SAN BERNARDINO (AP) — This old city at the foot of the mountains limped to its bicentennial two years ago, its finances in tatters from a housing bust that sapped tax revenues and ballooning salaries and pension obligations for city workers.
Then came the final blow — Gov. Jerry Brown's decision to eliminate state funding for local redevelopment agencies to help close California's yawning deficit. The move cost the city $30 million annually and highlighted something else: San Bernardino was using about $6 million of those funds to back fill its general fund.
Without that money, things only got worse. The city hit bottom last week when it filed for bankruptcy.
"One might say it was the nail on the coffin in terms of our unbalanced budget," Mayor Patrick Morris said of losing redevelopment funds.
Across California, from tiny Huron in the Central Valley to Oakland to Calexico in Imperial County, the loss of redevelopment funds was felt most by communities in the worst financial shape. Like San Bernardino, many relied on the funds for basic government functions.
"Redevelopment had become like the line of credit that a business operates on," said Larry Kosmont, a Los Angeles-based economic development consultant who advises a number of California cities. "When the music stopped, the cities had no chair to sit on because that was their immediate cash."
Critics say that buttressing general funds and paying municipal salaries was never the intention of redevelopment money. And cities may have abused the system if they were in fact using funds for project-specific purposes removed from boosting run-down areas.
"It was never intended to be a source of permanent revenue for cities," said Assemblyman Chris Norby, R-Fullerton.
In San Bernardino, where small businesses and empty storefronts dot the downtown, redevelopment funds paid the salaries of the city manager, code enforcement officers, human resources staff, the city clerk and the city attorney. They also paid for the operation of the city's public access television, its 5,000-seat minor league baseball stadium, and a renovated historic theater.
"We used that money to create a renaissance in our city, and the loss of it leaves us with nothing to rekindle economic growth," Morris said. "We would have to pick up the bill for those operations and salaries, but quite honestly we have no money for that purpose."
Redevelopment agencies were created in California in the 1940s as a way to provide more affordable housing and reverse urban blight. To encourage projects, the state dedicated a funding stream for the agencies and attached few restrictions to the money.
Initially, projects were small, usually 10 to 100 acres. Over time, the projects grew, with some reaching 20,000 acres or more.
As the projects expanded, so did state reimbursements to schools, counties and special districts. When Brown pulled the plug in February, $5 billion was being sent annually to 400 redevelopment agencies.
That left many cities scrambling.
"Cities depended on redevelopment to make additional dollars in property and sales taxes down the road, and they were spending down their reserves in the meantime," said Chris McKenzie, executive director of the League of California Cities. "It was part of their long-term revenue picture that has now been devastated."
Because there were no hard rules on how cities could spend redevelopment money — except that it had to somehow address or eradicate urban blight and 20 percent of it had to focus on affordable housing — cities interpreted the program liberally, said Marianne O' Malley, an analyst at the Legislative Analyst's Office.
Some cities used a greater share of the money for administrative costs, paid for police, fire or other city employees, and some loaned the state money to their redevelopment agencies at above-market interest rates, she said.
In Compton, where officials have said they could run out of money by the end of summer, the loss of redevelopment funds was a hit. The city of 96,000 was counting on $6 million from redevelopment funds to pay the salaries of city staff and council members, city manager Harold Duffey said.
"We have a $6 million dollar hole essentially that was taken out, and we don't have a way to do new projects," Duffey said.
In Fairfield, a city of 105,000 in Solano County battered by the housing market crash, the loss of redevelopment money prompted officials to declare a fiscal emergency and seek a sales tax increase to prevent further cuts. The city's $8 million in redevelopment funds partially funded about 20 positions throughout the city — "anyone who touched economic development," deputy city manager David White said.
"Before redevelopment, we were already operating very thinly. When we lost it, we had to make some very fundamental decisions," he said. "If we were going to keep our employees and services, we had to accommodate those in the general fund and that affected other services."
Deeper cuts also are facing Duarte, a city of 21,000 in Los Angeles County. Shrinking tax revenues had for five years prompted local leaders to cut services, shutter programs and lay off a fifth of employees to balance the city's $12 million budget.
The city used about $1 million in redevelopment funds to pay for park maintenance and other services, as well as for the salaries of the city manager, finance director and city attorney, among others.
"Losing redevelopment funds pushed us over the edge," deputy city manager Karen Herrera said.
To offset the loss, officials planned to declare a fiscal emergency and place a sales tax increase on the ballot. But the City Council failed to pass the measure.
"It's tough on communities like Duarte, because we're not always as attractive as a Beverly Hills," Herrera said. "We were able to use those dollars to bring more businesses to the community, but now that's gone."
In San Bernardino, resident Anthony Lucero said the loss of redevelopment money at a time when his city is already hurting doesn't help and he fears the bankruptcy will erode the recent progress made in policing and cleaning up downtown.
"I'm worried about it every day," the 31-year-old gym manager said.