A Tiff Over TIF In Northern California

Proponents of urban redevelopment are forever touting the wonders of what their plans will bring about by way of city revival, even if reality is often a lot more modest than their projections. But whichever way the proposed projects turn out, they have to be paid for, and as we well know there is no such thing as a free lunch. The money for redevelopment projects comes from the sale of municipal bonds whose proceeds become the grubstake for a particular redevelopment project. But bonded indebtedness has to be paid back with interest, and here where the fun begins.

What drives redevelopment, are tax increment financing (TIF) bonds. The idea behind them is that the subject area will produce higher taxes in its redeveloped condition, and their increment over and above the amount they produced before the project was initiated, is diverted from the usual city or county taxing authorities — the folks who run schools, police and fire departments, collect the trash, etc. — and is channeled into the redevelopment agency treasury. Since these are revenue bonds that do not pledge the city’s credit, they need not be approved by the electorate, so that in most cases the people don’t even know what debts the redevelopment agency is incurring. To give you some idea of the dollar amounts involved, in California, redevelopment bonded indebtedness has gone from $5 billion in 1985 to $81 billion in 2006.

So this may be a sweet deal for redevelopment agencies, and for buyers of those tax-free bonds, but not for the counties which lose the tax increments to redevelopment agencies, and must make up the shortfall somewhere else — which, of course, isĀ something they do not like one bit.

Case in point, the April 14, 2010, issue of the Mercury News (Ian Bauer, County to Milpitas: Revisit RDA Expansion Plan or Fave Lawsuit) reports that Santa Clara County is bent out of shape over Milpitas’ redevelopment plan. The county contends that the city is not in compliance with California redevelopment laws. The county takes the position is that “the city needs to show on record that ‘evidence of blight’ exists” but the city has not established that. Fancy that! Quoth Santa Clara County deputy county counsel: “They haven’t shown that there’s enough blight in the area they want to redevelop,” noting that by the county’s lights the planned redevelopment area has no more than 10% blight in it.

Bottom line: the county evidently thinks the city is creating an excessively large redevelopment area to get its hands on those tax increment revenues, being as we are in a recession and the city could use the money. “Suing the city is [the county’s] only option if if they don’t halt the amendments [to the redevelopment plan] or scale them back to something that’s reasonable or supported by the evidence.” We can’t wait.

Oh, wait! We were thinking of selling tickets to the trialĀ of this controversy, but then we remembered. These lawsuits are often threatened but rarely filed, and when filed are usually settled because, we suspect, neither side is eager to ventilate all this high-finance in public where the voters might take notice and try to do something about it.

To read the whole Mercury News story, go to http://www.mercurynews.com/milpitas/ci_14883612