Court ruling a death sentence for redevelopment agencies

State lawmakers can kill redevelopment agencies but can't force them to pay bills traditionally handled by the state, the California Supreme Court ruled Thursday. One Yuba City official called the decision a "worst-case scenario" in a six-month waiting game.

"We've been able to effectively use (redevelopment) for over 20 years, and now that tool's been taken away," said Steve Kroeger, Yuba City's assistant city manager. "The Supreme Court decision was a worst-case scenario."

Yuba City has one of about 400 redevelopment agencies throughout California. Gov. Jerry Brown and legislators passed laws in June abolishing them unless they agreed to share their money. The Supreme Court unanimously OK'd dissolving the agencies but struck down the law allowing cities to continue redevelopment if they paid the state.

Yuba City's redevelopment agency generates $3.8 million a year, which provides people with affordable housing and pays off debt on projects like the Town Center, the Plumas Street Shopping District, Gauche Aquatic Park and the ongoing rehabilitation of the Sutter Theater. To keep redevelopment alive, the city was scheduled to make two payments to the state next year totalling $1.2 million.

Kroeger called the payments "extortion money," but said paying more to keep redevelopment alive would be better than no redevelopment at all.

The state will save more than $1 billion in this year's budget by eliminating the agencies, but it will not get an estimated $400 million a year thereafter from money that would have been set aside by agencies to continue operating. The state, which is heading into the new year with a $13 billion shortfall over the next 18 months, had initially estimated the current-year savings at $1.7 billion.

The governor and supporters of the law say redevelopment agencies have become little more than slush funds for private developers, and they want the tax money generated by new developments to be diverted from the agencies to local services and agencies.

Kroeger said Yuba City's use of redevelopment is in line with what the Legislature envisioned in 1945 when it created the agencies. Their purpose is to "attack urban decay," according to the California Redevelopment Association.

"Redevelopment breathes new life into deteriorated areas plagued by social, physical, environmental or economic condition which act as barriers to new investment by private enterprise," according to association documents.

Agencies get money by developing property, reaping the difference in a property's taxes after it gets developed.

The Town Center's $20 million medical complex is a perfect example of that, Kroeger said. After the Del Monte cannery shut down in the early 1980s, it was a "major" eyesore blighting the middle of town. Redevelopment money cleaned up the site and paved the way for the Sutter Surgical Hospital — North Valley.

Kroeger doesn't think Yuba City is unique, but said there is always a sliver of people who try to break the rules, whether you're talking about redevelopment or gambling.

"There's one or two people who've gone wayward, and it's given redevelopment a bad name."

Redevelopment critics noted Palm Desert spent $16.7 million in redevelopment funds to upgrade a luxury golf course, the San Francisco Bay Area city of Hercules used affordable housing money to hire a lobbyist, and Montebello spent $31 million on — among other things — fancy dinners in Las Vegas, golf and embroidered polo shirts.

Redevelopment cash in Marysville isn't being used to buy fancy dinners or much of anything, said City Manager Steve Casey. The city uses the agency to pay off debt incurred for projects completed back in the 70s and 80s.

"All we do is pay the debt on it," said Casey.

The state loses out on collecting that debt if it kills the agencies, Casey said. Legislators need to figure out how to deal with cities like Marysville or "back off" and leave redevelopment agencies alone.

"This decision throws the whole thing back into limbo," he said. "All they're doing is creating a giant mess, which is fairly normal for the state."

Live Oak hoped to use redevelopment as a tool to rehab its gutters, curbs and sidewalks when it formed its agency in 2007, said City Manager Jim Goodwin. Then the housing bubble burst and development stopped. Then the state pushed to dismantle the agencies.

"The city has huge infrastructure needs," he continued. "It's still very much a question mark whether redevelopment will ever be a tool again to help accomplish those.

"If not, we have to rethink how we can target investment into the older parts of our community."

Unlike Yuba City's agency, which started decades ago and has sparked and sustained numerous multimillion dollar projects, Live Oak's was just starting when the housing market burst and halted development in the Central Valley.

"We have no money," Goodwin said, laughing. "We've really been in a wait-and-see mode."

Goodwin said he has no reason to think redevelopment will be a tool Live Oak can turn to.

"The governor and the Legislature have been on a path to dismantle it," he said. "I don't see any indication that will change."

CONTACT reporter Jonathan Edwards at 749-4780. The Associated Press contributed to this report.