Critics call it "the anti-stimulus plan."

They are referring to a key element in today's state budget vote: The potential transfer of $1.7 billion in redevelopment funding to education programs.

In Sacramento, redevelopment dollars have been used in most significant projects on the K Street Mall and elsewhere downtown in recent years. They helped convert a downtown office building on J Street into the Citizen Hotel, extend the pedestrian promenade along the Sacramento River and have been the source of funding for revitalizing the barren railyard north of downtown and transforming an old cannery site also north of downtown into the planned Township 9 development.

"(Losing the money) pretty much eliminates any resources for new activity," said Lisa Bates, deputy executive director of the Sacramento Housing and Redevelopment Agency. "We're calling it the anti-stimulus plan."

The redevelopment money from Sacramento projects and others around the state is needed to help fill a $26.3 billion budget deficit, state leaders said.

Under the proposal – which city, county and redevelopment officials acknowledge they still are interpreting – $1.35 billion in "tax increment" money would be diverted from local redevelopment agencies to the state in the current fiscal year, and another $350 million would be diverted next year. The money would go into the state's Educational Revenue Augmentation Fund, state officials said.

Tax increment dollars are the primary funding source for redevelopment agencies, which issue bonds and repay them from the tax increment, or the property tax increases within the redevelopment area boundaries.

Between 20 and 30 percent of the funds are earmarked for very low-, low- and moderate-income housing projects, but the rest can be spent on other sorts of development, such as the Cosmopolitan restaurant and cabaret completed last fall at 10th and K streets.

In a separate proposal, the state has asked redevelopment agencies to volunteer 10 percent of their coffers up front. In exchange, the agencies would be permitted to extend the life spans of their redevelopment zones by up to 40 years.

If enough agencies agree to that plan – dubbed the "City of Industry Proposal" because it originated with that Los Angeles-area municipality – state officials say they may not have to raid local property tax and gas-tax bankrolls for roughly $2.7 billion.

Several groups, including the California State Association of Counties and the California Redevelopment Association, have indicated they will sue the state if both the $1.7 billion transfer of redevelopment funds to schools and City of Industry proposal are put into place.

For counties, the City of Industry plan would deny them the ability to use property taxes for purposes other than redevelopment for decades because of the proposed extensions for the redevelopment zones.

"The promise of redevelopment is that it takes a run-down property and turns it into a more valuable property," said Jean Hurst, a lobbyist for the counties association.

"Everybody benefits from the higher property values. If they extend (the zones) for 40 years, a whole generation will never see the supposed benefits of redevelopment."

SHRA is still examining the proposal, Bates said.

Supporters of the extension plan say it will keep redevelopment money flowing to areas where blight is persistent.

SHRA said Wednesday that it would be on the hook for roughly $26 million if the proposal to transfer redevelopment money to the schools is approved.

Of that, about $21 million is earmarked for projects within the city of Sacramento.

In Placer County, roughly $3.1 million would be taken over the next two years, said Rich Colwell, chief assistant county executive officer. That hit would essentially halt low- and medium-income housing development for at least one year.

"It will have a devastating impact," he said.

If the plan passes, there are potential legal obstacles to it taking effect. A court decision in April said a state plan to transfer $350 million in redevelopment funds to the education fund was unconstitutional.

In all, the latest budget proposal would take $4.3 billion from cities, counties and redevelopment agencies.

A property tax hit accounts for $1.8 billion of that – a total the state said would be repaid with interest in three years – and the state is also planning to take $900 million in gas taxes.

While the city of Sacramento said its $12 million property tax hit could be absorbed through its risk funds, Sacramento Mayor Kevin Johnson referred to the package of proposals – which will cost the city roughly $40 million over the next two years – as "larceny."

Call The Bee's Ryan Lillis, (916) 321-1085.