County will fight special tax zones to keep its share. (Up Front).

Strapped for cash and critical of the city's recent redevelopment efforts, L.A. County supervisors have approved a policy to challenge any redevelopment zone designations in areas it does not consider blighted.

Saying cities often stretch the definition of blight, causing the county to lose as much as $300 million in annual tax revenues, Supervisor Zev Yaroslavsky called the zones "the most common abuse of redevelopment law by cities up and down the state, depriving counties of billions of dollars."

Yaroslavsky led the county's push to file a lawsuit in June against the city of Los Angeles after a downtown redevelopment area was created near Staples center. A portion of that area is slated for the proposed second phase of the downtown sports and entertainment center.

"With our health system teetering on the edge of collapse and other vital county services threatened, we cannot afford to let this happen any more," he said.

The new policy, which lays out the ground rules under which the county can challenge a redevelopment zone designation, "is a message to cities that the county is watching very closely what they do," said Bob Moran, an analyst with the county administrative office.

City officials maintain that the entire 30-acre redevelopment area created earlier this year meets the standards for blight.

"We have a serious problem with blight and homelessness downtown," said David Farrar, chairman of the board of commissioners of the L.A. City Community Redevelopment Agency. "Our criteria for determining blight are fully consistent with state law and we feel confident it will withstand any challenge."

At the crux of the dispute between the county and cities is how tax dollars are distributed.

Before an area is declared a redevelopment zone, tax revenues generated within the area are split among the county, city, school districts and other local agencies according to a state-mandated formula. But when an area is declared a redevelopment zone, a portion of future revenues generated by projects within the zone go to the redevelopment agency to plow back into the area. Thus, each of the other agencies receives a smaller percentage of revenues.

Proponents argue that redevelopment monies attract more projects into a given area, increasing overall revenues. The bigger pie, they say, means greater revenues for everyone.

And, for the most part, this is the way it has worked over the years.

"In the vast majority of cases, redevelopment projects are warranted, are done correctly," said Tony Canzoneri, a redevelopment attorney with the downtown law firm of Brown, Winfield & Canzoneri LLP. "In those cases, everybody wins."

But the picture is murkier with some redevelopment designations, particularly in areas that have not deteriorated to slum conditions. Critics said developers might have come into the area without the redevelopment designation, generating just as much in revenues. The only difference, they said, is that the county, local schools and other agencies get a smaller take because a portion of the revenues is taken off the top and funneled back into the redevelopment agency.

"The way Los Angeles and other cities have done this is to subsidize commercial developments to grab more dollars:' said Chris Norby, a former Fullerton city councilman and county supervisor-elect who is one of the state's leading redevelopment critics. "The losers in this process are the counties and other agencies that get a smaller share of funds."

L.A. County's argument is made more acute because the health system is facing the prospect of $800 million in cuts over the next three years, while other areas are facing cutbacks in state funding.

"Given the state of our budget right now, every single dollar is crucial and we're going to fight to get every last dollar we can," Moran said.

Farrar, chairman of L.A.'s CRA, said the agency and city want to work with the county as it implements the formal policy.

"We're pleased that the county has actually laid down a clear set of guidelines and goals," Farrar said. "It makes it easier for us to sit down and discuss the issues with them. We hope it avoids any repeat of the knee-jerk reaction that led to the filing of the lawsuit against our City Center project."