North San Jose project hits snag

ASSEMBLY PANEL DELAYS CONSIDERATION OF CHANGES IN REDEVELOPMENT RULES
By Tracey Kaplan
Mercury News
April 28, 2005

A plan to turn North San Jose into a second downtown with 83,300 jobs hit a snag Wednesday.

A state lawmaker whose committee's approval is key to the future of the project announced that no action would be taken this year on a city-sponsored proposal to use tax dollars that would normally go to schools and other local jurisdictions to pay for traffic improvements essential to the new development.

San Jose's proposal to spur the creation of new jobs and thousands of housing units in the North San Jose redevelopment area by extending the life of the project is not dead.

But the decision by Assemblyman Gene Mullin, D-San Mateo, to study the issue along with a flurry of similar requests for redevelopment extensions by other California cities means another anxious year for proponents of the North San Jose plan. Mullin chairs the Assembly's Housing and Community Development Committee, which is reviewing a bill by Assemblyman Joe Coto, D-San Jose, as well as proposals by other cities including Long Beach, El Monte and Berkeley.

San Jose and the other cities want the state to extend the authority of their redevelopment agencies (San Jose's is due to begin expiring in North San Jose in 2025) and to loosen the rules by which those agencies can use tax money to create new jobs and housing.

In contrast to city officials, Santa Clara County officials who oppose the extension are pleased by the delay because they say the tax diversion would take money away from health and other county services. They stressed they do not oppose development in North San Jose, just funding the infrastructure improvements with public dollars.

``The fact that the head of the committee took that action is a really good sign,'' said County Counsel Ann Ravel. ``There's an awareness in Sacramento that redevelopment agencies are out of control.''

Agency chief confident

But San Jose Redevelopment Agency Director Harry Mavrogenes said he's confident the city's plan is still on track.

``We're very encouraged that Assemblyman Mullin is taking this comprehensive view and getting everyone together in one room,'' Mavrogenes said. ``It's going to allow for a good healthy debate.''

The debate is likely to be fierce because redevelopment, long a hot-button issue in municipal circles, has become even thornier in tight budget times.

Redevelopment agencies are funded by extra property taxes generated by new development within a designated zone. In a designated redevelopment district, the redevelopment agency gets that money. Absent that designation, the state, county, schools and special districts, such as water districts, get more of it, and they are in no mood to pass up money as the economy has slowed and other revenues have dried up.

In 2001, state lawmakers adopted legislation that allows redevelopment agencies to extend the life of a project area for 10 years under certain conditions. Among the conditions: The project area must have both physical and economic blight; the tax increment must be spent only in that particular project area; and 30 percent of the increment must be used for affordable housing, rather than the usual 20 percent.

Only one area -- in Sacramento -- has met the stringent extension conditions so far, said Peter Detwiler, a staff consultant to the Senate Local Government Committee.

Now, several cities are seeking to avoid those conditions. In Berkeley, for example, city officials are seeking a 10-year extension of the life of the Fourth Street project area, a ritzy, formally industrial area that generates about 90 percent of the agency's redevelopment revenue. In exchange, the city promises to spend all of the new tax revenue on low-income housing. Alameda County has come out against the proposal, but the delay by the Legislature allows the city and county to negotiate, said Steve Barton, Berkeley's housing director.

Vacancy rate high

In San Jose, officials are proposing that extensions be allowed if there is just economic blight, which could be broadened to include a high vacancy rate in office space, such as the 23 percent vacancy rate that now exists in North San Jose.

Mavrogenes said the county would actually reap more tax revenue by allowing the extension.

County Administrative Officer Pete Kutras agreed that the county would net $186 million more by fiscal year 2052-53. But he said more of the redevelopment funds would have to be spent for bricks and mortar under state law and less for services than if the redevelopment project expires.

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