded its projects with millions of dollars in bond money, the city of Santa Cruz took a “pay as you go” approach, says Bernal. It paid off projects with property tax revenues straight out of the bank. The agency’s approach left it with a strong credit rating and low debt. So, when the city redevelopment agency heard the bell tolling for redevelopment in March, it opted to sell $33 million in bonds. That was a move many agencies, including Santa Cruz County’s, have been unable to make because they don’t have the debt capacity, having used it on previous bond sales. “It’s just a different method of operation,” says Lynberg on the county’s decision to bond earlier. “It’s just a different circumstance.”
“Santa Cruz sold bonds based on what projects were needed,” says Bernal of the city’s path. The agency also used funds to leverage outside grants for projects like the Tannery Arts Center, the Nueva Vista Beach Flat apartments and the National Marine Sanctuary building under construction near the Santa Cruz Wharf. “Because we have the capacity, we will be able to survive after ABX 1 26 and 27,” says Bernal.
Missing Tools
County Supervisor John Leopold oversees the First District, which is home to the unincorporated county’s only redevelopment area. That area spans mid-county and Live Oak neighborhoods that transformed rapidly from a rural environment in the 1970s to the suburban one it is today. Live Oak’s infrastructure—storm drains, sidewalks and libraries—have played catch-up.
Leopold says the county’s mission for redevelopment won’t change, but he’s not sure where the funding for new projects will come from. “It will be tremendously more difficult because there’s not an easily identifiable source of funding for doing those improvements,” says Leopold.
Any alternative will likely be both difficult and unpopular, says Fred Keeley, the county’s treasurer. Keeley says most ways to increase revenue for these projects require a tax increase or bond sale, both of which can be politically unpopular and usually require voter approval. “For example, the board [of supervisors] could suggest a package of capital improvements they would want to undertake—and that have been vetted throughout the community—and then ask the voters to approve that by way of some form of tax increase,” says Keeley. “That’s a way they could do it.” Keeley estimates it will take about four years to feel the pain of redevelopment’s end because of the supervisors’ push to get a long list of projects approved last month.
Ken Cole, executive director of the Santa Cruz County Housing Authority, says the end of redevelopment would spell big problems for low-income housing, which currently receives a state-mandated 20 percent of local redevelopment funds. He doesn’t know how counties like Santa Cruz will now meet state requirements for creating affordable housing. “The toolbox is just about empty,” says Cole. “This was like taking a hammer out of a toolbox.”
End Game
Santa Cruz County is shelving plans for new parks like one on Chanticleer Avenue just north of Capitola Road. The same goes for most of Soquel’s Farm Neighborhood Park—although the Steve Boylos Community Garden, named after the late owner of the Farm restaurant, might still be finished thanks to an outside grant.
Unless the California Redevelopment Association’s lawsuit against the state succeeds in overturning both bills, Santa Cruz City Manager Bernal says the city will have to make do with less cash. Smaller projects like façade improvements and modifications to Beach Street, Ocean Street and Highway 9 might be delayed by a year, possibly more.
Most of the lawsuit hinges on Prop. 22, passed by a sizable 61 percent majority in November, which prevents Sacramento from “seizing, diverting, shifting, borrowing, transferring, suspending, or otherwise taking or interfering” with local funds. If the lawsuit against the state succeeds and rescues the state’s 400 redevelopment agencies, the Farm Neighborhood Park and Community Center could be saved. But the state will have to cut $1.7 billion by putting other services through the paper shredder. Assemblymember Monning and Department of Finance spokesperson H.D. Palmer both indicate that a large part of the difference would be made up by cutting public education: K-12, community colleges and the University of California, which is already undergoing yet another fee hike—this one 18 percent—in September.
According to the governor’s state budget, if the state falls $600 million short of its projected revenue, a series of “trigger cuts” will kick in across 12 departments and agencies, including $400 million from UC, California State Universities, In-Home Supportive Services and the Department of Developmental Services. The next $1.8 billion, if needed, would come out of school buses, community colleges and K-12 education—including cutting the school year by 7 days.
“It has be looked at right now in the context of a $26 billion deficit. And how do we prioritize?” says Monning. “And I think you’ll find many Californians would agree with the sentiment that education and public safety should not be bypassed.”
