San Jose’s high-profile plans to pump $120 million into dilapidated neighborhoods and build 6,000 new units of affordable housing over five years could all but disappear if lawmakers approve proposed state budget cuts.
Mayor Ron Gonzales will soon unveil his response to the proposed cuts, possibly freezing new projects, but city leaders vow to take their fight to Sacramento.
Faced with a staggering $34.6 billion deficit, Gov. Gray Davis is seeking to take up to $500 million in housing money this fiscal year from redevelopment agencies statewide.
In the next budget year, he also wants to shift an additional $250 million in general redevelopment money to replace part of the state’s contribution to local schools.
More money is at risk
He proposes eventually eliminating up to $1 billion — or half the annual income — from agencies charged with revitalizing downtowns, building affordable housing, and constructing major projects including convention centers, museums and arenas.
The San Jose redevelopment agency’s income has more than doubled during the last decade, allowing the city to approve major programs, including one that injects more money into neighborhoods.
The agency’s riches have not been amassed without controversy, though. Some observers have argued for years that the agency collects more than its fair share of tax revenue, through a wrinkle in California law allowing it to divert property tax money at the expense of the county and the state.
San Jose officials defended the agency, and Mayor Gonzales called the governor’s proposals “devastating.”
He and other mayors plan to fight to limit the cuts, but his own proposal could include staff and program reductions.
“It could spell the end to affordable-housing programs in San Jose, to our Strong Neighborhoods Initiative and to programs that help stimulate our economy,” Gonzales said.
Redevelopment agency Finance Director David Baum said the agency could lose $18 million next year, or the ability to float $180 million in bonds to pay for projects. Other experts peg the figure at closer to $25 million.
In practical terms, San Jose might have to abandon projects not already under contract. The biggest is the Strong Neighborhoods Initiative, but there are other plans, including $80 million or more on two new parking garages downtown.
Cecilia Santos-Chavez, who has been active in the initiative, said she was concerned, but not surprised, by the proposed cuts to the program, which would develop parks, renovate community centers and calm traffic.
Redevelopment agencies receive nearly all of their funding from property taxes. When agencies declare certain areas blighted, the property tax revenues for counties, city general funds and schools in the redevelopment areas are frozen.
All extra property tax generated by new development in those areas goes to the redevelopment agencies.
In San Jose, where high-tech headquarters for Cisco Systems and Agilent Technologies were built in redevelopment zones, those revenues are expected to be $186 million this year.
Agencies can issue about $10 worth of debt for every dollar of tax revenue, so San Jose can issue $1.8 billion in bonds based on that revenue.
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But the bulk of that money is already spoken for — in debt payments for projects including the convention center, the Tech Museum of Innovation and the joint city-San Jose State University library.
The governor’s proposal casts doubt on how much revenue agencies will receive, throwing future development plans into chaos.
Anita Gore, a state Department of Finance official, said no one relishes the cuts, but they’re necessary.
“There is a $34.6 billion budget shortfall, and in order to continue to provide services in the myriad programs that exist in the state, we all have to be part of the solution,” she said.