It’s ironic that the Housing Trust Silicon Valley – the area’s leading affordable housing champion – chose for the keynote speaker at its annual fundraiser last Friday April 17, California Treasurer John Chiang, a man who single-handedly did more to cripple California’s affordable housing programs than anyone except Gov. Jerry Brown.*
As State Controller, Chiang published a 2010 audit that propelled the RDA shutdown by highlighting exceptional cases of RDA financial malfeasance. He also set the pace for draconian interpretation of the 2010 RDA dissolution law.
Adding to the irony, the event was held in the Santa Clara Convention Center; the object of County efforts to “clawback” about $350 million in City-owned real estate held by its RDA. It was the day the County asserted Santa Clara had to sign the property according to a December judgment. However, the City’s counter-claim against the County’s claw-back demands will be heard in Sacramento Superior Court on Friday April 24, so no keys are being turned over just yet.
Under the circumstances, it was no surprise that the RDA assets dispute surfaced at the luncheon.
Santa Clara Mayor Jamie Matthews didn’t waste any time asking for Chiang’s intervention, as the State Dept. of Finance has been give free reign to apply the law as it chooses until it’s stopped by a court.
After welcoming guests, congratulating the Housing Trust on its many accomplishments over the past 15 years, and noting Santa Clara’ s record of support for affordable housing – the City set aside more than the required 20 percent of RDA revenue – Matthews made his plea for fairness.
“The dissolution … created many challenges including our ability to create and encourage the development of affordable housing. It has also pitted local agencies against each other and created Oversight Boards with no responsibility to serve the greater good.”
“Even the authors of the law would admit that it’s flawed and … poorly written,” he continued. “As a result, great latitude can be taken with the interpretation by Oversight Board members, who are neither elected by the people nor responsible for the outcomes.” They are, he said, “advised from the shadows” by self-servers and bomb-throwers who deny responsibility.
“I think it would be difficult for anyone to say that this convention center is not a ‘public building,'” Matthews said. “As such it should be exempt from the [clawback] law … [It] is not a profit center. It is subsidized by the city to provide a public space for … important meetings such as this. Today I make a public plea to State Treasurer John Chiang and the Department of Finance [DOF] to intervene on our behalf to clarify that this building is a public building, so that Santa Clara retains this great public space for … the future.”
California’s Fiscal Picture Dramatically Better, But Still Barriers to the Housing Program Support Needed
Before 2011, funding for 80 percent of California’s affordable housing funds came from RDA revenue set aside for that purpose.
Chiang gave Matthews an answer Friday. But he did remind listeners of California’s 2008-2009 fiscal shipwreck – easy to forget in the current prosperity – that focused attention on RDA’s $6 billion property diversion (tax increment). He noted that Prop 13 and Prop 98 “handcuffed” local officials in the face of fiscal crisis, and made it harder for the state to negotiate better bond ratings.
He reminded listeners of the $16 billion deficit, the legislature’s 2009 budget stalemate (corrected by 2010’s Prop 25 reducing the votes to pass a budget to 55 percent), $206 million in IOUs the state had to use to pay its bills in the meantime, and the programs that simply went unfunded.
The financial picture is better today. State revenue is more than half a billion dollars ahead of projections, and debt is $834 million less than projected. The state retired its cash debt last June. California is the 7th largest economy in the world, $3.3 trillion. And problems lie ahead in the form of the state’s unfunded liabilities for retiree and medical care – $72 billion – and pensions – $48 billion. If this has to be funded by debt, the long term cost will be another $22 billion.
Currently California’s three top spending items in its $107 billion budget consume more than 90 percent of its budget; K-16 education (53%), health and human services (29%) and corrections (9%, of which almost 10% is the $75 million cost of California’s death penalty). That leaves a mere eight percent for everything else, including housing.
Despite these grim numbers, there are some reasons for optimism. One is the fact that bond rating agencies like Standard & Poors now consider housing costs as a minus for California. “The first issue they identified [as a problem] was [the ratio] of construction to growth,” said Chiang. “California has under-produced housing since 1989.”
Other hopeful signs include the bill currently in the legislature to increase both affordable housing tax credits and state funding. The National Housing Trust Fund will resume providing housing block grants after an eight-year hiatus caused by bankruptcy and reorganization of federally guaranteed mortgage backers Fannie Mae and Freddie Mac. The funding will return for the Cal ReUse brownfield reclamation program.
However, California’s economy will always be a roller coaster, said Chiang. “We will never end the business cycle,” Chiang said. “We shouldn’t be too exuberant when times are good. Effort has to be catalyzed in this opportunity. We can’t,” he emphasized, “repeat the mistakes of the past.”
Bigger RDA Dissolution Bite Buried in Budget Bill
As the cliché goes, when you think it can’t get worse, it does. Not only is there a little-noticed feature consolidating all county RDA Successor Agencies into a single countywide SA on July 1, 2016, apparently some think the current law isn’t draconian enough and have proposed changes, buried in the 2015-2016 budget as part of the trailer – instructions for implementing the state budget.
The County Controller will staff the consolidated SA and be reimbursed for all its costs from the Redevelopment Property Tax Trust Fund (tax increment) up to 50 percent of those revenues.
This new entity will also have a new Oversight Board; with members appointed by the Board of Supervisors, a “city selection committee,” an “independent district selection committee,” the County Board of Education, the Community College Chancellor, and the largest public employee union in the former RDAs’ geography. The Board of Supervisors can also appoint a member of the public. The Governor will can fill any seats still vacant on July 15, 2016.
The 91 pages of changes to the dissolution law are designed to “streamline the state review process to continue the wind-down activities.” The new efficiency will come from retroactively abridging cities’ legal rights.
This includes retroactive provisions to reverse court decisions that favored cities challenging DOF rulings. It also exempts DOF actions (past and future) concerning RDA dissolution from California’s Administrative Procedures Act (public transparency), despite court findings that the DOF has “abused its discretion” in the administering the dissolution law. Another provision limits cities’ reimbursement for legal expenses, effectively limiting their abilities to defend their legal rights. The legislature can make laws retroactive if they specifically state that intention.
The changes also include classifying parking lots as public facilities – as long as they’re not profitable.
*Brown and Chiang aren’t solely responsible for this, of course. The State Legislature passed a badly written law shuttering the RDAs, and inoculated themselves against its problems with a companion bill to let RDAs continue operation if they paid the state part of their revenue. The League of California Cities challenged both in court. Its legal gamble backfired. The court upheld the first law (dissolution) and struck down the second finding it violated California’s prohibition on state appropriation of local agency tax revenue.