California Nightmare

California Nightmare

The gaping hole in California’s budget that the state legislature closed last week was, at $26 billion, larger than the gross domestic product of many countries. Since raising taxes is out of the question—thanks to Proposition 13 and Republican refusal to surmount it—the assembly and senate turned to deep spending cuts. Those cuts will hurt almost every sector of the state’s social services, from education to health care, from parks to law enforcement.

But a $2.1 billion cut to redevelopment funds—$1.7 billion for the current fiscal year, plus $350 million to be cut next year—will have a major impact on the design and construction industries, and could be the deciding factor in whether projects, both stalled and shovel-ready, go forward. To make matters worse, opponents of the cuts believe that delays will deepen the recession, further depressing development prospects.

“This is probably the most critical vein within the state budget that is related to the capital projects architects work on,” said John Kaliski, president of the AIA’s Los Angeles chapter. “This will lead directly to architects not proceeding with work or getting started on new projects.”

The state’s 397 authorities cover 745 redevelopment areas, ranging from the Community Redevelopment Agency of Los Angeles, which is losing $70 million, to the Waterford Redevelopment Agency, serving a town of 7,000 in Stanislaus County, which will be out $150,000. The neighboring town of Riverbank is losing $480,000. “That’s big money to them,” said John Shirey, executive director of the California Redevelopment Association, an advocacy group. “Riverbank is just a small, little town, and it can hardly afford to lose $480,000.”

The redevelopment authorities dole out cash raised by local property taxes to support privately developed projects deemed to serve a public benefit, which can be anything from Skid Row housing to a new stadium for the Oakland Raiders. The redevelopment program, enacted in 1951 under the Community Redevelopment Law, has its critics, though. They say it creates more boondoggles than benefits—a 36-hole golf course in Palm Springs, for example—and misappropriates local property taxes, both reasons given for the current budgetary action.

Karren Chappel, director of UC Berkeley’s Center for Community Innovation, said that when it comes to deciding between building or paying welfare checks, she is inclined to slash the former, even if it might also mean fewer units of affordable housing. “In a way, there’s a lot fewer people hurt if you raid from redevelopment,” she said. “Some projects are good, but some are just handouts to well-connected developers.”

Legislators argue they had no choice but to make cuts from the redevolpment funds, especially in light of an early attempt to close a $40 billion budget hole in February. "Over the course of the year, we’re looking at a $60 billion deficit," Alicia Trost, press secretary for Darrell Steinberg, the leader of the state Senate. "We tried to spread the pain as much as possible," she added. "The most important part was protecting our social safety net in these hard times."

But Mark Christian, the director of legislative affairs for the AIA California Council, believes the legislature turned to the agencies simply because the money was ripe for the taking. “The redevelopment agencies had money, and the state needed money,” Christian said.

Agency advocates say that the state’s economic recovery could suffer because of the cuts. According to the California Redevelopment Association, every $1 spent by the agencies is matched by $6 in private funds that then generate an additional $7 in economic activity. “It’s utterly backwards,” Shirey said. “We like to call it anti-economic stimulus.”

Shirey also noted that approximately 150,000 construction-related jobs have been lost over the last year because of the recession. By the association’s calculations, the budget cuts will cost the design and construction industries an additional 164,000 jobs this year and 34,000 the following year. “It’s a double whammy,” he said.

But Shirey is not as worried as he could be. His group has filed a lawsuit against the state and expects to win, given that a similar action was taken last year in an effort to balance the budget. That attempted $350 million seizure was overturned by the state court weeks before the money was due to be dispersed to the local agencies. This year, legislators argue they had written the new budget in a way that makes it constitutionally viable, but Shirey remains confident in his cause.

Kaliski is less sanguine, as architects across the state are counting on these funds for jobs. “They’ve decided they’re going to ignore the future,” Kaliski said. “They could have made the cuts elsewhere, and sure, people will have to suffer now, but at least you’re investing in the future. Now we all have to pay the price.”