Among the hardest hit in Gov. Jerry Brown's proposed $12.5 billion cuts Monday were the state's 400-plus redevelopment agencies, which -- if Brown has his way -- the legislature would phase out by July 1.

"The governor appears not to understand how job creation and job growth happen at the local level, because he is preparing to take away the most important tools we have,'' said San Jose Mayor Chuck Reed.

Redevelopment agencies are formed to eliminate blight and revitalize designated "project areas." Their funding is derived from the increase in the property tax base in those areas.

San Jose's agency has helped revitalize downtown, attracted high-tech businesses along the North First Street corridor and is trying to create a Major League Baseball stadium near the Diridon Station area.

Redevelopment "has done some important things,'' Brown acknowledged during Monday's press conference to announce the proposed budget. But, he said, "redevelopment takes money from schools and cities and counties, and the state has to backfill and make up for the property taxes taken by redevelopment."

Brown said he wants to take that money and "leave it at the local level.''

His plan would protect all existing contractual and financial obligations that those agencies have while creating "successor'' agencies that would manage that debt.

H.D. Palmer, deputy director of the California Department of Finance, said that after fiscal year 2011-12, about $1.9 billion would be freed up annually for local governments. That number would increase, he said, after redevelopment agencies pay off their debts.


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Brown said he'd also seek legislation (or a ballot measure) that will allow local jurisdictions to tax themselves for economic development with a 55 percent vote of the electorate.

The governor's proposal also suggests that any money in redevelopment agencies' balances reserved for low-to-moderate income housing be shifted to local housing authorities.

The proposal to eliminate redevelopment agencies -- anticipated by agency officials statewide since rumors about the possibility surfaced last week -- drew harsh criticism from local leaders.

"We have to compete with places like Texas and Arizona and Oregon that have state funding available," Reed said. Without redevelopment or enterprise zones, which give tax breaks to business and which Brown also wants to eliminate, "it's going to make it more difficult to keep jobs in California,'' Reed said.

John Shirey, head of the California Redevelopment Association, echoed that sentiment.

"Agencies would be eliminated and some sort of shell agency would be put in its place whose primary function would be to pay bills,'' said Shirey. "There would be no new bonds issued or contractual agreements -- nothing we think of today as redevelopment.''

But critics of redevelopment agencies said Brown's move is long overdue.

"The agencies have never been required to get voter approval, so they borrow money willy-nilly,'' said Christopher Sutton, a Pasadena attorney and redevelopment critic.

Mavrogenes and Shirey both cited potential legal issues surrounding Brown's proposal, particularly because it seems as though Brown's efforts are trying to undo Proposition 22, which voters passed overwhelmingly in November and prohibits the state taking money from local governments.

Brown's budget director, Ana Matosantos, said Brown's plan circumvents Prop. 22 by eliminating redevelopment agencies altogether, assuming the Legislature votes to go along. But Mavrogenes and others were unswayed.

"What is clear is that we have to think creatively about how to adjust and be part of the solution,'' said Mavrogenes. "This is not a done deal yet.''

Brown also proposed cutting funding to local libraries by $30.4 million in fiscal year 2001-12. It would eliminate funding for three major programs, including the Public Library Foundation; California Library Literacy and English Acquisition Services; and the California Library Services Act.

San Jose Library Director Jane Light said the proposal would be a blow to the city's library system, which would now have to make up about $420,000 it receives from the state for the three programs. And that's on top of what she called "an extremely likely budget cut'' of more than $450,000 from the city's general fund next year.

Combined, she said, the budget cuts could lead to layoffs of at least 20 library workers and reduce library hours from 4.5 days a week to 4 days a week.

Over at the Santa Clara County Library System, Deputy County Librarian Derek Wolfgram said the county's seven libraries may not suffer quite as badly because the county libraries are run by a joint powers authority agency that receives dedicated property tax revenue and voter-approved special taxes.

Still, Wolfgram said, Brown's proposal would mean a loss of about $1 million to the county library system, which will have to be made up somewhere.

Brown also proposed to cut $32 million that funds the California's 78 state fairs. But that shouldn't hurt the Santa Clara County Fair, according to Andrea Flores Shelton, a spokeswoman for County Supervisor George Shirakawa Jr.

She said Fairgrounds Management Corp. General Manager Ray Lueckeman has told Shirakawa that 2011 is the first year the county fair was expected to receive any state money, and in the amount of $120,000. She said Lueckeman said the fair, which is held in Shirakawa's district, "would still be in the black'' without the state funding.

Contact Tracy Seipel at 408-275-0140.