Redevelopment has transformed San Jose, with an infusion of tax money that helped revitalize a dying downtown and turned former swampland along North First Street into a bustling high-tech corridor. In other communities, redevelopment dollars have built shopping centers, affordable housing and championship golf courses.
But a budget proposal that Gov. Jerry Brown is widely rumored to be weighing may end subsidized redevelopment statewide to free up more tax money for schools and other programs. That could threaten planned projects including a San Jose ballpark and Santa Clara football stadium.
Brown's representatives people have refused to comment on the rumors, saying only that he will announce on Monday his proposals for filling a $28 billion hole in the state budget.
The roughly $5.5 billion in annual property tax revenue diverted to redevelopment agencies throughout the state could go a long way toward solving Brown's headache.
But John Shirey, head of the California Redevelopment Association, notes that most of that money is already promised to repay bondholders, who loan construction money to the state's 398 redevelopment agencies in exchange for future property taxes.
There are legal issues, too, as voters who elected Brown in November also approved Proposition 22 to bar the state from raiding local funds. Experts say it's unclear whether the measure would prevent Brown from shutting down the agencies, and any move to
State agencies in disbelief
City and redevelopment officials around the state have reacted with disbelief that the governor would contemplate such an idea, saying it would deprive them of a vital tool for attracting businesses amid an economic crisis.
San Jose Redevelopment Agency chief Harry Mavrogenes said that without redevelopment, "thousands of jobs would be elsewhere." Since 1977, the agency has spent nearly $2 billion on projects including the Fairmont Hotel, McEnery Convention Center, HP Pavilion and Children's Discovery Museum.
In recent years, Mavrogenes said, his agency also has spent $10 million to retain and attract technology companies including Brocade and Nanosolar.
"We really made major strides turning around this community," said Mavrogenes, whose agency is the second largest in the state, with $185 million in yearly property tax receipts.
Schools welcome idea
But critics, including school and county officials, say the idea is welcome and overdue. They argue that although redevelopment has its merits, local leaders have overused it to subsidize questionable private development at the expense of basic public services.
Santa Clara Unified School District Superintendent Steve Stavis said eliminating redevelopment would mean about $35 million -- about a 25 percent funding increase -- for his district.
"Could I use the $35 million to support the education of our kids? Absolutely," Stavis said.
Established from the late 1940s to early '50s, California's redevelopment law allows local governments to set aside property taxes to revitalize run-down districts; construction bonds are repaid through the growth in those designated areas' property tax revenues.
But that means less property tax money for schools. And while the state tries to backfill shortfalls caused by the diversion of taxes to redevelopment -- and most redevelopment districts have deals in place to share a portion of their property taxes -- school and county officials gripe that they still get less than they would without redevelopment.
It's likely that Brown envisions saving the state money by eliminating the need for backfill payments to schools and giving counties more resources to take on jobs the state currently does.
Redevelopment also has critics among neighborhood activists. Property taxes rerouted from other agencies come with a hitch: The money must be spent on projects to eliminate blight and can't be used for operating expenses such as paying police officers, firefighters and librarians.
That's why San Jose continues courting the Oakland A's baseball team with a multimillion-dollar deal for redevelopment land even as record deficits have shrunk the city police and firefighter ranks.
Mavrogenes and other officials argue that redevelopment is still a net gain for cities, boosting the property taxes going into local coffers by enabling projects like downtown's Adobe towers.
And losing the ability to redirect property taxes likely would put California cities at a disadvantage to other states dangling multimillion-dollar incentives. Among recent examples, Mavrogenes said, is San Jose solar power company Stion, which announced this week that it is building a new solar panel factory in Mississippi thanks to a deal with that state that includes a $75 million loan and other incentives.
Shirey said ending redevelopment means "ending the state's only economic development program that produces tax revenues and jobs and affordable housing."
Without more specifics from the governor, it's hard to say how a wholesale change in redevelopment might affect projects already in the pipeline. San Jose needs to acquire additional land for the downtown ballpark, which Mavrogenes said might be more challenging if the state took more redevelopment money than it already has in past budget-balancing raids.
Santa Clara Assistant City Manager Carol McCarthy said up to $40 million for the planned 49ers football stadium in the city's Bayshore North redevelopment area would have to come from another private source if redevelopment money were no longer available.
And in Oakland, plans to remake a former Army base and build a "transit village" near the Coliseum could be threatened by Brown's plan, said redevelopment director Gregory Hunter. It would require "huge legal wrangling" if the city were forced to get out of those construction contracts, he said.
But Christopher Sutton, a Pasadena lawyer who has represented opponents of redevelopment projects, argues that what may have started as a good urban improvement idea has morphed into a growing monster.
Many redevelopment areas no longer fit any reasonable definition of blighted, Sutton said, citing examples like downtown Los Angeles' Bunker Hill, whose slums have been replaced by gleaming high-rises and a new Walt Disney Concert Hall.
Sutton said many people, presumably including Brown, have come to realize money set aside to support development comes out of classrooms.
"What do you value more," Sutton asked, "public education or subsidizing sports teams and developers?"
Mercury News staff writer Tracy Seipel contributed to this report. Contact John Woolfolk at 408-975-9346.