HomeMy WebLinkAboutSupplemental - Redevelopment ReportWhat It Is. What Can Be Done.
A Report to the People of California
July, 2001
REDEVELOPMENT: THE UNKNOWN GOVERNMENT
Published by
Municipal Officials for Redevelopment Reform (MORR)
214 North Yale Avenue
Fullerton, CA 92831
Any part of this book may be reproduced. For additional copies or more information:
Phone: 714- 871 -9756 ♦ FAX: 714- 992 -6627 ♦ E -mail: norby@ci.fullerton.ca.us
websites: www.mdevelopment.com ♦ www.missionviejma.org
EDITORIAL BOARD:
Director:
Chris Norby
Council Member, City of Fullerton
Mayor of Fullerton, 1991 -92, 1995 -97
Ph.: 714- 871 -9756
Associates:
Jean Heinl
Council Member Judy Dunlap
Califomians United for Redevelopment Education (CURE)
City of Inglewood
South Gate, CA
Ph.: 310 -412 -5641
Ph.: 323 - 56]-673]
Council Member Ginny Lambert
Council Member John Paul Ledesma
City of Hawthorne
City of Mission Viejo
Ph.: 310 -6]5 -3146
Ph.: 949 - 5811924
Glenn Hannah, City Treasurer
Darwin Thorpe
City of Gpitolo
Board of Trustees, Long Beach Community College Dist.
Ph.: 831 -475 -4724
Long Beach, CA
Ph.: 562 -423 -3336
Chris Sutton, Attorney-at-Law
Prouder.. CA
Council Member Steven Vargas
Ph.: 626 -683 -25M
City of Brea
Ph.: 714- 99x8847
Dr. Ralph Shaffer
Chair, Los Angeles County Grand Jury
Council Member Sally Fallon
Surcomminee on Redevelopment. 1993 -94
City of La Puente
Ph.: 626- 966 -4304
Ph: 626 - 330 -8314
Don Lippman
Alan Pilgeq Larry Gilbert
am Los Angeles Project Area Committee
Orange County Cc Directors, GUR.E,
Ph'. 323- 654 -4826
Ph.: 949- 582 -2603
Richard Erganian
Sherry Curtis
The Vineyard
Land Use Consultant
Fresno. CA
Ph.: 559- 222 -0182
Stemmrento, CA
Ph.: 916- 852 -]499
Bruce Henderson
Ernie Bernardi
San Diego City Council, 1993 -199]
Los Angeles City Council. 1961 -1993
Ph.: 858- 273 -8600
WHAT'S INSIDE
1 — The Unknown Government ............. ............................... 2
2 — Blight Makes Right ................... ............................... 4
3 — Tax Increment Diversion ............... ............................... 6
Table 3.1: Property Tax Diversion Growth ........................... 8
Table 3.2: Redevelopment Acreage Growth .......................... 8
4 — Debt: Play Now, Pay Later ............ ............................... 10
Table 4.1: Total Indebtedness Statewide ............................ 12
Table 4.2: Total Indebtedness: Top 12 Cities ........................ 13
Table 4.3: Per - Capita Indebtedness: Top 12 Cities .................... 13
5 — Corporate Welfare ................... ............................... 14
6 — Predatory Redevelopment: Sales Tax Shell Game ......................... 16
Table 6.1: Land Use Desirability: City Managers Survey ............... 18
Table 6.2: Per - Capita Sales Tax Revenue Comparison: Selected Cities .... 19
7 — Follow the Money ................... ............................... 20
Table 7.1: Total Statewide Redevelopment Expenditures by Category .... 20
8 — The Myth of Economic Development .... ............................... 22
Table 8.1: Personal Income Growth Comparison: Statewide ............ 24
Table 8.2: Personal Income Growth Comparison: Selected Cities ........ 25
9 —
Housing Scam ...................... ...............................
26
10
— Eminent Domain for Private Gain ...... ...............................
28
11
—The Redevelopment Establishment ..... ...............................
30
12
— What You Can Do .................. ...............................
32
13
— Reclaiming Redevelopment Revenue ... ...............................
36
Table 13.1: Revenue Gains with Restored Property Taxes .............. 37
14 — Sources / Suggested Further Reading ... ............................... 39
1— The Unknown Government
There is an unknown government in
California.
This unknown government currently
consumes nearly 10% of all property taxes
statewide — $1.9 billion in 2000. It has a total
indebtedness of over $47 billion.
It is supported by a powerful Sacramento
lobby, backed by an army of lawyers,
consultants, bond brokers and land developers.
Unlike new counties, cities and school
districts, it can be created without a vote of the
citizens affected.
Unlike other governments, it can incur
bonded indebtedness without voter approval.
Unlike other governments, it may use the
power of eminent domain to benefit private
interests.
This unknown government provides no
public services. It does not educate our children,
maintain our streets, protect us from crime, nor
stock our libraries
It claims to eliminate blight and promote
economic development, yet there is no evidence
it has done so in the half century since it was
created.
Indeed, it has become a rapidly growing
drain on California's public resources, amassing
enormous power with little public awareness or
oversight.
This unknown government is
Redevelopment.
It is time Californians knew more about it.
.State law allows a city council to create a
redevelopment agency to administer one or
more "project areas" within its boundaries. An
area may be small, or it can encompass the
entire city.
These project areas are governed by a
redevelopment agency with its own staff and
governing board, appointed by the city council.
Thus, an agency and city may appear to be
one entity. Usually city councils appoint
themselves as agency board members, with
council meetings doubling as redevelopment
meetings. Legally, however, a redevelopment
agency is an entirely separate government
authority, with its own revenue, budget, staff
and expanded powers to issue debt and
condemn private property.
Out of California's 475 cities, 367 have
created redevelopment agencies. No vote of the
residents affected was required. No review by
the Local Agency Formation Commission
(LAFCO) was done.
Californians often confuse redevelopment
with federal "urban renewal" projects typical of
large eastern cities of the 1940's -60's. Sadly,
the methods and results are often similar. Yet
redevelopment is a state - authorized layer of
government without federal funds, rules or
requirements. It is entirely within the power of
the California legislature and voters to control,
reform, amend or abolish.
Redevelopment: The Unknown Government
The Unknown Government
"I'm from Redevelopment and I'm here to help you."
Redevelopment: The Unknown Government
2 — Blight Makes Right
All a city need do to create or expand of a
redevelopment area is to declare it "blighted ".
This is easily done. State law is so vague
that most anything has been designated as
"blight ". Parkland, new residential areas,
professional baseball stadiums, oil fields,
shopping centers, orange groves, open desert
and dry riverbeds have all been designated as
"blight" for redevelopment purposes.
To make a finding of blight, a consultant is
hired to conduct a study. New redevelopment
areas are largely driven by city staff, who
choose the consultant with the approval of the
city council. Consultants know theirjob is not to
determine if there is blight, but to declare
blighted whatever community conditions may
be.
"Cities adopted very loose and very creative
definitions of blight," writes syndicated
Sacramento Bee columnist Dan Walters, author
and long -time state policy analyst. "Often,
vacant, never - developed land is branded as
blighted to allow its inclusion in a
redevelopment zone."
A city park in Lancaster has been declared
blighted to justify paving over 19 acres of
parkland and axing 100 trees for a new Casten.
( "Lancaster Ready to Pave Parkland and Put Up
a Costco ", Los Angeles Times, June 24, 2001).
Blight has been proclaimed in some of
California's most affluent cities. Indian Wells,
a guard -gated community with an average
$210,000 household income, has two separate
redevelopment areas.
Understandably, many homeowners few an
official designation of blight will hurt property
values. Small property owners fear
redevelopment's use of eminent domain.
Building permits can also be denied if an
applicant does not conform precisely to the
redevelopment plan. So, local citizen groups
often challenge the blight findings in court.
Others are challenged by counties and school
districts that stand to lose major property tax
revenue if a new redevelopment area is created.
Recent state legislation has tightened
definitions of blight, particularly those
involving open and agricultural land. Still,
enforcement is lax, legal challenges costly and
most agencies were already created long before
recent reform attempts.
Once the consultant's blight findings are
ratified, a city may create or expand a
redevelopment area. Voter approval is never
asked. Citizens can force a vote by gathering
10% of the signatures of all registered voters
within 30 days of the council action. Where this
has occurred, redevelopment nearly always
loses by wide margins (rejected in Montebello
by 82%, La Puente by 67%, Ventura by 57 %,
Los Alamitos by 55 %, Half Moon Bay by
76%, for example).
The requirements to force a vote are difficult
to meet, however. In the vast majority of cases,
a popular vote is never held. Rather, the
consultant's findings of blight are quickly
certified. A law firm is then retained to draw
up the paperwork and defend against legal
challenges.
A growing number of law firms specialize in
redevelopment. Like the consultants, they are
members of the California Redevelopment
Association, a Sacramento -based lobby. They
are listed in the CRA's directory and advertise
in its newsletter. Their livelihood depends on
the aggressive use of redevelopment and
increasingly imaginative definitions of blight.
Redevelopment: The Unknown Govemment
To eliminate allegedbbght, a redevelopment
agency, once created, has four extraordinary
powers held by no other government authority:
1) Tax Increment: A redevelopment
agency has the exclusive use of all
increases in property tax revenues ("tax
increment ") generated in its designated
project areas.
2) Bonded Debt: An agency has the power
to sell bonds secured against future tax
increment, and may do so without voter
approval.
Bliaht Makes Right
power to give public money directly to
developers and other private businesses
in the form of cash grants, tax rebates,
free land or public improvements.
4) Eminent Domain: An agency has
expanded powers to condemn private
property, not just for public use, but to
transfer to other private owners.
These four powers represent an enormous
expansion of government intrusion into our
traditional system of private property and free
enterprise. Let us carefully consider the costs of
this power and if it has done anything to
3) Business Subsidies: An agency has the eliminate real blight.�—
-W-
,,It's easy... blight is whatever we say it is!"
Redevelopment: The Unknown Government
3 — Tax Increment Diversion
Once a redevelopment project area is
created, all property tax increment within it goes
directly to the agency. This means all increases
in property tax revenues are diverted to the
redevelopment agency and away from the cities,
counties and school districts that would
normally receive them.
While inflation naturally forces up expenses
for public services such as education and police,
their property tax revenues within a
redevelopment area are thus frozen. All new
revenues beyond the base year can be spent only
for redevelopment purposes.
In 2000, this revenue diversion was just over
$1.9 billion statewide. This means nearly 10%
of all property taxes was diverted from public
services to redevelopment schemes. Even with
modest inflation, the percent taken has roughly
doubled every 15 years. (Table 3.1).
Total acreage under redevelopment has
doubled in the past decade, with now nearly a
million acres tied up in tax increment diversions
(Table 3.2).
If redevelopment were a temporary
measure, as advocates once claimed, this
diversion might be sustainable. Once an agency
is disbanded, all the new property tax revenues
would be restored to local governments.
Legally, agencies are supposed to sunset after
40 years, but the law contains many exceptions
and is easily circumvented. Tougher sunset
legislation is needed to close agencies at a pre-
determined date. Only then will property tax
diversions end and the funds restored to the
public.
Lard- pressed counties are well aware of the
cost of this diversion, and often go to court to
challenge new redevelopment areas. In 1994,
the Los Angeles County Grand Jury released its
exhaustive report on redevelopment, calling for
more public accountability and citing its
negative effects on county services. The County
of Los Angeles general fund has lost $2.6
billion to redevelopment diversions since 1978,
seriously impacting public services. Other
counties face similar losses.
School districts have also responded with
lawsuits, sometimes forcing "pass- through"
agreements to restore part of their lost revenue.
Redevelopment agencies are notoriously
stingy in honoring property tax pass - throughs to
school districts. Saddled by its heavily indebted
and now defunct Riverwalk plan, the Garden
Grove Redevelopment Agency reneged on $2
million owed to local schools, until threatened
litigation restored the funds.
Faced with lost property taxes, school
districts have slapped steep building fees on
new residential development, thus passing the
burden of redevelopment onto new homeowners
and renters.
To recoup property taxes lost to
redevelopment agencies, school districts have
won their own property tax diversions from
cities, in the form of the Educational Revenue
Augmentation Fund (ERAF). Established by the
state legislature, ERAF diversions from cities to
school districts totaled $535 million in 1999 -00,
money that comes directly from municipal
General Fund budgets needed for public safety,
parks and libraries.
Cities have long complained about these
ERAF diversions, but they are a direct result of
their own redevelopment raids on school funds.
Redevelopment. The Unknown Government
Tax increment financing also directly
impacts municipal budgets by diverting city
revenues into redevelopment agencies. That part
of the tax increment that would have gone to the
cities' general fund (averaging 12%) is lost, and
can now be used only by redevelopment
Tex Increment Diversion
agencies. Thus, there is now money to build
auto malls and hotels, but less for police, fire
fighters and librarians. Cities cannot use
redevelopmentmoney to pay for salaries, public
safety or maintenance, which are by far the
largest share of municipal budgets.
E
v
"Eat hearty, boys ... plenty more where this came from!"
Redevelopment The Unknown Government
10%
5%
0%
TABLE 3.1
Property Tax Increment as a Percentage
of Total Property Tax Revenues Statewide
(Percent of Property Taxes Diverted to Redevelopment)
1960 1970 1980 1990 2000
SOURCE: California State Controller's Office.
0
TABLE 3.2
Total Acreage in Redevelopment Areas
h.0h h0 Rt� 9 9M1 9h Vh Sh ,9h 9� 9a
"ICA' YEAR T
SOURCE: Report of the Commission on Local Governance for the 21st Century, page 112.
a Redevelopment The Unknown Govemment
Tax Increment Diversion
Redevelopment boosters claim the agency
is entitled to keep the tax increment, because it
was created by agency activity itself. The
exhaustively researched Subsidizing
Redevelopment in Cal ifomia by Michael D ardia
(public policy Institute, San Francisco, 1998)
disproved this. Thorough analysis showed
property tax diversions to be a net loss, and do
not "pay for themselves" with increased
development.
In fact, tax increment need not even be spent
in the area it was generated. Agencies typically
shift funds from one project area to another.
Heavily in debt and short on cash, the Los
Angeles Redevelopment Agency is proposing a
new 6,835 acre project area in the San Fernando
valley. Much of the $1.1 billion to be siphoned
off will actually be spent downtown and to
cover existing bonds.
Advocates also claim that redevelopment
agencies do not raise new taxes. While narrowly
true, the agency tax increment diversions starve
legitimate government functions of necessary
revenues, thus pressuring tax increases to make
UP the shortfall.
The bi- partisan Commission on Local
Governance for the 21st Century, chaired by
San Diego Mayor Susan Golding, recently
released its report, Growth Within Bounds (State
of California, Sacramento, 2000). The
commission specifically cited the negative
impact of tax increment financing, noting that
`7his financing tool has steadily eaten into local
property tax allocations that could otherwise be
used for general governmental services, such as
police and fire protection and parks" (page 111).
Tax increment financing is a growing drain
on funds intended for public needs. It has
confused and distorted state and local finance,
resulting in a byzantine maze of diversion,
augmentations, pass - throughs, and backfrlls that
have shortchanged both our schools and city
services. These property taxes — $1.9 billion
annually — must be recaptured from private
interests, and restored to the public interest.
Redevelopment: The Unknown Government
Debt: PlaE Now, Pay Later
Q 19916d3r�
"It's easy ... when you don't have to ask the voters!"
Redevelopment The Unknown Government
4 — Debt: Play Now, Pay Later
It is troubling enough that redevelopment
agencies divert property taxes from real public
needs. But that is only part of the story.
By law, for aredevelopment agency to begin
receiving property taxes, it must first incur debt.
In fact, property tax increment revenues may
only be used to pay off outstanding debt.
Pay -as- you -go is not part of redevelopment law
or philosophy.
Debt is not just a temptation. It is a
requirement.
That is why redevelopment hearings
inevitably feature three groups of outside
"experts ": the blight consultants, the lawyers,
and the bond brokers who help the agency incur
debt so it can start receiving the tax increment.
The bond brokers and debt consultants are
easily located. They are listed in the California
Redevelopment Association Directory. From
city to city they phone, fax, travel and make
presentations to sell additional debt. Naturally,
redevelopment staffs are supportive. More debt
means job security and larger payrolls.
Currently, total redevelopment indebtedness
in California tops $47 billion, a figure that is
doubling every eight years (Table 4.1).
Debt levels vary widely among agencies,
but all must have debt to receive the tax
increment. Table 4.2 shows those cities with the
highest total redevelopment indebtedness. Debt
levels have no relation to actual blight, as many
affluent suburban towns have higher
indebtedness than older urban-core cities.
Table 4.3 shows outstanding indebtedness
per- capita.
This is the amount of per capita property
taxes that must be paid to cover the principal
and interest of existing debt. This amount must
be diverted from the cities, counties and school
districts before these redevelopment agencies
can shut down and restore the property taxes to
those entities.
One would expect that if redevelopment
agencies had been successful in eliminating
"blight ", they would now be scaling back their
activities and reducing debt. In fact,
redevelopment indebtedness is growing rapidly,
draining investment money that could have
gone to buy other government bonds or into the
private sector.
There are two reasons redevelopment debt is
so attractive: First, redevelopment agencies may
sell bonded debt without voter approval. Unlike
the state, counties and school districts, the debts
need not be justified to, or approved by, the
taxpayers. A quick majority vote by the agency
is all that is needed.
Second, bond brokers love to sell
redevelopment debt. The commissions are high
and the buyers plentiful. Since the debt is
secured against future property tax revenue, they
are seen as secure and lucrative. If an agency
over - extends, then surely the city's general fund
will cover the debts.
Interest payments on bonds are the single
largest expenditure of redevelopment agencies
statewide, accounting for 26% of all costs —
$892 million in fiscal year 1999 -2000 (Table
7.1).
Bondholders and their brokers are profiting
handsomely from redevelopment debt, while
pocketing property taxes that should go to
public services.
wall Street profits. Main Street pays.
Bond brokerage firms are among the
biggest financial supporters of the California
Redevelopment: The Unknown Government
Debt P/av Now Pay Later
Redevelopment Association. They pay hefty
annual dues for its pro - redevelopment lobbyists,
sponsor the Annual CRA Conference and hold
regional seminars instructing agency staff how
to incur ever more debt.
Redevelopment debt has mortgaged
California's future by obligating property taxes
for decades to come. $48 billion needed for
future schools, infrastructure and public services
has been committed to service future
Figures
in Billions
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
redevelopment debt. $48 billion that should pay
teachers and police officers is diverted to
bondholders.
The only way to avoid these ballooning
interest payments is for redevelopment agencies
to stop incurring new debt, sell off existing
assets and pay off existing principal as soon as
possible. Chapter 12 explains how this can be
achieved.
TABLE 4.1
Total Redevelopment Indebtedness Statewide
---- •o•,.... •-1 ineo-n 1noM9u 19911 1991 -2 19924 109 19965 19¢18 199&7 1997-8 19919 9 &2"
SOURCE: State Controller's Office. Figures rounded off to the nearest $billion.
12 Redevelopment: The Unknown Govemment
TABLE 4.2
Top 12 California Cities by Total Redevelopment Indebtedness
(Includes principal and interest of all outstanding debt)
TABLE 4.3
Top 12 California Per- Capita Redevelopment Indebtedness by City
(Includes outstanding principal and interest)
Per - Capita Indebtedness
City/Agency
Total Indebtedness
1
San Jose ...............................
............................... $3,080,684,410
2
Fontana ...............................
............................... $2,584,465,243
3
Fairfield ................................
............................... $2,056227,733
4
Palm Desert ............................
............................... $1.853,767,358
5
Palmdale ...............................
............................... $1,715,008,891
6
Lancaster ..............................
............................... $1,655,817,028
7
Los Angeles ............................
............................... $1.414,629,020
8
Burbank .................................
............................... $988,351.348
9
La Quints ................................
............................... $974,298,925
10
Industry ..................................
............................... $789,380.527
11
Yorba Linda ..............................
............................... $760,974,888
12
West Covina ......................... ...............................
... $704,352,534
TABLE 4.3
Top 12 California Per- Capita Redevelopment Indebtedness by City
(Includes outstanding principal and interest)
Per - Capita Indebtedness
City/Agency
Population
TOTAL Indebtedness
1.
$1,144,029
Industry (L.A. Co.)
690
$789,380,527
2.
$136,278
Irwincials(L.A. Co.)
1,190
$162,170,958
3.
$104,647
Vernon (L.A. Co.)
85
$8,895,049
4.
$91,315
Sand City (Monterey Co.)
190
$17,350,305
S.
$50,788
Palm Desert (Riverside Co.)
36,500
$1,853,767,358
6.
$44,488
La Quints (Riverside Co.)
21,900
$974,298,925
7.
$23,054
Fontana (San Bernardino Co.)
112,100
$2,584,465,243
8.
$22,798
Indian Wells (Riverside Co.)
3,430
$78,199,873
9.
$22,253
Fairfield (Solana Co.)
92,400
$2,056,227,733
10.
$16,393
Brisbane (San Mateo Co.)
3,390
$55,573,728
11.
$15,122
Brea (Orange Co.)
36,550
$552,733,582
12.
$14,399
Palmdale (L.A. Co.)
119,600
$1,715,008,891
SOURCES:
Community Redevelopment Agencies Annual Report, Fiscal
Year 1999 -2000: State Controller's Office
California Statistical
Abstract, 2000, State of California
Redevelopment The Unknown Government 13
5 — Corporate Welfare
The consultant has found the blight. The
lawyers have drawn up the papers and defended
the agency from suits. The bond brokers have
created the debt, to be paid by the tax increment
that will surely flow.
Now should be the time to begin eliminating
"blight ", as required by state law.
In reality, very little is ever heard again
about blight. Redevelopment agencies are
driven primarily by creating new revenue. Since
most cities with redevelopment have little or no
real blight anyway, creating new government
revenues becomes their prime goal. They do so
in two ways:
Debt: As we have seen, an agency incurs
debt to be paid by future property tax
diversions. In this way, it can perpetuate its
own activities indefinitely by continuing to
borrow.
Sales Tax: By promoting commercial
development, a redevelopment agency can
claim to be stimulating new sales taxes that
benefit the city's general fund.
By state law, a city's sales tax share is 1%
of all taxable purchases. Sales taxes are
site - based. If you live in Sacramento and buy a
car in Folsom, all of the sales tax share from the
car will go to Folsom, none to Sacramento.
Typically, sales taxes account for 26% of
municipal general fund budgets, so cities have
long been motivated to attract sales tax
generators. City officials and chambers of
commerce have touted their location, city
services, and access to markets. New
department stores and auto dealers have long
been greeted with ribbon cuttings and proud
announcements in the local paper.
Redevelopment has escalated this to a new
level.
With redevelopment, cities have the power
to directly subsidize commercial development
through cash grants, tax rebates, or free land.
Spelled out in a Disposition and Development
Agreement (DDA), a developer receives
lucrative public funding for projects the agency
favors. Some receive cash up front from the sale
of bonds they will never have to repay. Others
receive raw acreage or land already cleared of
inconvenient small businesses and homes. They
purchase the land at substantial discount from
the agency. Sometimes it is free.
Redevelopment subsidies are not distributed
evenly. Favored developers, NFL team owners,
giant discount stores, hotels and auto dealers
receive most of the money. Small business
owners, now must face giant new competitors
funded by their own taxes.
Public funds are also used for glitzy new
entertainment centers open only to the affluent,
replacing perfectly good private facilities at
great cost.
L.A.'s Staples Center (tax subsidy: $50
million) moved the Lakers and Kings out of
nearby Inglewood, leaving the Forum virtually
empty. A new theater will soon open for the
annual Academy Awards presentations as part
of a Hollywood mall (tax subsidy: $98 million).
The Oscar show is being snatched from the
Shrine Auditorium which had long hosted the
event at no public cost.
Redevelopment has accelerated the
centralization of economic power among
ever -fewer corporate chains at the expense of
locally -based independent businesses. Asserts
Larry Kosmont of Kosmont & Associates, a
veteran redevelopment consultant and
prominent CRA member, "Costco, Wal-Mart
and other sales -tax generators are king of the
highways and will get whatever they want".
14 Redevelopment: The Unknown Government
LZA
"Some are more equal than others!"
This costly distortion of the free enterprise
system is justified as the only way to boost local
sales taxes (ending "blight' has, by now, been
long forgotten). Yet, if new developments are
justified by market demand, they will be built
anyway. If not, they will fail, regardless of the
subsidies.
Politically, such giveaways are beginning
to backfire on local politicians. Oakland Mayor
Elihu Hams lost a 1998 Assembly race to Green
candidate Audie Bock shortly after he signed a
one -sided giveaway to Al Davis to lure the
Raiders back to Oakland. The annual $5.8
million public pay -off to the San Diego
Chargers (as part of a "seat guarantee to multi-
millionaire team owner Alex Spanos) was a key
issue in the 2000 Mayoral race. Tainted by her
vote for the subsidy, Councilwoman Barbara
Warden placed a distant fourth in the March
primary. L.A. politicians were decidedly cool to
the hefty subsidies demanded by the NFL for an
expansion team, which ultimately went to
Houston. No candidate in the 2001 L.A.
mayoral race proposed any NFL deal. Even
council members from Mission Viejo scurried
for cover when their hefty redevelopment
"investment" in the minor league Vigilantes
went bad, and the team folded.
Wasted, too are the billions spent competing
for malls, auto centers, big box retailers and
other recipients of redevelopment largess. Fiscal
sanity and the laws of free enterprise must be
restored. Ironically, as poor mothers see their
welfare checks slashed, billionaire team owners
and developers receive ever more public dole.
Redevelopment has become a massive
wealth- transfer machine. Cash and land go to
powerful developers and corporate retailers,
while small business owners and taxpayers must
foot the bill.
Redevelopment: The Unknown Government 15
6 — Predatory Redevelopment:
Sales Tax Shell Game
A drive north on the Santa Ana Freeway
from Disneyland toward L.A. reveals the chaos
redevelopment has wreaked. There is the Buena
Park Auto Square, built around dealerships
lured from nearby Fullerton. Just north is the old
Gateway Chevrolet site. Where did it go? Just
across the county line to La Mirada, which lured
it from Buena Park with its own publicly -
financed auto mall (on land conveniently
designated as "blight ").
Still further north is another auto mall in
Santa Fe Springs, with numerous long -vacant
parcels waiting for the dealerships that will
nevercome. To the west is Cerritos, whose giant
redevelopment- funded "Auto Square" became a
pioneer in auto dealer piracy, draining off
dealerships — and sales tax revenue — from its
neighbors. Nearby Lakewood lost so many car
dealers that its city manager labeled Cerritos the
"Darth Vader of cities ".
Drive any stretch of freeway in San Diego,
Los Angeles, Santa Clara or other urban
counties and you'll see redevelopment- funded
auto malls, with their hopeful reader boards and
carefully graded — and vacant — dealer sites.
They're the product of a bitter fiscal free- for -all,
as cities coax each other's dealerships away
with ever - sweeter giveaways.
Car dealers, of course, are loving it. They no
longer have to make a profit from mere
customers. They can now play one city off
against another for cheap land, tax rebates and
free public improvements. You can't blame
them. But you can blame the laws that
encourage this shell game.
The same pattern is repeated with
department stores, discount chains, home
improvement centers, professional sports
franchises and even gambling casinos.
Corporate decisions once based on market
forces are now determined by which city's
redevelopment agency will cut the best deal.
The rush for sales taxes has caused cities to
favor commercial development over all other
types of land use (Table 6.1). This
fiscalization of land use offers incentives to
giant retailers, while discouraging new housing
and industry.
The California Redevelopment Association
(CRA) encourages retail developers to expect
public handouts. The CRA regularly co -hosts
conferences with the International Council of
Shopping Centers (ICSC) where retailers and
mall promoters feel out city officials for hand-
outs.
"California has more than 300
redevelopment agencies ", gushes the ICSC
magazine Shopping Centers Today. "Unlike
smokestack industries and manufacturing plants,
retail development is a source of clean revenue
for cities" ( "ICSC Forges Public/Private
Partnerships ", May 2001).
This pro- retaillanti- industrial bias pervades
redevelopment promoters. They value low wage
retail jobs at the expense of high paying
manufacturing jobs. They value people only as
consumers, not as skilled workers. They value
consumption at the expense of production.
Per - capita sales tax revenues vary widely
from city to city (Table 6.2). Generally, affluent
suburban ring cities get more than older urban-
core cities that need it the most. Largely
minority cities are hit especially hard by sales
tax inequality. Redevelopment has added to
these distortions as cash -flush suburban cities
lure retailers out of the poorer inner -city.
16 Redevelopment., The Unknown Government
dr
d,
4
0
Predatory Redevelopment. Sales Tax Shell Game
) a I,,/
y6TOWN
"What'll ya bid for this auto dealership ?"
In Califomia Cities and the Local Sales
Tax (Public Policy. Institute of California, San
Francisco, 1999), researchers Paul Lewis and
Elisa Barbour show how the sales tax bias has
skewed local decision - making and how the
billions in redevelopment subsidies have failed
to expand sales tax revenues; "From the 1970's
to the 1990's, sales taxes, measured in real
dollars per- capita, were a fairly stagnant source
of funds." (page xiii).
Even as personal incomes grew rapidly in
the halcyon '90s, sales tax revenues remained
flat. An aging California population is investing
more of its money, and spending it on health
care, travel and personal services, none of which
is subject to sales tax.
Internet commerce, too, will cut into future
sales tax revenues. Burgeoning interstate online
purchases are sales tax exempt by federal law,
a
L
and taxes on in -state purchases are difficult to
collect.
These factors make it unlikely that the huge
public subsidies poured into retail businesses
will ever pay back the new sales taxes so touted
by redevelopment boosters.
State leaders are finally focusing on the need
for sales tax reform. The °fiscalization of land
use,, promoted by redevelopment practices now
show signs of being addressed.
AB 178 was sponsored by Assemblyman
Tom Torlakson (D- Martinez), and signed into
law in 1999 by Governor Davis. It requires any
city or agency which uses public money to lure
a business away from a neighboring city to
reimburse that city for half the sales taxes lost,
over a 5 -year period.
Proposition 11, passed in 1998, allows
neighboring cities to enter into regional sales tax
sharing agreements. This would stabilize reve-
Redevelopment: The Unknown Government 17
Predatory Redevelopment: Sales Tax Shell Game
TABLE 6.1
Relative Desirability of Various Land Uses
in Redevelopment Areas, as Viewed by City Managers
8
a 4
a
o, 3
N
m
Retail Office Mxed -use Light Single - family Vulti- family Heavy
development industrial residential residential industrial
SOURCE: PPIC, California and the Local Sales Tax, page 77
(The Public Policy Institute of California conducted a survey of 471 City Managers, 330 of whom responded.)
noes and end bidding wars for retailers. With so
many cities packed into certain urban counties
(Los Angeles County has 88 cities), however, it
is difficult for cities to work out such
agreements on their own.
A more far- reaching reform would be to
replace the point -of -sale to a per- capita sales tax
disbursement. This would create a more
equitable distribution of public revenue, and
completely end costly competition over major
retailers.
The Public Policy Institute's sales tax study
indicated that 59.5% of the state's population
live in cities and counties that would be better
off in a per- capita system, especially residents
of older cities.
Newspapers as diverse as the L.A. Times and
Orange County Register have editorially
supported sales tax reform.
Then - Speaker Antonio Villaraigosa's
Commission on State and Local Government
Finance proposed replacing half the cities' and
counties' sales tax share with more stable
property tax revenues.
Controller Kathleen Connell's State
Municipal Advisory Reform Team (SMART)
issued its 1999 recommendations, including a
phased -in per capita sales tax disbursement
system over 10 years, that would assure cities
and counties a greater share of property taxes.
A move away from sales tax reliance will
restore fiscal rationality to local government and
18 Redevelopment The Unknown Government
balance to land use decisions. It will also
undercut the leading rationale forredevelopment
agencies.
With assured and stable revenues, cities will
cease subsidizing retail and treat residential and
industrial uses more fairly. With a greater share
Predatory Redevelopment Sales Tax Shell Game
of the property taxes for their general funds,
cities will be loathe to divert them into their
redevelopment agencies.
A return to common sense in local
government finance will end the irrationality
that redevelopment has become.
TABLE 6.2
Annual Per- Capita Sales Tax Revenues: Selected Cities
City
Affluent Suburban Cities: (25,000- 100,000)
Sales Tax
Per Capita
Beverly Hills ........ ...........................$442
Cerritos ............ ...........................$419
Brea............... ..........................$340
Palo Alto ........... ...........................$321
Palm Desert ........ ...........................$267
Pleasanton .......... ..........................$259
Irvine .............. ...........................$253
Mountain View .. ...............................
$250
Campbell.......... ...........................$234
Carlsbad ........... ...........................$204
Statewide Average .............................
$120
Older Urban Core Cities (over 150,000)
SanDiego .......... ...........................$118
San Bernardino ...... ...........................$117
Riverside .......... ...........................$114
Santa Ana .......... ...........................$103
Stockton ........... ............................$97
Oakland ........... ............................$77
Los Angeles ........ ............................$76
Pomona ........... ............................$64
Long Beach ........ ............................$61
Predominantly African- American Cities:
Compton ........... ............................$52
Inglewood .......... ............................$49
East Palo Alto ....... ............................$21
Predominantly Hispanic Cities:
Stanton............ ............................$74
Pico Rivera ......... ............................$61
Coachella .......... ............................$50
Maywood.......... ............................$27
Pallier ............. ............................$14
SOURCE: California State Board of Equalization / All Figures: Fiscal Year 1999 -2000
Redevelopment: The Unknown Government 19
7 — Follow the Money
Redevelopment backers may claim they are eliminating
blight and cleaning up urban California, but the money trail
tells a very different tale.
Table 7.1 shows where and to whom the money is
flowing.
$3.4 billion in public money was spent by all California
redevelopment agencies (F.Y. 1999 - 2000), according to the
most recent State Controller's Report. This includes both
funds from property taxes and bond sale proceeds.
Over a quarter of the money pays for the interest on debt.
That's $892 million into the pockets of bondholders, at the
expense of Califomiataxpayers. This is apowerful motive for
bond lawyers and brokerage houses to keep pushing
redevelopment schemes and lobbying against needed reform
While all redevelopment funds are encumbered by some
sort of debt, $610 million was made directly on debt
principal. Thus 44% of all redevelopment funds went directly
to debt payments.
While redevelopment apologists claim to be "rebuilding"
our cities, only 22% went for actual development, and another
9% for land acquisition, much of it still vacant.
Significantly, $395 million — 11% — was spent on
administration, most of it for redevelopment staff salaries.
This provides a lucrative bureaucratic base that
redevelopment staffers seek to preserve and expand.
By law, 20% of all redevelopment funds must be spent on
"low cost" housing (see Chapter 9), but only 2% is actually
being spent directly on housing. Redevelopment agencies
would much rather attract new retailers than residents.
The redevelopment establishment has tried to disavow
these figures. But the numbers in the Controller's Report were
all submitted by the agencies themselves. Table 7.1
represents a comparison of the major categories.
They are testimony to the waste and ineffectiveness of
redevelopment. They are grim evidence of who really profits
from it.
Definitely not the people of California.
20 Redevelopment: The Unknown Govemment
Debt Payments
Real Estate
Development
Administration
Property Acquistions
Housing Subsidies
Other
TABLE 7.1
Total Redevelopment Expenditures by Category
$1.502 billion
(44 %)
$753 million (22 %)
$395 million (11 %)
$292 million (9 %)
' $74 million (2 %)
$410 million (12 %)
SOURCE: Community Redevelopment Agencies Annual Report, Fiscal Year 1999- 2000; California State Controller's Offim:
Table 4, Page 254. The six categories are based on the following figures provided by all repotting redevelopment agencies:
Debt Interest Payments includes Interest Expense: $868,339,504 and Debt Issuance Costs: $23,468,309. Total: $891,807,811.
Debt Principal includes Tax Allocation Bonds: $275,752,417, Revenue Bonds: $63,957,732, City /County Loans:
$139,412,866 and Other Long -Term Debt: $130,987,826. Total: $610,110,841. Real Estate Development includes Site
Clearance Costs: 12,235,420, Project ImprovemendConstmction Costs: $609,040,240, Planning Survey & Design:
$31,171,594, Disposal Costs: $1,216,060, Loss of Disposition of Land Held for Resale: $38,696.167, Decline in Value of Land
Held for Resale: $14,676,110, and Rehabilitation CostdOrauts: $46,376,332. Total: $753,411,893. Administration includes
Administrative Casts: $311,302,499 and Professional Services: $83,680,815. Total: $394,983,314. Property Acquisition
includes Real Estate Purchases: $151,572,978, Acquisition Expense: $43,241,793, Operation of Acquired Property:
$27,688.994, Relocation Costs/Payments: $38,548,411, and Fixed Asset Acquisition: $30,793,922. Total: $291,846,098.
Housing Subsidies includes Subsidies to Low & Moderate Housing: $73,855,538. Other includes Other Fxpenditums:
$419,888,492.
Redevelopment: The Unknown Govemment 21
8 — The Myth of Economic Development
"Economic Development" is a common
cliche among city governments and
redevelopment agencies.
It refers to a belief that tax subsidies to
selected private businesses can stimulate the
local economy. It assumes that the free
enterprise system alone is inadequate. It
presumes that government planners can allocate
resources more efficiently than can the free
market.
The legal purpose for redevelopment
remains the elimination of blight. All economic
development activities must pay lip service
toward that goal. Behind this facade,
redevelopment has subsidized giant retailers,
luxury hotels, golf courses, stadiums and even
gambling casinos.
Is there any evidence that redevelopment has
promoted economic development in blighted
areas?
No.
The first systematic statewide analysis of
redevelopment agencies was published by the
prestigious Public Policy Institute of California
in 1998, entitled Subsidizing Redevelopment in
California. Veteran researcher Michael Dardia
compared 114 different redevelopment project
areas to similar neighborhoods outside of
redevelopment areas, from 1983 to 1996.
The report concluded that redevelopment
activities were not responsible for any net
economic growth or increase in property taxes,
and that they were a net drain on public
resources. As the report's title suggests, Dardia
concluded that redevelopment was being
subsidized by taxes drained from the schools,
the state and special districts.
In his research, Dardia had the full co-
operation of the California Redevelopment
Association, which approved his methodology
and confirmed his data. When his conclusion
was reached, however, the CRA blasted the
report and tried to have it buried. Yet it cannot
refute the emerging truth: redevelopment does
not work.
Similarly, the Los Angeles Times (January
30, 2000) published a detailed study showing
the North Hollywood Redevelopment Project
Area's 20 -year, $117 million effort had
produced no net benefits for the community.
The Times compared North Hollywood to
ten other socio - economically identical areas in
Los Angeles that had no redevelopment,
including Van Nuys, Mar Vista and Venice.
"Although they received no redevelopment
money, most of the comparison areas registered
improvements in income and poverty rates equal
or better than the heavily funded North
Hollywood project area," the report concluded.
Census data confirm the conclusions of the
Public Policy Institute and Los Angeles Times.
A 10 -year comparison (1979 -1989) of
redevelopment and non - redevelopment cities
shows no net per- capita income gains due to
redevelopment activity (Table 8.l ).
Pairing similar cities by area, size and
income, shows those without redevelopment
posted greater gains in living standard than
those with redevelopment (Table 8.2).
Redevelopment's extreme bias in favor of
retail and against industry has created low wage
jobs at the expense of skilled workers. It
subsidizes big box stores selling largely
imported goods at the expense of American
manufacturing jobs.
22 Redevelopment -The Unknown Govemment
The Myth of Economic Development
Redevelopment apologists and lobbyists
counter with pretty pictures of new stadiums
and shopping malls. Surely, with all the money
spent, some nice new buildings have been
completed. But their evidence of success is
purely anecdotal. The evidence of failure is in
the numbers. All objective comparison studies
have shown that aggregate statewide
redevelopment activity does NOT generate
economic development and does NOT eliminate
blight.
This should come as no surprise even to the
most ardent redevelopment boosters.
Everywhere in the world, those countries that
respectproperty rights and free consumerchoice
outperform those that put economic decisions in
the hands of bureaucrats.
It is ironic that even as we encourage former
Soviet bloc governments to free their
economies, we increasingly entangle our local
and state governments in economic policies that
have repeatedly failed elsewhere.
"Isn't economic development great ?"
Redevelopment. The Unknown Government 23
140%
120%
100%
80%
60%
40%
20%
0%
The Myth of Economic Development
TABLE 8.1
Per - Capita Income Growth
Redevelopment vs. Non - Redevelopment Cities
130%
92%
Cities Cities
with Redevelopment withou Redevelopment
This survey reflects the 313 cities with redevelopment agencies, and the 101 cities without redevelopment agencies,
from 1979 -89. Cities incorporated after 1979 are not included.
SOURCE: United States Census Bureau, State Controller.
24 Redevelopment: The Unknown Govemment
The Myth of Economic Development
TABLE 8.2
Personal Income Growth Comparison Between
Cities With and Without Redevelopment
A Region -by Region Per - Capita Income GmxM Survey
Among Uses o / Comparable Size and Socio- Economic Levels, 19794989
LOS ANGELES BASIN:
Status
City
1979
1989
Growth
NO Redevelopment
Gardena
$7,911
$14,601
85%
HAS Redevelopment
Hawthorne
$8,097
$14,842
83%
NO Redevelopment
Artesia
$6,520
$12,724
95%
HAS Redevelopment
Inglewood
$6,962
$11,899
71%
BAY AREA:
Status City 1979 1989 Growth
NO Redevelopment Benicia $9,312 $20,663 122%
HAS Redevelopment Alameda $9,288 $19,833 114%
CENTRAL VALLEY:
Status City 1979 1989 Growth
NO Redevelopment Lodi $7,691 $14,638 90%
HAS Redevelopment Chico $6,065 $10,584 74%
SMALL CITIES:
Status City 1979 1989 Growth
NO Redevelopment Etna $4,812 $9,333 94%
HAS Redevelopment Industry $4,539 $7,853 73%
SOURCE: U.S. Census Bureau, California State Controller's Office
Redevelopment: The Unknown Government 25
9 — Housing Scam
By state law, redevelopment agencies must
spend 20% of their budgets on housing. This
housing set -aside fund was intended to improve
the quality and expand the supply of low cost
housing.
In reality, however, most agencies resist
spending money on new housing. When they
do, the funds are often squandered on high -cost
projects that enrich developers, and often
displace more people than they house.
Anaheimproposed to "improve" itsworking
class Jeffrey -Lynne neighborhood by forcing
existing apartment owners to sell to Southern
California Housing Corp. (headed by ex- Mayor
and Senator John Seymour). Half of the units
will be demolished, over 400 tenants will be
evicted and those that remain will see their rents
doubled. Public subsidy: $54 million.
The Brea Redevelopment Agency
demolished its entire downtown residential area,
using eminent domain to force out hundreds of
lower- income residents. Much of its housing
money has since been spent on mixed -use
projects that are really more commercial than
residential. The agency recently gave $649,000
in housing funds to a largely retail development
that will include only eight loft apartments.
Earlier, Brea allocated $30 million in housing
funds for a street widening.
Many other agencies find creative ways to
"launder" their housing money into commercial
and other uses.
When agencies do build housing, they
often displace the poor through "gentrification."
Los Angeles' notorious Bunker Hill project
razed an older neighborhood, replete with
vintage Victorian homes, and replaced it with
costly high -rise apartments and condos.
Indian Wells certainly does not want any
working -class people in its gated city of
mansions and golf courses. The Indian Wells
Redevelopment Agency has tried to transfer all
of its housing funds to nearby Coachella, a
largely poor Latino community. The State
Department of Housing and Community
Development has since ruled the transfer is
illegal, that "Indian Wells has the obligation to
use 2090 of its annual property tax increment for
affordable housing within its borders. Indian
Wells has used redevelopment funds to build
upscale hotels and golf courses that employ
many low wage workers who are without
affordable housing because it shirks its
responsibility."
Many cities simply refuse to spend any of
the required 20% on housing. The City of
Industry's aggressive use of redevelopment has
built shopping malls and auto plazas, yet not
one new housing unit has been built there in the
agency's history.
Despite the 20% requirement, the 1999 -2000
State Controller's Report summary (page 254)
shows barely 2% was spent on low and
moderate income housing.
Of the money which is spent, one fifth of all
funds are eaten up by administrative overhead,
mostly for agency staff salaries, while only 18%
actually goes toward new housing construction.
The California Redevelopment Association
has long lobbied the legislature for the
elimination of the housing requirement.
Housing advocates have been able to keep the
20% mandate, but have come to realize that it
has done nothing to help low -wage eamers or
expand low -cost housing. Like much else in
redevelopment, the original intent has been
ignored.
26 Redevelopment. The Unknown Government
,... e.
•
ACRES • 1 �/
"There's no room for YOU!"
The real effect of redevelopment has been
to increase housing costs statewide. To make
up for losses to redevelopment property tax
takeaways, school districts have levied new
fees on residential development. Cities are
happy to subsidize infrastructure for retail
centers, then shift the burden to new housing.
Commercial developments are subsidized,
while residential developments face rising
fees for streets, sewers, water and schools,
often far beyond their direct impact.
The fiscalization of land use ties up too
much property in commercial zones, thus
keeping out needed housing. The actual
redevelopment - funded housing that is built
may gentrify an area, but the poor residents
are simply shifted elsewhere.
A shift away from sales tax reliance to
property tax would be a first step in more
affordable housing. Cities would be rewarded
for maintaining quality residential areas,
rather than simply luring more retail. New
homes would not be spurned as a burden, but
welcomed as new property tax contributors.
This will happen if cities rely less on sales
taxes and receive a greater share of local
property taxes. But these new property taxes
must be spent on infrastructure and public
safety, and not siphoned away by
redevelopment agencies.. In the meantime,
redevelopment remains an unneeded extra
layer of government, which has only added to
housing costs statewide.
Redevelopment: The Unknown Government 27
10 — Eminent Domain for Private Gain
i°Nor shall private property be taken for
public use without just compensation ". Thus
the Bill of Rights specifies the only purpose
for eminent domain: "public use ".
Since then, government has used eminent
domain to acquire land for public use. Roads,
schools, parks, military bases, and police
stations were essential public facilities that
took priority over individual property rights.
Private real estate transactions, on the other
hand, were always voluntary agreements
between individuals.
Redevelopment has changed all that.
Under redevelopment, "public use" now
includes privately owned shopping centers,
auto malls and movie theaters. "Public use" is
now anything a favored developer wants to do
with another individual's land. Eminent
domain is used to effect what once were
purely private transactions.
In a typical redevelopment project, a
developer is given an "exclusive negotiating
agreement', or the sole right to develop
property still owned by others. Once such an
agreement is made, small property owners are
pressured to sell to the redevelopment
agency, which acquiiees the land on behalf of
the developer. If refused, the agency holds a
public hearing to determine "public need and
necessity" to impose eminentdomain. By law,
this must be an impartial hearing. In reality,
the agency has already committed itself to
acquire the property for the developer, so the
outcome is certain.
Whole areas of cities have been acquired,
demolished and handed over to developers to
recreate in their own image. Historic
buildings, local businesses and unique
neighborhoods are replaced by generic
developments devoid of the special flavor that
once gave communities their identities.
Typical is the experience of Anaheim.
Having demolished its historic central
business district in the mud- 1970's, the
redevelopment agency recently hired
consultants to help restore the identity of a
downtown that no longer exists. "The
complete eradication of the traditional
business district has left nothing for the
community to relate to as their downtown ",
admits an internal city memo.
"Redevelopment means the bulldozers are
coming," said Jack Kyser, chief economist for
the Los Angeles County Economic
Development Corp., (January 30, 2000, L.A.
Times). "A lot of time you displace business.
Once you do that it's tough to replace them."
Small property owners have little chance
to participate in redevelopment projects.
Consultants and redevelopment planners
prefer to work with one huge parcel under a
single ownership. Entrepreneurs and
homeowners just get in the way.
Typically, it is small family -owned
businesses that are targeted for eminent
domain. The Veltri family ran a popular
Italian restaurant for years in downtown Brea.
Forcibly acquired and demolished by the
agency, a Yoshinoya Beef Bowl now stands in
its place. Across the street, the Vega family
saw its service station condemned and
demolished to make way for brew -pub. Are
teriyaki and beer more of a "public use" than
pasta and gasoline? Appropriately, the Brea
Redevelopment Director later became the
president of the California Redevelopment
Association.
Ralph Cato saw his Fresno home
condemned to provide land for a Roxford
Foods turkey processing plant, which went
bankrupt a few years later. Cato never got his
house back.
28 Redevelopment: The Unknown Govemment
The CRA touts the aggressive use of
eminent domain in its monthly Redevelopment
Journal. A September 1999 article, with the
ironic headline "Eminent Domain Helps
Citizens," boasts "Wells Fargo Bank was one
of the existing tenants of the Los Altos
Shopping Center (Long Beach) helped by
eminent domain." Just how using eminent
domain to benefit a multi - billion dollar bank
"helps citizens" is not explained.
The same article details how eminent
domain was used in North Hollywood to
forcibly acquire a "brake shop, a gas station
and small apartment building" to make way
for a Carl's Jr. and a Pollo Loco. Why is fast
food more of a "public use" than housing or
brake safety?
Redevelopment staff attend professional
seminars promoting the ever - expanding use of
eminent domain. Consultants explain how to
pay the victims — nearly always small
businesses and homeowners — as little as
possible.
Fortunately, courts are becoming more
willing to stop eminent domain abuse. In
February 2000, the Lancaster Redevelopment
%J
7
Eminent Domain for Private Gain
Agency condemned a 99 Cents Only Store
solely to acquire the land for a Costco. Dave
Gold, CEO of 99 Cents Only Stores Corp. (80
locations statewide) counter sued for violation
of his 5' Amendment property rights. "We
don't want compensation. We just want to
stay where we are ", Gold told the agency.
On June 27, 2001, the U.S. District Court
ruled that the eminent domain action was
illegal. In his 17 -page ruling, Federal Judge
Stephen V. Wilson wrote that the Lancaster
action was a "naked transfer of property from
one private party to another ".
The 99 Cents Only Stores vs. Lancaster
Redevelopment Agency case will encourage
others to defend their property against illegal
takings. It has exposed the unconstitutional
abuse of eminent domain that lies at the heart
of redevelopment coercion.
t
3 6
t � 1
411k, ��
HOMEOWNERS
i 0
"What's mine is mine ... and what's yours is mine!"
Redevelopment. The Unknown Government
11— The Redevelopment Establishment
Redevelopment is an entrenched special
interest. It thrives on contributions from its
beneficiaries and from lack of awareness of the
general public. Its advocate is the California
Redevelopment Association, a Sacramento-
based lobby that seeks to protect and expand
redevelopment power.
The CRA's $1.6 annual budget is paid for
from hefty annual dues by both agency-
members and the private firms that profit from
redevelopment. Despite the public tax dollars
contributed to the CRA, the public has no say in
CRA operations. The CRA is governed by an
18- member board. All are redevelopment
agency administrators. None are elected
officials. The CRA is operated by and for
redevelopment insiders. Good public policy is
the last of its concerns.
The CRA is highly sensitive to the growing
public and legislative reaction to redevelopment
abuse. Its monthly newsletter, Redevelopment
Journal, brims with advice to redevelopment
staff on finessing inquiries from the press and
grand juries. It has repeatedly criticized
Redevelopment. The UnImown Government, and
personally attached its authors, but has refuted
none of the factual information provided here.
Mostly it provides photos of new malls and
shopping centers, accompanied by fluff pieces
from redevelopment directors.
Well aware of redevelopment's growing
negative image, the CRA has created the
°Institute for a Better California," a pro-
redevelopment public relations front group.
Operating next to the CRA's Sacramento office,
the IBC plants friendly stories in the mainstream
press and monitors opposition groups.
The CRA has two core constituencies:
agency staff members whose salaries derive
from redevelopment and private businesses that
profit from redevelopment.
Redevelopment staff controls agency
agendas and recommends actions. Agency
members — usually elected city council
members — tend to rely more on staff than on
their own judgement. Though simple in
principle, redevelopment is presented as too
complex for ordinary elected officials and
citizens to understand.
The special interests profiting from
redevelopment are easy to find. The 1996 CRA
Directory, includes 25 commercial developers,
26 bond brokers, 37 law firms and 101 separate
consulting firms.
The CRA Annual Conference in San Diego,
held March 15 -17, 2000, boasted 60 corporate
sponsors and exhibitors. The main purpose of
such conferences is to increase business for the
firms that prey off redevelopment budgets.
Among these are California's biggest
developers, priciest law firms and Wall Street's
most powerful brokerage houses. The
"expertise" they provide for public officials is
always geared toward high debt and expanding
redevelopment power.
For all its guile, however, the CRA is puny
compared to the California Teachers
Association (CTA) and other interest groups
that could mobilize to reclaim the money
diverted by redevelopment. Admitted one CRA
executive, "The largest group we have to fear is
the CTA, because they are becoming aware that
the money the state backfills to schools is
additional money the schools might have, if
they had not lost the money to tax increment in
the first place."
In the end, the CRA's real power lies in
widespread ignorance of what redevelopment is
and how it operates. By law, redevelopment
agencies are an arm of state government, yet
there is little state oversight. This isolation has
spawned abuses that would not be tolerated in
any other government agency.
30 Redevelopment., The Unknown Government
L+' 1 4 . k
"Your gravy train ends here!"
32 Redevelopment. The Unknown Government
12 — What You Can Do
Clearly, redevelopment is out of control
Under the thin guise of eliminating blight,
it consumes a growing share of property taxes,
incurs ever burgeoning debt, spawns sales tax
wars among cities and tramples on property
rights. Originally created as a temporary
measure following World War II, it threatens to
become a permanent cancer on California's
political and economic life. Ending
redevelopment abuses can be approached on
four levels:
LOCAL ACTIVISM: If your city has
redevelopment, learn more about it and help
educate your fellow citizens. Monitor agency
agendas, challenge new debt issuances and
expansion of project areas. Support local small
businesses threatened with eminent domain and
facing giant tax- subsidized competitors.
Support channeling redevelopment funds
into infrastructure and real public improve-
ments, and away from developer hand -outs and
special interests.
Encourage your city to work for co-
operative sales tax sharing agreements with its
neighbors, as allowed for in Proposition 11.
If your city has no redevelopment, use the
examples of abuse to keep it out of your city.
Wherever you live, support officeholders and
candidates who understand redevelopment and
can make their own judgements independent of
those who profit by it.
STATEWIDE ACTIVISM: Municipal
Officials for Redevelopment Reform (MORR)
and Californians United for Redevelopment
Education (CURE) are two statewide networks
committed specifically to ending redevelopment
abuse.
MORR publishes Redevelopment: The
Unknown Government, which is available to all
elected officials and citizen groups.
MORR also holds its California Conference
on Redevelopment Abuse, held twice annually;
spring in the Los Angeles area, and fall in the
Bay Area. Attended by legislators, lawyers,
mayors and activists, the confabs provide
needed information — and inspiration — for
those fighting redevelopment abuse. Call 714-
871 -9756 for the upcoming conference nearest
you, or for additional copies of this publication.
CURE is an all volunteer network,
providing contacts among the many locally -
based activist groups throughout the state. Call
323 -567 -6737 to get involved.
LEGAL CHALLENGE: County and
school officials must be more aggressive in
appealing redevelopment tax diversions. Grand
Juries must broaden their probes into
redevelopment. As the California State Supreme
Court becomes more protective of property
rights, eminent domain abuses can be more
successfully challenged. A growing number of
public interest lawyers are willing to defend
small property owners against redevelopment
agencies.
STATE LEGISLATION: Redevelopment
is a layer of government created by the state,
and has no powers other than those granted by
the state. It is wholly within the powers of the
state legislature and governor to reform, alter or
abolish. The following issues must be
addressed:
EminentDomain: Controls must be placed
on the widespread abuse of eminent domain.
Sales Tax Reform: Some type of per- capita
sales tax disbursement would end predatory
redevelopment and return cities to an equal
footing. Assured of a stable revenue flow based
on its population size, cities could concentrate
on providing basic services, rather than
subsidizing new businesses.
Redevelopment. The Unknown Government 33
Debt Control: Make redevelopment debt
subject to voter approval. This would limit debt
issuance and make agencies more publicly
accountable.
Mandatory Sunsets: The 40 -year sunset
law must be given teeth and enforced. If
redevelopment agencies truly have eliminated
blight, then there should be no further need for
them.
Infrastructure. Redevelopment funds are
public funds that should be spent on public
infrastructure, not on private projects. Tighter
state legislation should restrict expenditures to
improving public streets, parks and other
facilities.
Comprehensive Fiscal Reform: A rational
and stable method of funding local government
must be found, shifting cities back to greater
reliance on property taxes and less on sales
taxes.
Many redevelopment bills are introduced
into the legislature every year. The most
significant recent law is AB 178, by
Assemblyman Tom Torlakson (D- Martinez) and
signed by Governor Davis in December, 1999.
It requires any city using public money to lure
away an existing business from a neighboring
city must reimburse that city for half the sales
taxes lost. City victimized by predatory
redevelopment may now sue to recover up to
half the lost sales taxes.
Numerous recent studies and legislative
commissions have concluded that redevelop-
ment abuse must be addressed within the need
for comprehensive state and local fiscal reform:
SMART Report: State Controller Kathleen
Connell's 21- member State Municipal Advisory
Team (SMART) published its 1999 report,
Generating Revenue for Municipal Services,
recommending a 10 -year phased -in per- capita
sales tax formula, and a greater share of the
What You Can Do
property tax for cities.
Wilson/Hertzberg Commission: The 14-
member bi- partisan Commission on Local
Governance for the 21st Century released its
222 -page report, Growth Within Bounds, in
January, 2000. It noted with ah mt the doubling
of redevelopment area acreage (Table 3.2), and
"recommends that the point -of -sale allocation of
the sales tax be revised to mitigate its effect on
the 'fiscalization of land use' and that the
allocation for property taxes be increased to
more completely fund property - related
services."
Speaker's Commission: Then- Speaker
Antonio Villaraigosa's Commission on State
and Local Government conducted regional
hearings throughout the state. At its hearing at
Cal State Fullerton, MORR representative and
Fullerton Councilman Chris Norby gave the
opening testimony. The commission ultimately
called for reforms in the state -city fiscal
relationship.
PPIC Studies: The San Francisco -based
Public Policy Institute of California has
produced two recent seminal reports:
Subsidizing Redevelopment in California
(Michael Dardia, 1998) and California and the
Local Sales Tax (Paul Lewis & Elisa Barbour,
1999). Both note the fiscal distortions caused by
redevelopment, and call on the legislature for
needed reforms.
New bills will certainly be introduced into
the legislature, based on the recommendations
of these commissions. Citizens must let their
state representatives know of their support for
ending redevelopment abuse with the context of
state and local fiscal reform.
Many legislators still need to be educated
about redevelopment by their constituents
through letters, phone calls, faxes and testimony
before key committees. As new term limits take
effect, legislators will hopefully focus more on
doing the right thing, and long -term relation-
34 Redevelopment: The Unknown Govemment
Whal You Can Do
W�
3 0 1
0 /
ships with lobbyists will be less important.
Equally important will be the impact of
education advocates once they realize how
redevelopment revenues can be redirected into
California's public schools. The combined
political clout of the California Teachers
Association and the California School Boards
Association dwarfs that of the redevelopment
establishment.
Opposition to redevelopment is growing
and cuts across partisan lines. It includes pro-
'e �6�
� x _ =:
property rights Republicans and anti - corporate
welfare Democrats. It includes conservatives
opposed to growing public debt and liberals
opposed to the destruction of poor
neighborhoods. It includes free market
libertarians and civil rights activists fighting
the displacement of minority communities. It
includes environmentalists concerned about
suburban sprawl and preservationists
lamenting the demolishing of historic
downtowns.
Redevelopment: The Unknown Government
35
Reclaiming Redevelopment Revenue
36 Redevelopment. The Unknown Government
13 — Reclaiming Redevelopment Revenue
Public money should be spent to serve and
protect the public, not enrich private interests.
The $1.9 billion in property taxes currently
diverted by redevelopment agencies can be
reclaimed to meet real human needs.
.State government has full powers over all
367 redevelopment agencies in California.
Though administered locally, these agencies are
legally and collectively an arm of state
government, and can be reformed directly by the
legislature or statewide initiative.
Building shopping malls, auto dealerships
and pro sports stadiums is a proper function of
the free market. If there is a market for them,
they will all be built, with or without
government subsidy. Public infrastructure,
public education and public safety, however, are
state responsibilities.
We, the voters of California, have the
power to redirect redevelopment funds back into
serving the public, either through our legislative
or ballot initiative. We should do so.
Redevelopment agencies are, by law, arms
of state government. By legislation or initiative,
the state has ultimate control over these public
monies. It is time they were restored to serve the
public.
What could we do with the restored
property taxes currently diverted to
redevelopment schemes? What could we do
with the additional $1.9 billion per year?
PROPERTY TAX RESTORATION: The
property taxes ($1.9 billion annually) could be
returned to public education and local
government. Currently Public Schools receive
57% of all property taxes statewide, Counties
receive 21 %, Cities receive 12% and Special
Districts receive 10% (before redevelopment
takes its share). Without redevelopment, the
restored tax revenues would then be shared
accordingly:
TABLE 13.1
Annual Revenue Gains by Public Entity
With Restored Property Taxes
K -12 Public Schools:
Counties:
Cities:
Special Districts:
57% _ $1.083 billion
21 % _ $399 million
12 %= $228 million
10% =$190 million
$1.9 billion
Redevelopment: The Unknown Government 37
Reclaiming Redevelopment Revenue
With $1.083 billion added annually to
school funding, over 20,000 teachers could be
hired, reducing class size, adding after school
programs and individual tutoring.
With an added $627 million, cities and
counties could hire 13,000 more police and
sheriffs officers, buy 30 million more library
books, improve paramedics or expand youth
services.
INFRASTRUCTURE FUND: Rather than
add public personnel, the $1.9 billion could be
dedicated to maintaining and improving public
infrastructure. Current estimates ran as high as
$30 billion in major repairs need to our streets,
bridges, sidewalks and water systems. The
unknown demands of the current electricity
crisis further strain the budget. Add school
repairs and the needs are even more staggering.
Redirecting the $1.9 billion currently
diverted by redevelopment agencies into
statewide infrastmcmre would make up for
years in deferred maintenance without raising
taxes. It would provide local government with
the funds needed to fix their streets and
classrooms.
The original rationale of redevelopment
was to eliminate blight. It was a temporary fix
for a temporary problem. Redevelopment
agencies were never supposed to hoard an over-
growing slice of property taxes indefinitely. Let
them share it now.
More importantly, how better will blight
really be eliminated? By building more
commercial development? By encouraging
California consumers to buy ever more
merchandise? Or by better educating our
children? What good are new NFL stadiums in
San Francisco, Los Angeles or San Diego, if our
streets and water systems are crumbling?
Any tme fiscal reform must include the
restoration of property takes now diverted by
redevelopment agencies. In addition, reform of
the sales tax will remove the motive for the
commercial subsidies. Several reform
commissions (Chapter 10) have also
recommended a greater share of general
property taxes assured for cities. In whatever
form change occurs, redevelopment will have no
long -term future in a system or rational
government finance.
When redevelopment is fully understood,
change will come quickly. When it is no longer
The Unknown Government, policies promoting
fiscal responsibility, free enterprise and fair play
for all Californians will finally be restored.
38 Redevelopment: The Unknown Govemment
14 — Sources / Suggested Further Reading
Barbour, Elisa & Lewis, Paul, California and the Local Sales Tax, Public Policy Institute
I�
California, San Francisco, CA 1999.
California Debt Advisory Commission, Recommended Practices for Redevelopment
Agencies, Report CDAC -5, Sacramento, CA, 1995.
California Department of Finance, California Statistical Abstract, Sacramento, CA 1997.
California Legislature, Senate Committee on Local Government, Redeveloping
California: Finding the Agenda for the 1990's, Report 457 -5, Sacramento, CA 1989.
California Redevelopment Association, Directory of Member Agencies and Allied Firms,
CRA, Sacramento, CA, various issues.
California Redevelopment Association, Redevelopment Journal,
CRA, Sacramento, CA, various issues.
California State Auditor, statewide Redevelopment Agencies, Sacramento, CA 1996.
California State Board of Equalization, Sales Tax Revenues by City, 1999 -2000.
California State Controller's Office, Financial Transactions Concerning Community
Redevelopment Areas, Fiscal Years 1984 -85 to 1999 -2000, Sacramento, CA.
Commission on Local Governance for the 21st Century, Growth Within Bounds:
Report of the Commission on local Governance for the 21st Century, State of
California, Sacramento, CA 2000,
Dardia, Michael, Subsidizing Redevelopment in California, Public Policy Institute of
California, San Francisco, CA 1998.
Los Angeles County Grand Jury, Report on Redevelopment Agencies in Los Angeles
County, Los Angeles, CA 1994.
Morgan, William S., Redevelopment Handbook, Diehl, Evans & Company, Irvine, CA 1997.
Redevelopment: The Unknown Government 39
Reclaiming Redevelopment Revenue
Rosentraub, Mar, Major League Losers, Basic Books, New York, NY 1996.
State Municipal Advisory Reform Team (SMART), Generating Revenue for Municipal
Services, State Controller's Office, Sacramento, CA 1999.
U.S. Bureau of the Census, County and City Data Book 1995, Washington, D.C. 1995
Von Haden, Lloyd, Redevelopment: Boon or Boondoggle ?, Von Haden, Vista, CA 1992.
40 Redevelopment: The Unknown Government
MORR
MUMCIPAL OFFICIALS FOR
REDEVELOPMENT REFORM
_jAIIIIrL
Redevelopment: The Unknown Government
First Edition: October 1996 (5,000 copies)
Second Edition: May 1997 (5,000 copies)
Third Edition: August 1998 (7,000 copies)
Fourth Edition: April 2000 (10,000 copies)
Fifth Edition: July, 2001 (10,000 copies)
Redevelopment: The Unknown Government
Municipal Officials for Redevelopment Reform