Update On Redevelopment Law: No News Is...No News

This is the first in a series of blog entries monitoring the proposal to eliminate redevelopment agencies and describing alternative public funding sources for redevelopment projects.

After much discussion, debate and lobbying in the last three months, the fate of California's redevelopment agencies is still uncertain. Legislative bills to eliminate the agencies, called RDAs for short, have failed by a single vote. Many political leaders are still pushing for elimination; others are now actively searching for compromise solutions that will allow RDAs to survive. What appears certain at this point is that there will be less tax increment revenue available for real estate development in redevelopment project areas. As a result, development projects in these areas, already suffering from market forces and limited debt availability, will face an even bigger challenge.

The Governor's Proposal Jerry Brown's run to return to the governorship of California was predicated in large part on his ability to solve the State's looming budget crisis. The current year's budget deficit will exceed $25 billion. When the newly sworn in Governor presented his first budget proposal on January 10, 2011, he contemplated slashing $12+ billion in State spending in a wide array of areas, including, welfare, health services and higher education, and a comparably sized extension of expiring tax rates and fees to be placed on the ballot in the June election. The Governor's goal was to get a package approved by March, in sufficient time to have the tax extension measures placed on the ballot in the June special election.

Of particular concern to the real estate development industry and local governments was the proposed elimination of RDAs. According to the Governor's proposal, elimination of RDAs and their right to receive property tax increment in redevelopment project areas would free up $1.7 billion this year, and over $5 billion a year in subsequent years.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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