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California cities and counties, which face great limitations on their ability to generate new tax revenues, have to find that money elsewhere. Proposition 13 caps property tax rates, and Prop 218 (from 1996) closed most loopholes that creative municipal finance managers had punched in Prop 13. Thus, cities and counties are often stuck trying to re-direct revenue from other entities — school districts, the state, and each other. Local governments use incentives to lure businesses, especially those that generate sales taxes, away from other jurisdictions. Cities and counties also create redevelopment areas. For decades, the Community Redevelopment law has been a powerful tool for reversing the fortunes of “blighted” neighborhoods, and for filling the coffers of cities and counties. Under redevelopment, the local government’s redevelopment agency does not have to share most of the growth in property taxes — called “increment” — with other entities. Instead, the redevelopment agency is supposed to invest the funds in infrastructure and affordable housing. Like any powerful financial tool, however, redevelopment has been abused. The state Legislature cracked down on these excesses by passing AB 1290 in 1993. Most importantly, the law tightened the definition of “blight” and required that at least 80 percent of land within a redevelopment area be “urbanized.” Apparently, not everyone was paying attention when AB 1290 went into effect. Instead, some have attempted to move forward under the old rules of the redevelopment game — the sort of rules that allowed one city to declare empty desert land “blighted” so it could develop a golf course and country club. But courts have been taking the reforms seriously. In late July, the 3rd District Court of Appeal invalidated a redevelopment plan for the resort town of Mammoth Lakes in Mono County. The decision in Friends of Mammoth v. Town of Mammoth, 00 C.D.O.S. 6141, followed by three months a Second District ruling that threw out a city’s redevelopment plan, Beach-Courchesne v. City of Diamond Bar, 00 C.D.O.S. 3295. Both rulings build upon a 1998 case, County of Riverside v. City of Murrieta, 65 Cal.App. 4th 616, that is rapidly becoming a show-me-the-blight standard. In both Friends of Mammoth and Beach-Courchesne, the courts held that the cities did not prove the areas pegged for redevelopment were blighted, and in Friends of Mammoth, the court held that the city failed to prove the area is adequately urbanized. In both cases, it appears the cities knew that large-scale development was on the way, and the cities wanted to grab a bigger chunk of taxes from the new buildings. “The facts of this case,” Justice George Nicholson wrote in Friends of Mammoth, “exemplify the misuse of redevelopment power the Legislature sought to curb. The Town sought to include in the Project Area undeveloped and obviously non-blighted land which is planned and approved for extensive private development. The touchstone of redevelopment is the elimination of blight on developed lands, not the instigation of economic development on forested lands.” Murray Kane, of L.A.’s Kane, Ballmer & Berkman, won both Beach-Courchesne and Friends of Mammoth. He confirmed the courts’ increased scrutiny on redevelopment cases affected by the 1993 reform law. “The courts are more and more looking for evidence in the record to support the finding of blight,” Kane says. “ Friends of Mammoth is not an anti-redevelopment case, it’s about putting unblighted areas in a redevelopment plan.” Cities and counties argue that the courts are making the burden of proof too great. The court in the Diamond Bar case rejected a consultant’s field survey as “bald conclusions” that could not be scrutinized. In Friends of Mammoth, the court held that the city did not prove any of its assertions regarding dilapidated buildings, oddly shaped lots and how they hinder economic growth. “The Town Council could not determine from the evidence that the flat rate of tax revenues was caused by the defective design or construction, inadequate lot sizes or substandard lot design,” Nicholson wrote in Friends of Mammoth. Many things could have been responsible for sluggish revenues, the court ruled. Kane rejects the argument that courts are too tough on local governments. It is difficult to prove blight only if it does not exist. The 1993 reforms, Kane says, actually made proving blight easier because the Legislature established criteria, such as residential overcrowding, high commercial vacancy rates, and concentrations of businesses with negative secondary effects, like liquor stores and strip clubs. But it’s easy to see why cities stretch the rules. When the economy was sour during the early ’90s, the state shifted billions of property tax dollars from cities and counties to cover the state’s funding obligations to schools. Now that the economy is booming and the state government has more money than it knows what to do with, the bulk of the early ’90s tax shift remains in effect, leaving cities and, especially, counties to fight over the crumbs. Kane says the disparity is a prime reason for today’s redevelopment abuses. “There is still, statewide, a tension in the minds of most city managers between following the law and the fiscal disaster that has been meted out by the state,” Kane says. “Obviously, everybody should follow the law, but it’s also true that cities should not be pushed into considering ill-advised projects.” City and county policy-makers could hardly say it any better.

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