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San Diego Stuck State With Schools' Big Bill

In the chaotic moments before the downtown redevelopment deal
passed, documents show that San Diego leaders opted to force the
state to pay a multi-million-dollar tab for school funding, to the
benefit of downtown.

 

San Diego officials faced a choice the night they pushed a billion-dollar bill they’d been secretly working on for months through California’s legislature.

Should San Diego grab all the money it could for downtown, with dreams of thousands of new jobs, an expanded Convention Center and a new professional football stadium? Or should San Diego use some of its coming spoils to help the state keep city schools in one piece?

San Diego chose downtown. That decision provided an extra windfall for downtown redevelopment. But it stuck the state with a big tab — by one estimate, hundreds of millions of dollars a year.

The choice, made in the hours before the state passed its budget in October, epitomizes the conflict central to new Gov. Jerry Brown’s proposal to eliminate redevelopment agencies statewide. Those agencies divert tax dollars that otherwise would go to schools and local governments. California, Brown argues, cannot afford to subsidize development when schools need the money. Cities, redevelopment backers argue, need all the money they can get to stimulate growth in their communities.

The bill that ultimately became law will funnel a significant share of an estimated $6 billion in future property taxes to downtown redevelopment. But San Diego leaders discussed multiple versions in the hours before the bill passed, documents obtained by voiceofsandiego.org show, and millions hung in the balance.

One bill, which mistakenly saw the Assembly floor, put the schools’ financial burden on downtown redevelopment. The other, which was eventually introduced and approved, made school funding the state’s problem.

A day before the legislation became public, city officials, including advisors for Mayor Jerry Sanders, addressed another conundrum: the possibility that their bill would force schools to take less money. A city lobbyist wondered in an email if “schools getting screwed” could help the law’s chances by lessening the financial hit to the state.

These examples show that in the chaotic moments before the law passed, San Diego leaders at least twice contemplated hurting other governments for the benefit of downtown. In sticking the state with the schools’ bill, that’s exactly what happened.

One lead opponent of the law said the discussions fit with the deal’s overall theme: trying to hoard tax dollars for big projects at the expense of daily budgets.

“It’s not surprising that the city would want its agency to get as much money as possible for this NFL deal,” said Assemblyman Chris Norby, an Orange County Republican and the legislature’s most outspoken redevelopment opponent.

Local Republican Assemblyman Nathan Fletcher, who brokered the deal, defended it as a big win for San Diego and emphasized that the bill guaranteed all school funding. He didn’t apologize for taking a major chunk of that school money from the state’s coffers.

“The other way would have defeated the purpose of what we were trying to do, which was secure funding for San Diego,” Fletcher said. “What we did, and I’ve said this from day one, is we went and fought for San Diego. We fought for our region somewhat to the expense of other regions of California.”

The results of that fight likely will be an expensive one for California’s other regions. The official analysis from the state Department of Finance said the bill “could result in significant, albeit currently undefinable, loss” of state revenue. A Republican caucus analysis said the hit to the state “could easily be tens of millions to hundreds of millions of dollars per year.”

♦♦♦

In the beginning of October, the state budget was more than three months overdue. Fletcher’s vote was needed to pass it, and he wanted something — more money for downtown San Diego redevelopment.

A public process with a similar goal was already underway in San Diego, where the City Council had undertaken a $500,000 study to determine if it was merited. Fletcher was working to eliminate a key limit on downtown redevelopment and circumvent that process with legislation.

Redevelopment seeks to improve rundown communities by siphoning away property tax dollars from counties, schools and cities’ day-to-day operating budgets to subsidize development in those neighborhoods. The theory is that all governments benefit from increased development and property tax revenues in the long run.

But in the meantime, the California constitution requires the state to pay the money redevelopment takes away from schools. The Legislative Analyst’s Office estimates that hit to the state budget is more than $2 billion a year.

Under the plan Fletcher was pushing, downtown redevelopment — and the state subsidies that supported it — would continue for 20 years longer than it would have otherwise. Fletcher and the San Diego officials working with him had to get that bill through the legislature.

On Oct. 6, the day before the legislation was publicly revealed, city lobbyist Moira Topp received an email from a state Senate staffer.

The staffer had caught wind of the city’s plans and added a wrinkle to them.

He suggested that under existing state law, the downtown redevelopment agency would have to pay more of its property tax revenues to schools and others if the agency wanted to eliminate its dollar limit.

This news presented a problem. If special San Diego redevelopment legislation took money from schools, it might be a harder sell to education-sensitive lawmakers.

But Topp spun it another way: If their law called for schools to get less money, she wondered, then wouldn’t the state have to pay less to fund them? Maybe budget-sensitive lawmakers would buy that.

“I know it’s a double edged sword since we don’t want to brag about schools getting screwed, but wondering if that is true or not,” Topp wrote in an email to a Sanders policy advisor.

City leaders later learned it wasn’t true — the existing law didn’t require higher payments. Topp, who works for Sacramento lobbying firm Sloat Higgins Jensen and Associates, couldn’t be reached for comment. But Phil Rath, then a Sanders advisor who was included in the email exchange, said Topp was addressing “a perception battle” between schools or the state potentially coming out losers in the deal.

“Neither of which is a very good thing,” Rath said.

The next afternoon, the city faced that problem head on.

♦♦♦

In less than six hours on the day before the downtown redevelopment bill passed the state Assembly, the responsibility for potentially hundreds of millions of tax dollars switched hands without any public discussion.

At 5 p.m., Fletcher personally passed along a draft version of the bill to Sanders’ then-chief of staff. In the email, an Assembly budget committee consultant had written: “Does this work for san diego…”

It didn’t.

That draft would have forced school funding to come from downtown redevelopment instead of the state, a massive hit to the agency’s bottom line that city leaders weren’t willing to take. They didn’t believe that version of the bill would have given downtown redevelopment enough money.

Instead, they determined it was better to go through the public process the council already had started, two former Sanders policy advisors who were involved in the deal said. If that public process was successful, the state would have been stuck with the schools’ tab.

One of the former advisors, Job Nelson, said some in the city believed the bill’s language even would have hurt the downtown redevelopment agency’s current funding.

“We just looked at it and we said … ‘Wait a second, this is even worse than the deal we have now,'” Nelson said in an interview. “Nathan went back to whoever and said ‘no’ to the deal. And they blinked.”

With the cutting of four lines, the downtown San Diego redevelopment
bill switched the burden of funding city schools from the downtown
redevelopment agency to the state. Click on the image above
to see what language was removed to make the switch.

Four hours after Fletcher had emailed a draft of the bill to the city, it was ready for its public unveiling on the Assembly floor.

There was a problem.

It was the version that forced downtown redevelopment to pay the school funding, the same one the city had rejected. Between the time the assembly clerk read the bill and discussion was to begin someone recognized the mistake. The bill was pulled back quickly.

A little more than an hour later, the bill returned with four key lines removed. Language that forced downtown redevelopment to pay the schools’ share was gone. The state officially was on the hook.

Norby and other opponents of the bill rose to speak. They focused on one project planned for downtown redevelopment dollars: a new football stadium. They argued the state shouldn’t allow downtown San Diego to siphon away dollars needed for schools to help finance one.

Fletcher spoke in favor, talking about the bill’s job creation and affordable housing potential. Local Democratic Assemblyman Marty Block joined in, mentioning that both Sanders and a local organized labor leader supported the deal.

The debate lasted about 20 minutes. It was the only public discussion on the bill once it included the language Fletcher wanted.

Norby said he thought he had mustered enough opposition to defeat it. As budget talks continued through the night, Norby took a nap. He awoke to find it had passed at 3 a.m. The state Senate approved the bill soon afterward without debate.

In the morning, the bill awaited the governor’s signature along with the state budget.

Please contact Liam Dillon directly at liam.dillon@voiceofsandiego.org or 619.550.5663 and follow him on Twitter: twitter.com/dillonliam.

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