The street level lobby of the Hotel Berry in Sacramento on Wednesday, July 11, 2012. The $24.8 million project started in 2010 and included renovations and upgrades of the interior, establishing 104 studio apartments available as affordable housing. The project was funded by redevelopment dollars. Randall Benton Sacramento Bee file
The street level lobby of the Hotel Berry in Sacramento on Wednesday, July 11, 2012. The $24.8 million project started in 2010 and included renovations and upgrades of the interior, establishing 104 studio apartments available as affordable housing. The project was funded by redevelopment dollars. Randall Benton Sacramento Bee file

The Public Eye

Steinberg role in redevelopment agencies’ demise emerges as campaign issue

By Ellen Garrison

egarrison@sacbee.com

April 16, 2016 02:57 PM

Former state Senate leader Darrell Steinberg prides himself on having survived the longest as a legislative leader among those who negotiated unpopular budget deals during the recession.

One particular move – Steinberg’s part in eliminating local redevelopment agencies in 2011 – has emerged as a campaign issue as he runs for Sacramento mayor in a city pushing hard to develop its urban core.

In 2011, Gov. Jerry Brown took aim at redevelopment agencies, which he opposed for financial and philosophical reasons when trying to eliminate a budget deficit that was initially $26.6 billion. He argued that redevelopment took money away from schools and subsidized private developers.

But the agencies were popular among cities, including Sacramento, which relied on its redevelopment agency to help fund urban infill projects, pollution cleanup, affordable housing and commercial projects like the Citizen Hotel.

In June 2011, a $9.6 billion deficit remained after an earlier round of cuts and budget maneuvers, and Brown continued to call for the elimination of redevelopment. Steinberg and the Legislature came up with a compromise: eliminate redevelopment agencies but reconstitute them in a smaller form.

Only the first part of the deal survived. Responding to a lawsuit filed by cities, the state’s highest court said lawmakers could eliminate the agencies, but not re-create them in the way they wanted.

Steinberg said last week that balancing the budget required deep cuts across the board and redevelopment agencies were trying to exempt themselves. If the two bills had gone into effect as planned, the state would have netted about $1.7 billion and the agencies would have been allowed to continue with smaller budgets.

“We made hard decisions,” he said. “I call that leadership.”

Steinberg says he never wanted to outright end redevelopment agencies. But mayoral candidate and Sacramento Councilwoman Angelique Ashby says Steinberg bears blame for the ultimate elimination of Sacramento’s program. She said that it has left the city without crucial funding for affordable housing.

“I know that he believes he helped plug the hole, but the problem is that he did it on the back of cities,” said Ashby, who was in her first City Council term at the time. “From a city perspective, it was really disappointing to lose such a great tool. If he had opposed it, if he had rallied votes against it, then it wouldn’t have happened.”

I know that he believes he helped plug the hole, but the problem is that he did it on the back of cities.

Councilwoman Angelique Ashby, criticizing mayoral opponent Darrell Steinberg for agreeing to cut redevelopment.

In 2009, the 14 redevelopment areas in the city of Sacramento and in unincorporated Sacramento County generated more than $61 million for redevelopment projects.

In local areas that cities and counties deemed blighted and named “redevelopment areas,” the share of property tax revenue going to local governments and schools was frozen so that over time, as that revenue went up, the increases could be redirected to the local redevelopment agency, minus a small percentage that continued to go to schools and local governments.

Under the law, at least 20 percent of redevelopment funds were earmarked for affordable housing. The remaining 80 percent could go toward commercial and market-rate residential development and streetscape beautification.

In Sacramento, $81 million of redevelopment funds went to affordable housing projects between 2004 and February 2012, according to the Sacramento Housing and Redevelopment Agency. The projects resulted in 7,329 units, 3,189 of which were for very low-income and homeless families, including the rehab of Hotel Berry on L Street and the rebuilding of the Phoenix Park apartments in south Sacramento.

Brown and other leaders said the state ultimately had to pay for redevelopment because it had to make up the education dollars that were being redirected locally to projects.

Peter Detwiler retired months after the 2011 budget deal and was long considered the Capitol’s foremost expert on local government finance in his role as a chief committee consultant. He said the budget package was intended as a concession to the Brown administration while still preserving part of the redevelopment system. Detwiler is supporting Steinberg in the mayoral race.

“The two bill package – I think it was a very clever political tactic,” he said. But, “there were a lot of strategic miscalculations on all sides except for Governor Brown.”

The California Redevelopment Association, led at the time by current Sacramento City Manager John Shirey, the League of California Cities and several individual cities sued the state over the budget package.

The California Supreme Court handed down a decision that Detwiler described as the worst of both worlds for the agencies. The first bill, Assembly Bill X1 26, eliminating the redevelopment agencies, was constitutional. The second bill, AB X1 27, allowing the agencies to continue if they paid out to the schools, was unconstitutional.

Steinberg said the cities’ lawsuit was an “ill-fated decision.” He said he fought to retain redevelopment agencies, albeit in a smaller form.

“The Supreme Court essentially said ‘well, if it’s all or nothing, then it’s nothing,’ ” he said. “It was a very unfortunate outcome. It was self-inflicted by the cities and the redevelopment agencies themselves.”

We made hard decisions. I call that leadership.

Mayoral candidate Darrell Steinberg, referring to a 2011 budget deal that cut redevelopment agencies and later resulted in their demise after a complicated California Supreme Court ruling.

Contributing to Brown’s political cause to eliminate redevelopment agencies were reports of egregious misuse of taxpayer funds. According to a 2014 paper by the U.S. Department of Housing and Urban Development, many redevelopment agencies were storing the money meant for affordable housing in separate accounts rather than using it.

In Palm Desert, the Desert Willow Golf Resort in Palm Desert received $16.7 million in redevelopment funds. The city of Hercules paid for a lobbyist with $38,400 of redevelopment funds, $9,600 of which was supposed to go to affordable housing.

In downtown Sacramento, a short walk from where Capitol debates were happening, a complex on K Street received $3.7 million for a project that resulted in Pizza Rock, Dive Bar and the District 30 nightclub. Dive Bar, which features women dressed as mermaids floating in a bar-length aquarium, was singled out for criticism in the Legislature as a poster child for developer subsidies.

“I think (the mermaid bar complex) was an example of redevelopment not being used appropriately and it hurt the cause,” Steinberg said. “Redevelopment is supposed to be about revitalization.”

Sacramento redevelopment supporters said at the time that the K Street project was unfairly maligned, and that it revitalized a vacant, rundown stretch of downtown as intended.

Shirey said last week that Sacramento is a great example of a city that used its housing money wisely and productively.

“Sacramento was one of the good actors, I can say that objectively now,” he said.

Ashby said she understands the need for the state to rein in the cities misusing their redevelopment funds, but Sacramento was using the funds for projects like the Mercy Housing development at Seventh Street and H Street, which provides 150 apartments and resident services for formerly homeless and very low-income Sacramentans.

“I mean, we were housing the homeless,” Ashby said. “Eliminating the entire funding resource is kind of like throwing the baby out with the bathwater. Those two bills, I mean, one killed it and one was unconstitutional, so there was never any chance.”

Ellen Garrison: 916-321-1920, @EllenGarrison