As with so many issues in California state finance, following the trail of RDA history leads back to Proposition 13. The 1979 referendum freezing property taxes is central to the complexity of unwinding the state’s RDA program. That’s because Prop 13 had the secondary effect of making redevelopment a popular way for municipalities to take bigger pieces of a static revenue pie. In effect, Prop 13 elevated redevelopment to the role of a municipal finance strategy.
Increased tax valuation for redevelopment areas – called the tax increment – went directly to the RDA to pay development expenses, including bond debt. Thus, it bypassed the normal distribution to local services such as schools, public safety and utilities, and became effectively an incentive for all kinds of financial maneuvering. When the obligations were paid off, tax revenues returned to normal distribution. Except, of course, when RDAs extended project debt with a device called an SB211 amendment.
Over the years, RDA finances expanded to include any and all kinds of questionable “obligations,” according to State Controller John Chiang’s 2010 audit of selected RDAs – which also highlighted Bell’s RDA fund transfers to a now-notorious slush fund for public officials.
L.A. charged its RDA millions for unspecified “overhead,” Palm Desert used RDA money to spruce up a four-star private golf resort, and Pittsburgh’s RDA gave $16.6 million to that city’s general fund for unspecified future projects. Fontana designated almost three-quarters of the city an RDA area, making tax increments the city’s largest revenue source.
In other words, it’s not surprising that other California public agencies now think it’s payback time.