News

Guest opinion: Redevelopment agencies siphon funds from schools

Click on diagram to enlarge.

Jennifer Bestor is a Menlo Park resident who writes occasionally on school tax issues.

By Jennifer Bestor

What do all the arguments about Gov. Jerry Brown's plan to take funds from redevelopment agencies, including Las Pulgas in Menlo Park, have to do with us?

Quite a lot, as it turns out. In fact, over half of Menlo Park's redevelopment has been paid for by our schools. We never said, "Let's shortchange the schools to address urban blight!" But that's what we've done for 30 years.

Created in 1981, the Menlo Park-Las Pulgas Redevelopment Agency covers Menlo Park east of U.S. 101 plus a thin wedge up Willow Road from 101 to Middlefield Road.

Circumventing post-Proposition 13 apportionment of local revenue, RDAs were able to take any increase in property taxes in their coverage areas -- whether that appreciation was due to improvements, inflation, real-estate bubbles, or blight reduction. By declaring this area blighted, the Menlo Park-Las Pulgas RDA was able to commandeer all property tax appreciation (over 10 percent now of the city's total property tax base), negotiate minimal funding pass-backs to other affected local services, fund itself, and float $75 million of bonds to finance RDA activities.

You might wonder why local services were willing to take less than their allotted share. Two crucial facts were that education consumed around half of each property tax dollar and, at that time, the state was backfilling any loss of property tax for all school districts.

Loophole met moral hazard. School districts, thinking that they would be made whole, signed away almost all of their tax share, while outside agencies with some negotiating power (the county, the fire district) gave up 30 to 50 percent.

The city, meanwhile, nominally gave the RDA almost all its share, knowing that the City Council (sitting as the Redevelopment Commission) could return RDA funds to support city programs, police activities, public works, and other initiatives that either addressed blight or improved economic conditions in the area.

I had thought that the state was hitting up everyone to pay for education. Never before had I understood that the cities have been siphoning school funding to pay for blight reduction.

Here in Menlo Park, children in the elementary and high schools now directly bear the cost of over $1.5 million of our redevelopment activity. For the past decade, the Menlo Park City School District and Sequoia Union High School District have been funded by local property taxes, with no state backfill. The RDA takes $1.8 million ... and hands back a paltry $0.010 million to Menlo Park City School District ($10,000) and a mere $0.15 million to Sequoia Union High School District ($150,000).

Unmentioned in these numbers is the fact that the redevelopment area is not an industrial wasteland. Resident along Willow Road are 95 Menlo Park City School District students (on whom we spend $665,000 of our fixed district property tax pool) -- while over 340 Menlo-Atherton students live along Willow and in Belle Haven ($3.4 million of high school district's pool). They and their classmates have been shorted the quality education for which we taxpayers assumed we were paying.

The two other affected local school districts, Ravenswood and Redwood City, are technically backfilled by the state, whose largess has been invisibly funding another $2.8 million of our redevelopment activity. But, as we have seen with the endless cuts out of Sacramento, California's pockets have been picked dry. Thus, the end result of all these funding shifts is that both districts have watched their basic funding per child drop over recent years.

So parents vote with their feet. Not surprisingly, state-funded districts in San Mateo County have seen a 5 percent drop in enrollment over the past decade (Ravenswood is down 19 percent; Redwood City is down 3 percent), while locally funded districts have climbed 11 percent (the Menlo Park City School District is up 28 percent).

By the early 1990s the state inevitably noticed that its pockets were being picked and began to assess the cities, counties, and special districts for what was called "Educational Revenue Augmentation" (ERAF) to fund education, and two years ago to raid RDAs for "Supplemental ERAF." So the funds that had been wrested from our local school and service districts into the RDAs and cities, in turn are wrested from the RDAs and cities to fund the schools.

By the time you read this, Sacramento may have decided for us how to extract communities from this self-defeating cycle. Whatever it does, the Menlo Park-Las Pulgas RDA won't actually end before 2031, a period when half of the RDA area tax revenue ($94 million) will go to repay the $63 million of debt that the RDA is carrying, plus interest, and also possibly $11 million of additional indebtedness due to an ill-timed attempt to hedge the interest rate on that debt.

We need to ensure three things moving forward:

First, it is time that the unencumbered half of the RDA property tax revenue reverts to our established local services. Fifty cents on the dollar isn't that great, but the schools have been getting just 14.

Second, Sacramento cannot be allowed to say, "Locally funded districts like the Menlo Park City School District and the Sequoia Union High School District are rich enough, so we will just channel funds we take from RDAs to the poor revenue-limited districts." Locally funded districts experience disproportionate enrollment growth because they are California's best hope of remaining competitive with the world, not just with other states at the bottom of the national school funding scale.

Third, redevelopment works are worthy, sufficiently worthy to be funded explicitly by Menlo Park voters. The problem is the means, not the end. Menlo Park residents need to discuss what redevelopment activities we want and how to pay for them, and not let the city hit up the schools when no one notices.

Please let your City Council members, State Assemblyman Rich Gordon, and State Sen. Joe Simitian know your thoughts. This is a local issue. And let's continue this discussion in the Almanac's Town Square.

Comments

Posted by allied_arts_resident, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 15, 2011 at 11:59 am

First off, kudos to the Almanac for publishing a graphic showing the flow of tax $ in and out of this redevelopment agency. It is nice to see serious work available for inspection.

If I understand this correctly, the citizens of MP weren't given the chance to choose between defunding their school districts in exchange for blight reduction in eastern MP (or at least reverse an earlier decision).

Is there anything that can be done now? Can the city at least take funds from the RDA and pay the schools the fair amount for the students residing in the RDA not covered by property taxes going to the schools?


Posted by Former MPCSD Parent, a resident of Menlo Park: Central Menlo Park
on Mar 15, 2011 at 12:32 pm

Thank you, Jennifer Bestor, for researching this issue so carefully and bringing it to the attention of your Menlo Park neighbors. I was totally unaware that this siphoning off of property taxes to the RDA was happening, made all the worse by the State then siphoning off RDA funds to cover Supplemental ERAF. This is all a shell game to cover overspending by the State. We are a wealthy state with already enormous tax revenue. Sacramento needs to live within its means. The rest of us do. Raids on RDA monies need to end. The RDA then needs to be eliminated, or at least put into sunset mode, along with its backdoor funding mechanism. Monies spent on MPCSD schools fund the future, and we in the district work hard to make it a valuable education for our children. The State's funding grab is distasteful and devious. Enough!


Posted by Lou, a resident of Menlo Park: Linfield Oaks
on Mar 15, 2011 at 12:58 pm

Does this mean that Belle Haven has paid all its property tax since 1981 to the redevelopment agency?

Has all this money actually done any good?


Posted by I agree. But, a resident of Menlo Park: Central Menlo Park
on Mar 15, 2011 at 1:34 pm

then the question is not the government living within it's means because how can it. I mean if it is going to bring schools up to some level and if the schools can agree that the redevelopment can have all their money, then the government is filling a seive.

Everybody says its because of Prop-13 but it kind of is because we did what people do when there's a problem which is work around it. Only now there is a workaround to the workaround and there are no more workarounds left. So Jerry Brown should fix it and not make another workaround.

But its not fair to blame Belle Haven because their kids have the problem too.


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 15, 2011 at 3:15 pm

Jennifer Bestor is a registered user.

Belle Haven has paid its *incremental* property tax since 1981 to the Redevelopment Agency, Lou.

At this point, the increment represents 90% of the total tax paid by all the areas within the RDA. (The actual RDA map is available on the City's website -- there are odd boundaries, for example, the Raytheon/Tyco and Constitution/Independence area is outside the RDA, while the Sun/Facebook site to the east and Haven Ave. area to the west are inside it.) About 30% of the RDA's total revenue is paid by the Sun/Facebook site (over $300M, up from less than $5M in 1981), so I'd guesstimate that means about 20% of Belle Haven's property tax goes to the school districts, fire, City, flood, and other local services, and the remainder to the RDA.

And, "I agree ...," yes, the reason I wrote this is that I wondered how one could hold the State accountable for its spending if, in fact, what it appeared to be spending on schools was, in fact, monies that had been diverted to redevelopment.

Furthermore, since this redevelopment is, in large part, funded by borrowing -- i.e., mortgaging future tax flows -- I sensed a snowball growing. Five years ago, the Menlo RDA sold $75 million in bonds -- last month, the $17 million that was left of this money was quickly moved into new authorities by the RDA.

Even in the absence of Brown's actions, surely that $17M would have been spent within a few years. That would leave the RDA dependent on the 25% of tax revenue that was left after debt service and pass-throughs. Surely the temptation to negotiate an extension of the RDA past its original 50-year lifetime -- then to issue yet more debt -- would be strong for the Council then in place.


Posted by ScottZwartz, a resident of another community
on Mar 15, 2011 at 3:56 pm

Also in 2010 Prop 22 took an additional $1 B per year away from schools and gave it to real estate developers. In 1993-1994, the state required the CRA's (Redevelopment Districts) to give back 20% to the schools. In 2010, that was a little over $1 Billion per year to education state wide.

Prop 22 overrode any statute which took any property tax dollars away from the CRA's, and thus, it increased the CRA's developer slush funds by $1 B each and every year.

How many of your local officials advised you of this partial defunding of the schools?


Posted by Don , a resident of Menlo Park: Central Menlo Park
on Mar 15, 2011 at 4:00 pm

Another thing not mentioned is that redevelopment agencies can borrow money, sell bonds and spend money (millions) without any voter approval. A prime example of redevelopment money gone astray is when Belmont built itself a new city hall and police station in a fairly spiffy part of town partially using redevelopment money. You'd be surprised at how many cities have misspent RDA money because their city-paid lawyers said "Go ahead."


Posted by Former MPCSD Parent, a resident of Menlo Park: Central Menlo Park
on Mar 15, 2011 at 10:49 pm

Lou asked a very good question that is still unanswered: Has this RDA money actually done any good? I see that the RDA has managed to spend $75M in just 5 years. On what? What do we have to show for this enormous outflow of cash? Why does this need to be government spending rather than private sector investment? Who accounts for this $75M? I reiterate my earlier point: it's time to sunset the RDA and start the process RIGHT NOW!


Posted by Ed, a resident of Atherton: other
on Mar 15, 2011 at 11:52 pm

Big development gets there hands on this money all the time by pretending theyare going to throw in a few low income units or a park, and then changing their minds later on their way to the bank.
Somebody needs to look into how T.I.F. has been so badly manipulated as well, to very little public advantage.


Posted by Roxie, a resident of Menlo Park: University Heights
on Mar 16, 2011 at 2:18 am

Staff Report #: 11-037 for item 1 on of the City Council's March 15 meeting agenda lists some of the costs incurred by the decision to try to move the current RDA balances into the city planning and housing accounts. (pages 14 and 15 of report):

$30K legal expense for the non-housing fund actions, $10K extra for housing fund legal expenses. $25 for an outside firm hired to negotiate a letter of credit extension.
The new LOC is going to cost another $32K for the current fiscal year.

The city also has been asked to contribute to a legal defense fund (amount not divulged) to defend threats to redevelopment funding. Also they anticipate another $ 40K in legal expenses for letter of credit if the RDAs are abolished by the state as Governer Brown suggests.

$140,000, that could get us a teacher or two, but who wants to pay for teachers when you can give the money to lawyers and bankers.


Posted by Kay Louie, a resident of another community
on Mar 16, 2011 at 10:48 pm

Thank you for sharing the background and financial impact of RDAs. California's use of redevelopment has gone largely unchecked for decades, deviating in many cases from its intended mission. The call for scrutiny, transparency, accountability and local control is much needed!


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 17, 2011 at 10:29 am

Jennifer Bestor is a registered user.

Former MPCSD Parent, I agree that sunseting our RDA makes sense. We're caught in a bizarre funding cycle that needs to stop. But I also hope that whatever negotiations Brown is in now don't just add another twist to our Gordian knot.

On the benefit side, I've been hoping someone closer to the RDA would jump in since my work has been focused on the ‘how' of RDA funding, rather than the ‘what' of it. The City makes its case for the value of the RDA on its website at:
Web Link

City Council members, at the February meetings to discuss the RDA, ardently defended the RDA, as can be seen on the online videos of the Feb 8th and 15th meetings. Clearly, they feel it does good work. While they're not personal friends, I do believe that they are genuine representatives of our community with no deep developer ties or hidden agendas.

That said, the RDA has created the moral hazard of presenting the Council with a stash of cash " at a time when local government is pressed by recent property owners to provide value for their very high tax contribution ... and long-term property owners to cut costs so they don't have to feel guilty for their low tax contribution. So I can see that the Council's emotional attachment to it might impede their rational evaluation of it.

Anecdotally, many people with whom I've spoken feel that the Willows is a safer, pleasanter place than it was thirty years ago " whether that is a function of the gentrification of the Silicon Valley or the work of the RDA they couldn't say. Perhaps a Belle Haven resident could comment on the effect there.

Altogether, something over $175M has been spent to date (adding thirty years of tax increment -- less my best estimate of historic pass-backs -- to the remaining twenty years of debt-service commitment on the outstanding bonds). One of the challenges of bond-based financing is, of course, that interest swells the financial impact of the borrowing.


Posted by Lou, a resident of Menlo Park: Linfield Oaks
on Mar 17, 2011 at 4:58 pm

It sounds like Brown's plans are consistent with the concensus here, and will effectively sunset our redevelopment agency, returning money to the city, county, and schools, based on this state LAO report:

Web Link

An article in the Wall Street Journal last weekend about Brown's plans questioned why Republicans weren't cooperative about this issue -- it seems right up the 'fiscal responsibility' alley. Maybe NIH.


Posted by truth, a resident of Menlo Park: Belle Haven
on Mar 18, 2011 at 8:47 am

I will comment on the change.

We have a community and senior center that was built some years ago through redevelopment funds. We never would have had approval for such an expenditure without having RDA funds. Before this community center we had basically nothing aside from a long drive to west menlo. We have a full soccer field and pool thanks to redevelopment funding, a plaza outside Belle Haven Elementary School along Ivy and some other community service amenities. All as a result of RDA funding. We now have a police substation coming soon -- hopefully -- that is mostly funded through RDA money. We have new sidewalks, new intersections and signage all directly related to RDA funding. And yes, the ecosystem is much improved as a result of better policing and more consistent policing in our community.

I know it is easy for west menlo moms to crunch numbers and debate about a small handful of kids in the west menlo school district, but most of you never have even take a drive out here and have no clue this is your city too.

Jennifer's argument is broad and fit for a editorial or a Stanford class on state economics, but she misses the point out here. No RDA, no approval for these expensive redevelopment because our council is all west menlo and always will be. Can you imagine if we were looking for $4.5M to create new recreation facility at Kelly Park in this current climate out of the General Fund?

Most Willows residents have no clue about the history of their neighborhood, only anecdotal commentary. High crime rates, very little neighborhood services and standards. Most of the folks there today are new and arrived after this transition took hold.

We look forward to the same opportunity afforded Willow citizens.

But if jennifer gets her way, we may not get there.


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 20, 2011 at 12:42 pm

Jennifer Bestor is a registered user.

truth, why are you sneering at West Menlo moms? We do, in fact, come to Belle Haven. A dozen of us volunteer at two Ravenswood school libraries -- plus my neighbor and her friends are room parents at a different Belle Haven school (another local initiative) -- I can't speak from experience on what the RDA did for you, but I have probably checked out many library books to your children.

Indeed, it was watching the librarian cut, two years ago, from full-time to half-time that alerted me that things were getting bad even for state-funded schools. To close the library one week in two at a school where 50% of the eighth-graders are below proficient in English language arts (half of those are below and far-below basic) was tragic. But the state cut general funds to schools and 'librarian' was a position that could go -- unlike all the strings-attached state and federal funding that is targeted at some initiative or other.

Furthermore, the children who are paying the most for redevelopment are those of the Sequoia High School District -- heavily drawn from Redwood City and Ravenswood. In addition to the Menlo RDA, the SUHSD covers the three East Palo Alto RDAs, two Redwood City RDAs, and the San Carlos RDA. Together, the seven RDAs pulled over $6M out of the district. I am trying to discover how much was passed back, but it is taking some time (Menlo was remarkably responsive about their piece). It is highly unlikely that the amount is greater than a quarter of what they're taking.

Are you saying that you in the Ravenswood community would happily continue take money from your children to fund additional public works? Is this an "ends justify the means" argument?

I'm saying that it's time to revisit the RDA with a clear view of where the money is now coming from -- not where it came from 30 years ago.


Posted by truth, a resident of Menlo Park: Belle Haven
on Mar 20, 2011 at 10:58 pm

What I am saying is that the RDA has made a huge positive impact to my community. The proposal is not to review the RDA funds or figure out how to redirect more money to schools. The proposal is to kill them. Your words of support only extend the ignorance, the same ignorance that our new assembly rep carries. It is better to kill the RDA than not, and that is just unacceptable. No place in your argument do you show any understanding of the evolution of my community and you want to blame the RDA for Ravenswood?

Please spare me the idealistic lectures. We know our school district and we know there is no magic fix even with more money. The fact is we don't get more money, we get money, we lose money from Sacramento.

Your position is great for your school district. You want money from a small piece of land and you are willing to blow up the entire boat to get there.

It is a well written piece from a well educated and well intended person. But when you read between the lines, you are oversimplifying the cure and accepting the proposal as is without any fine print. You are threatening my neighborhood for a few more dollars for the MPCSD. I want more money for your kids and mine, but I am not willing to blow up the entire funding model for my community on faith that the governor will look out for little old Belle Haven.


Posted by compromise?, a resident of Menlo Park: Central Menlo Park
on Mar 21, 2011 at 6:46 pm

We might be at an impasse here, but how about:

1) end the RDA
2) unify the MP City, Ravenswood, and Las Lomitas districts
3) move the Redwood City Elementary boundary so that it doesn't cover any of Menlo Park

No MP school loses money to tax increment diversion, administrative costs are reduced (don't need 3 superintendents), Ravenswood kids get an education on a par with other kids in their community, and basically this community and its closest neighbors is able to make smart and fair educational decisions.

Maybe naive or problematic for other reasons, but it's a thought!


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 22, 2011 at 9:03 am

Jennifer Bestor is a registered user.

truth, I am very glad that redevelopment has made a huge positive improvement to your community. My article does not dispute or challenge that improvement.

What it points out is how that improvement was funded and, specifically, how the funding mechanism (relying on the state to backfill the schools, front-ending the cost by borrowing in the bond markets) is now broken. The state is not backfilling the schools, the state is seriously underwater, and Menlo Park has twenty years of annual $5 million debt service payments in front of us regardless of what we do.

Meanwhile, voters have lost a great deal of confidence in our tax system " wondering why Californians seem to pay very high taxes and have little to show for it. The current standoff in Sacramento is testament to that frustration " “live within your means" is the cry of the Republicans. Well, with RDA funding consuming 10% of our local taxes " never having been voted on by Menlo Park residents " it is not surprising that people feel they're being ripped off with no recourse except to say ‘no' to everything.

I think it's important to quantify the cash flows and target the solutions " a Dark Ages-like return to zero state services; local schools funded by Education Foundations, at best, and staffed by parents; and an even more Byzantine local patchwork of utility taxes, business fees, and other self-defeating revenue mechanisms would appear to serve Belle Haven, Menlo Park, and California more poorly than an explicit redevelopment and funding plan. Fortunately, the Council has just moved $17 million into newly created agencies for redevelopment " so we have a buffer that will allow continued redevelopment over the next 3+ years. It would be nice to find a solution that deals fairly with all parties in that window.


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 22, 2011 at 9:54 am

Jennifer Bestor is a registered user.

Compromise, thanks for thinking about solutions! I have seen the 'combine the school districts' solution mentioned on other Town Square forums -- I wonder if the Almanac would consider explicitly studying it.

I think the two major issues are:
(1) Funding -- both Las Lomitas and Ravenswood spend more per student than MPCSD. Las Lomitas from higher property tax (they have no RDA, and possibly a smaller proportion of 1975-base assessed values). Ravenswood from state and federal categoricals for special ed/etc.

Combining the three would result in all three districts being reduced to the state minimum levels. (Ravenswood currently receives $4781 of its $6344/student minimum level funding from the state.) Reducing the three administrations (but increasing the district size to 8,000 students) would probably not save more than $2 million, while backfilling Ravenswood from LL and MPCSD would cost $8M in state funding. (Good for state coffers, but probably politically unworkable for any of the districts.)

(2) Skill set. The challenges facing Ravenswood kids are significantly different from those facing MPCSD/LL kids. The tools that make kids successful whose parents have a college degree (and, in two-thirds of the cases, have attended grad school) are dramatically different from those that are effective with kids whose parents do not speak English or have high-school educations. Smoosh them together and one group or the other will be severely shortchanged compared to now. I'd love to think that MPCSD/LL had scholastic fairy dust that they could sprinkle on Ravenswood, but my experience volunteering at Ravenswood -- and listening to MPCSD staff describing their efforts for Tinsley kids -- says that it is a different fight requiring different tools.

Combining the areas -- different tools on less money -- seems an improbable path to success. (I remember discussions re. combining Las Lomitas with MPCSD a few years ago -- those also came to naught over a lot less money ...)


Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 22, 2011 at 9:57 am

Jennifer Bestor is a registered user.

Paul Collacchi -- our discussion about this seems to be on a different Web link:

Web Link

R.GORDON -- I'm not sure what question "Interested" asked? Possibly something got lost on yet a third link?


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