Gosia Wozniacka and Amy Taxin, Associated Press
Posted: 08/08/2012 05:59:19 PM PDT

Catch up: Read previous coverage of San Bernardino’s financial crisis

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.

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