HomeMy WebLinkAboutAgenda Report - November 18, 2009 J-05CITY OF LODI
COUNCIL COMMUNICATION
AGENDA TITLE: Consider Holding a Special City Council Meeting to Discuss the Possibility
of Developing New Proposed RedevelopmentProject/Tax Increment Plan
MEETING DATE:
PREPARED BY:
November 18,2009
City Manager
RECOMMENDED ACTION: Direction requested.
BACKGROUND INFORMATION: Mayor Hansen and Councilmember Johnson have
requested that the Manager ask whether or not the
Council wishes to consider the development of a new
proposed Redevelopment Projectrrax Increment Plan.
If the Council is interested, it is recommended that a Special Meeting be called. The Council
could debate whether to consider pursing a new Redevelopment Plan, the issue of when and
other timing matters, the possibility of an advisory vote, the imposition of limitations, and the
form of a Redevelopment/Tax Increment Plan (e.g. to fund public facilities and public
improvements only) .
Possibledates for a Special Meeting are subject to the Council Members availability.
FISCAL IMPACT: In regard to holding a Special Meeting, costs are insignificant.
Blair King, City M a r @ $ ? -
APPROVED:
lair , City Manager
November 18,2009
RECEIVED
2009 NOV 18 pM 4: 51
To: The Honorable Mayor Hanson, Councilmembers, and City Clerk CST Y OF LODI
ER K
Re: Item J-5
I write this letter to express my disappointment in the council for considering a new
Redevelopment project area plan j ust 8 months after a special election was held which the
citizens rejected. Since the Mayor is in charge of the order of the agenda, one would expect
this item to be the first thing considered. Unfortunately, he has decided to bury it at the end of
the agenda, after two public hearings, four regular items, not to mention comments from
council, public comments and the consent calender. This action is not what I would call open
and transpartant.
This isn't about the peoples' wishes; this is about what the campaign contributors' want, such
as, developer, Dale Gillespie, and other Downtown property owners. Furthermore, the
Downtown consultant, Michael Friedman, has already advised those attending the Downtown
summit that NO, may I repeat No, subsidy from the city is needed to complete the second
phase of downtown improvement.
The richest people in town need to spend their own money to impove or sell their own
property.
I urge you to vote No on J-5. The voters have spoken and they have clearly said "no" to a
Lodi Redevelopment Project. It would be unwise to continue spending precious tax dollars
for a consultants for a third project plan. Stop acting like a bunch of bullies.
I have submitted the M.O.R.R. booklet of redevlopement abuse for your review.
I am requesting that the books and this letter be introduiced into the minutes for item J-5 on
November 18,2009. Six books were provided: one for each council member and one for the
record.
S
2
209 329-7036
"at it is. "at can be done.
A Report to the People of California
September, 2007
REDEVELOPMENT: THE UNKNOWN GOVERNMENT
Published by
Municipal Officials for Redevelopment Reform (MORR)
Anypart of this book may be reproduced For additional copies or more information:
Phone: 714-813-5899 ♦ E-mail: Norby4oc@aol.com
Websites: redevelopment.com, crrsj.com, calpropertyrights.com, califcurehome.com, ij.org, castlecoaliton.com
EDITORIAL BOARD:
Director:
Chris Norby
Supervisor, County of Orange
Council Member, City of Fullerton, 1984-2002
Member, Fullerton Redevelopment Agency, 1984-2002
Ph.: 714-813-5899
Associates:
Jean Heinl, Co -Director
CalifomiansUnited for RedevelopmentEducation (CURE)
South Gate, CA
Ph.: 323-567-6737 e-mail cure@sbcglobal.net
Loraine Wallace Rowe, Attorney -at -Law
Chair, Coalition for RedevelopmentReform (CRR)
San Jose, CA
Ph.: 408-817-5678
Mayor Pro -Tem John Paul Ledesma
Former Mayor, City of Mission Viejo
Ph.: 949-581-1924
Larry Gilbert & Alan Pilger
Orange County Co -Directors, C.U.R.E.
Ph.: 949-581-8688 e-mail: lgpwr@aol.com
Sherry Curtis
Land Use and GovernmentFinance Consultant
Sacramento, CA
W.: 209-295-6404 e-mail: earlsherrycurtis@volcano.net
Ernie Bernardi, emeritus/ deceased
Los Angeles City Council, 1961-1993
Council Member Judy Dunlap
City of Inglewood
Ph.: 310-412-5641
Council Member Ginny Lambert
City of Hawthorne
Ph.: 310-675-3146
Council Member Judith Christensen
City of Daly City
Ph.: 650-991-8008
Jeffrey A. Leon, Attorney -at -Law
Oakland, CA
Ph.: 510-208-6600 e-mail: jleon@leonandleon.com
Chris Sutton, Attorney -at -Law
Pasadena, CA
Ph.: 626-683-2500
Dr. Ralph Shaffer
Chair, Los Angeles County Grand Jury
Subcommitteeon Redevelopment, 1993-94
Ph.: 626-966-4304
Don Lippman
Hollywood area activist
Ph.: 323-654-4826
Richard Erganian
The Vineyard
Fresno, CA
Ph.: 559-222-0182
Bruce Henderson
San Diego City Council, 1993-1997
Ph.: 858-273-8600
Mayor Charles Antos
City of Seal Beach
Ph.: 562-430-1450
C. Robert Ferguson, Attorney -at -Law
237 W. Fourth
Claremont, CA 91711
Ph.: 909-482-0782
Glenn Hanna
Former Treasurer, City of Capitola
Ph.: 831-475-4724
WHAT'S INSIDE
1 she Unknown Government.......................................................................................... 2
2 dight Makes Right...................................................................................................... 4
3 sax Increment Diversion............................................................................................. 6
Table 3.1: Property Tax Diversion Growth ....................................................... 6
Table 3.2: County Property Tax Losses to Redevelopment Agencies ..............8
Table 3.3: Highest Percentage Tax Increment Diverters................................... 9
Table 3.4: Redevelopment Acreage Growth ...................................................... 9
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 — 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 .... 20-21
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.......................................................................... 32
12— What You Can Do
34
13 — Sources / Suggested Further Reading...................................................................... 38
I The Unknown Government
There is an unknown government in
California.
This unknown government currently
consumes nearly 12% of all property taxes
statewide — $4.1 billion in 2006. It has a total
indebtedness of over $81 billion.
It is supported by a powerful Sacramento
lobby and 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 massive 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.
O u t of California's 478 cities, 387 operate
redevelopment agencies. No vote of the
residents affected was required. No review by
the Local Agency Formation Commission
(LAFCO) was done. (Only 23 of 58 counties
have active agencies, but these affect only
shrinking unincorporated areas and constitute
about 4% of all redevelopment expenditures.)
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.
2 Redevelopment. The Unknown Government
The Unknown Government
"I'm from Redevelopment and I'm here to help you."
Redevelopment: The Unknown Government 3
2 Blight Makes Right
All a city need do to create or expand 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.
Blight consultants' know that blight is a
forgone conclusion, regardless of actual
conditions. Fully 30% of all urbanized land in
California has now been declared blighted.
"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 was declared
blighted to pave 19 acres of parkland and axe
100 trees for anew Costco. Raw desert acreage
in California City was declared blighted to
justify its seizure for a Hyundai test track.
An Orange Countypublic health facility was
declared blighted by the Santa Ana
Redevelopment Agency in order to turn the
property over to a BMW dealer.
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 3,100 acres in
a consolidated "Whitewater Project Area".
Redevelopment has little to do with cleaning
up real urban decay. In fact, the California
Redevelopment Association is making an
expansion push in new suburban cities. This
strategy was outlined in the CRA -sponsored
seminar "Suburbs: The GreatestRedevelopment
Opportunity" on March 8, 2006 held in
Monterey.
Since the blight designation expands
eminent domain powers and building permits
can now be denied if an applicant does not
conform precisely to the redevelopment plan,
citizen groups often mount legal challenges.
Counties typically challerige blight findings to
protect their revenue stream fi-om agency
diversions.
Courts have overturned blight findings in
Mammoth Lakes, Diamond Bar and Temecula,
invalidating their redevelopment plans. 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.
On c e 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.
4 Redevelopment. The Unknown Government
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.
To eliminate alleged blight, aredevelopment
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
Makes
increment and may do so without voter
approval.
3) Business Subsidies: An agency has the
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
eliminate real blight.
"It's easy... blight is whatever we say it is!"
Redevelopment. The Unknown Government 5
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 forcesup expenses
forpublic services such as education and police,
their property tax revenues within a
redevelopment area are frozen. All new
revenues beyond the base year can be spent only
for redevelopment purposes.
In 2006, this revenue diversionwasjust over
$4.1 billion statewide. This means nearly 12%
of all property taxes were 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
nearly doubled in the past decade, with more
than 1.2 million acres tied up in tax increment
diversions (Table 3.4).
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.
Counties are the biggest losers with over
$514 million in annual revenues lost to
redevelopment agencies (Table 3.2).
Los Angeles County alone has lost over $2
billion in general fund revenues since 1990 to
redevelopment diversion. These are funds
desperately needed to ,keep open public
hospitals, staff emergency rooms, stack library
shelves and fully fund law enforcement.
Santa Clara County CEO Peter Kutras has
labeled these losses "fiscal eminent domain"
and has called for County oversight over
redevelopment activities.
Currentlyproposed legislation gives County
Boards of Supervisors oversight on future
redevelopment area expansions, extensions and
amendments in order to help recapture the
counties' lost share of these revenues. Such
oversight is essential to stop the continued
bleeding of revenues needed for essentialpublic
services.
School districts are theoretically protected
under Proposition 98, but often must sue to
force "pass-through" agreements to restore part
of their lost revenue.
TABLE 3.1
Property Tax Increment as a Percentage of
Total Property Tax Revenues Statewide
(Percent of Property Taxes Diverted to Redevelopment)
12$
8%
4%
00/0
1960 1970 1980 1990 2000 2006
SOURCE: California State Controller's Office
6 Redevelopment. The Unknown Governmenf
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.
In 2002, the Placentia-Yorba Linda Unified
School District successfully sued the Yorba
Linda Redevelopment Agency to recoup up to
$240 million in lostproperty tax revenues. With
$775 million in indebtedness, the agency had
diverted school funds to build golf courses and
shopping centers.
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 homebuilders.
T a x increment financing also impacts
municipal budgets by diverting city revenues
into redevelopment agencies. That part of the
tax increment that would have gone to a city's
general fund is lost and can now be used only
by redevelopment agencies. Thus, there is now
MANS
Tax increment Diversion
money to build auto malls and hotels but less for
police, fire fighters and librarians. Cities cannot
use redevelopment money to pay for salaries,
public safety or maintenance, which are by far
the largest share of municipal budgets.
Redevelopment boosters claim the agency
is entitled to keep the tax increment because it
was created by agency activity itself. The
exhaustivelyresearchedSubsidizingRedevelop-
ment in California by Michael Dardia (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.
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.
Ienpl>nlA
"Eathearty, boys ... plenty more where this came from!"
Redevelopment. The Unknown Governmenf 7
8 Redevelopment. The Unknown Government
Table 3.2
County
Property Tax Losses To
Redevelopment Agencies
Total Losses
Total Losses
FY 2005-06
1989-2006
FY 2005-06
1989-2006
Los Angeles
$184,558,787
$2,176,633,209
Butte
2,538,808
20,812,101
San Francisco
38,233,605
286,361,350
Stanislaus
2,132,388
13,345,455
San Bernardino
35,365,412
356,041,724
Merced
1,953,658
20,647,296
San Diego
33,473,238
289,153,157
Marin
1,811,670
20,111,881
Riverside
33,342,082
332,827,798
Yolo
1,700,841
19,711,502
Santa Clara
31,279,035
478,929,688
Kings
1,553,734
13,416,795
Alameda
25,026,796
233,310,709
San Luis Obispo
1,539,349
7,300,841
Orange
16,460,599
188,778,316
Shasta
1,520,641
13,114,704
Contra Costa
15,066,429
166,846,469
Mendocino
1,378,736
13,862,018
San Mateo
9,648,686
97,494,082
Imperial
1,242,723
14,354,987
Sonoma
9,512,949
77,255,901
Humboldt
1,106,633
14,035,825
Sacramento
9,251,032
95,995,450
San Benito
1,042,546
11,184,022
Solano
8,827,241
99,263,755
EI Dorado
995,482
5,613,717
Ventura
8,029,654
77,577,941
Lake
720,766
3,101,390
San Joaquin
7,245,244
39,533,742
Madera
644,025
4,616,797
Monterey
4,547,244
45,989,835
Napa
553,781
7,594,847
Santa Barbara
4,203,539
45,264,655
Sutter
372,317
3,410,121
Kern
4,111,004
38,791,835
Nevada
346,657
1,745,406
Santa Cruz
4,091,226
44,808,796
Tuolumne
189,996
13,508,643
Fresno
2,893,136
39,895,212
Yuba
95,619
1,136,376
Placer
2,775,698
16,358,555
Del Norte
88,514
1,319,188
Tulare
2,577,409
23,041,684
State Total
$514,048,930
$5,474,097,774
Source: State Controller's Reporton Redevelopment Aencies F.Y. 1989-2006
8 Redevelopment. The Unknown Government
In 2000, the bipartisan
Commission on Local
Governance for the 21st
Century, chairedby San Diego
Mayor Susan Golding, released
its report, Growth Within
Bounds. The commission
specifically cited the negative
impact of tax increment
financing, noting that, "This
financing tool has steadily
eaten into local property tax
allocations that could otherwise
be used for general govern-
mental 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 diversions,
augmentations, pass-throughs
and backfills that have short-
changed both our schools and
city services. These property
taxes — $4.1 billion annually —
must be recaptured fromprivate
interests and restored to the
public interest.
Tax Increment Diversion
TABLE 3.3
Highest
"Tax Increment Diverters"
City 1 Agency
Project Areas
Total
Valuation
"Increment'
Bio
diverted
LY
agency
1 Apple Valley
$216,040,417
$214,425,906
99%
2 Santa Clara
1,961,169,324
1,945,671,048
99%
3 Cerritos
2,751,968,587
2,728,055,452
99%
4 Seal Beach
139,940,548
137,989,565
98%
5 Walnut
2,061,190,550
2,016,287,682
97%
6 Foster City
1,645,086,436
1,602,421,436
97%
7 Palmdale
3,295,076,363
3,196,628,740
97%
8 Walnut Creek
326,024,815
312,565,327
95%
9 Claremont
395,510,619
377,570,460
95%
10 Rancho Cucamonga 6,459,463,110 6,160,078,754 95%
SOURCE: California State Controller'sReport FY 2005-2006
TABLE 3.4
Total Acreage in Redevelopment Areas
1,400,000
1,200,000
1,000,000
a�
i 800,000
V
Q
M 600,000
0
i-
400,000
0
R)o53 'b
Fiscal Year
SOURCE: Report of the Commission on Local Governance for the 21st Century, page 112
Redevelopment: The Unknown Government
r
4 Debt: Play Now, Pay Later
Redevelopment agencies are debt machines
that have amassed nearly $81 billion in
statewide bonded indebtedness.
By law, a redevelopment agency can receive
property taxes only after it has first incurred
debt. Property tax incrementrevenues may only
be used to pay off outstanding debt. Debts may
be in the form of bonds, accounts payable to
developers or reimbursements to cities for
operating expenses.
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 j ob security and larger payrolls.
Currently, total redevelopment indebtedness
in California is just under $81 billion, a figure
that is doubling every ten 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
actual public services.
If redevelopment agencies really were
successful in eliminating "blight", they would
now be scaling back their activities and
reducing debt. In fact, redevelopment
indebtedness is growing rapidly, draining
investment dollars 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, cities 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 the city's general
fund will cover the debts.
Interestpayments on bonds account for 20%
of all costs —nearly $1.2 billion in fiscal year
2005-06 (Table 7.1).
Bondholders and their brokers are profiting
handsomely from redevelopment debt while
pocketing property taxes that should go to
public services.
Bond brokerage firms are among the
biggest financial supporters of the California
Redevelopment Association. They pay hefty
Redevelopment. The Unknown Government 11
Debt. Plav Now. Pav Later
annual dues for its pricey lobbyists, sponsor the debts. $81 billion that should pay teachers and
Annual CRA Conference and hold regional police officers is diverted to debt payments.
seminars instructing agency staff how to incur The only way to avoid these ballooning
ever more debt. interestpayments is for redevelopment agencies
Redevelopment debt has mortgaged to stop incurring new debt, sell off existing
California's future by obligating property taxes assets and pay off existing principal as soon as
for decades to come. $81 billion needed for possible. Chapter 12 explains how this can be
future schools, infrastructure and public services achieved.
has been committed to service redevelopment
$90
$80
$70
$60
U) $50
0
$40
$30
$20
$10
$0
TABLE 4.1
Total Redevelopment Indebtedness Statewide
(figures in billions)
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2004 2006
SOURCE: State Controller's Office.
12 Redevelopment. The Unknown Government
Table 4.2
Top 12 California Cities by Total
Redevelopment Indebtedness
(Includes outstandingprincipal and interest)
Total Indebtedness
City FY 05-06
1
Oakland
$5,550,978,669
2
San Jose
$2,968,573,024
3
Fontana
$2,775,923,664
4
La Quinta
$2,727,769,724
5
Palm Desert
$2,606,205,016
6
Victorville
$2,582,635,329
7
Victor Valley *
$2,365,044,899
8
Lancaster
$2,181,511,374
9
Fairfield
$1,985,293,704
10
Los Angeles
$1,694,722,274
11
Palmdale
$1,611,691,908
12
Industry
$1,491,165,156
75,467
Economic Development Authority-Adelanto, Victorville,
36,145
Apple Valley, Hesperia & San Bernardino County
TABLE4.3
Top 12 California Per -Capita Redevelopment Indebtedness by City
(Includes outstanding principal and interest)
Redevelopment: The Unknown Government 13
Total
Per Capita
Indebtedness
Indebtedness
City
Population
2005-06
1
$1,854,683
Industry
804
$1,491,165,156
2
962,626
Vernon
96
92,412,066
3
144,639
Sand City
301
43,536,288
4
98,553
Irwindale
1,501
147,928,312
5
75,467
La Quinta
36,145
2,727,769,724
6
52,886
Palm Desert
49,280
2,606,205,016
7
41,164
Emeryville
8,261
340,053,271
8
40,813
Avalon
3,508
143,171,839
9
32,374
Indian Wells
4,781
154,781,578
10
29,866
Victorville
86,473
2,582,635,329
11
28,802
Culver City
40,870
1,177,123,723
12
22,004
Brisbane
3,724
81,943,609
SOURCE: Community RedevelopmentAgencies
Annual Report, Fiscal Year2005-2006; State Controller's Office
Redevelopment: The Unknown Government 13
5 Corporate Welfare
T h e 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 tries
to stimulate new sales taxes that benefit the
city's general fund.
B y state law, a city's sales tax share is I%
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.
Sales taxes account for an average of 26%
of city general fund revenues, so cities have
long been motivated to attract retail
development. 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 a substantial discount from
the agency. Sometimes it is free.
Redevelopment subsidies are not distributed
evenly. Major 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 Kings and Lakers out of
Inglewood, leaving the Forum empty. As part of
a new Highland/Hollywood Mall (tax subsidy:
$98 million) the new Kodak Theater stole the
annual Academy Awards ceremonies from the
historic Shrine Auditorium, which had long
hosted the event at no public cost and "held twice
the capacity.
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 Redevelopmenf.The Unknown Government
Corporate Welfare
An Orange County Register study showed
Costco receiving over $30 million in subsidies
in Orange County alone, extrapolated to $300
million statewide. Wal-Mart has gotten over $1
billion in public handout nationwide, with an
estimated $100 million in California.
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.
Pro sports also profit fi-om lavish subsidies.
The Raiders got $7 million from Irwindalejust
for opening negotiations on a new stadium site
(never built). In 1995, the Raiders returned to
Oakland, lured by $94 million in public
subsidies. The Chargers have gotten $134
million in seat guarantee pay offs courtesy of
San Diego taxpayers.
L.A. politicians have been decidedly cooler
to the hefty subsidies demandedby the NFL for
an expansion team, which ultimately went to
Houston. So, the nation's second largest media
market has no pro football team. Few
Angelenos seem to care.
Redevelopment agencies spend $4.6 billion
annually, mostly to subsidize purely private
economic activity. Money needed for
classrooms goes to Costco. Instead of building
hospitals, agencies build Wal -Marts. Instead of
paying for emergency rooms and libraries,
agencies pay NFL owners and car dealers.
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 Sales Tax Shell Game
A drive north on the Santa Ana Freeway
(1-5) 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
never come. To the west is Cerritos, whose
giant redevelopment -funded "Auto Square"
became a pioneer in auto dealerpiracy, 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.
Costco played off Morgan Hill against
Gilroy for the highest public subsidy, finally
settling for $1.4 million in tax hand-outs from
Gilroy. "Theyplayed us against someone else to
get a better deal," said Planning Director
William Faus (San Jose Mercury -News, August
6,2002).
The expected big box sales tax bonanza
rarely materializes, however, as they
increasingly sell non-taxable food. More
Costcos and Wal -Marts mean fewer Ralphs and
Safeways. Non -grocery retailers, too, suffer
from subsidized competition, as K -mart and
Toys -R -Us have closed hundreds of stores.
There is no economic development, only a
costly shifting of customers within the same
market area.
T h e rush for sales taxes has caused cities to
favor commercial development over all other
land uses (Table 6.1). This fiscalization of land
use offers incentives to giant retailers, while
discouraging new housing and industry. It
favors consumption while discouraging
production, all in the name of economic
development.
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 shake down city officials for
handouts.
"California has more than 300
redevelopment agencies," gushes the ICSC
magazine Shopping Centers Today. "Unlike
smokestack industries and manufacturingplants,
retail development is a source of clean revenue
for cities" ("ICSC Forges Public/Private
Partnerships," May 2001.)
16 Redevelopment. The Unknown Government
Sales Tax Shell Game
1QU(N
�'0
"What'll ya bid for this auto dealership?"
This pro-retail/anti-industrial bias pervades
redevelopment promoters. They value low wage
retail jobs at the expense of high paying
manufacturingj obs. 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). Affluent suburban
ring cities get more than older urban -core cities
that need it the most. Largely minority cities are
hit hardest by sales tax inequality.
Redevelopment has added to these distortions as
cash -flush suburban cities lure retailers out of
the poorer inner city.
In California 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
10
dollars per capita, were a fairly stagnant source
of funds" (page xiii).
E v e n as personal incomes grew rapidly in
the halcyon `90s, sales tax revenues remained
flat. An aging California population is investing
more of its money or 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,
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
landuse" promoted by redevelopment practices
now show signs of being addressed.
AB 178 was sponsored by Assemblyman
Redevelopment. The Unknown Government 17
Sales Tax Shell Game
7
6
5
d
4
5
G�
N
d
m 3
m
m
d
Q
2
1
0
TABLE 6.1
Relative Desirabilityof Various Land Uses
in Redevelopment Areas, as Viewed by City Managers
Retail Office Mixed-use Light Industrial Single-family Multi -family Heavy industrial
development residential residential
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.)
Tom Torlakson (D -Martinez) and signed into
law in 1999 by Governor Davis. It requires any
city or agency that 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
revenues 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.
Amore 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.
In 1999,ControllerKathleen Connell's State
Municipal Advisory Reform Team (SMART)
issued its recommendations, including aphased-
18 Redevelopment: The Unknown Government
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
balance to land use decisions. It will also
undercut the leading rationale for
redevelopment agencies.
Sales Tax Shell Game
With assured and stable revenues, cities will
cease subsidizing retail and treat residential and
industrial uses more fairly. With a greater share
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 created.
TABLE 6.2
Annual Per -Capita Sales Tax Revenues: Selected Cities
City Per Capita Sales Tax
Affluent Surburban Cities (25,000-100,000)
Beverly Hills
$523
Cerritos
$485
Brea
$370
Palm Desert
$307
Palo Alto
$288
Carlsbad
$275
Pleasanton
$274
Campbell
$228
Mountain View
$195
Statewide Average
$140
Older Urban Core Cities (over 150,000)
Stockton
$140
Santa Ana
$111
Los Angeles
$94
Long Beach
$93
Oakland
$87
Pomona
$78
PredominentlyAfrican-American Cities
Inglewood
$71
East Palo Alto
$51
Compton
$49
Predominently Hispanic Cities
Stanton
$87
Coachella
$68
Pico Rivera
$61
Maywood
$24
Parlier
$16
SOURCE: State Controller's Office / All Figures: Fiscal Year 2003-2004
Redevelopment. The Unknown Government 19
7 Follow the Money
Redevelopment backers claimthey 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.
Just under $6 billion in public money was spent by all
California redevelopment agencies (F.Y.2005-06), according
to the most recent State Controller's Report. This includes
both funds from property taxes and bond sale proceeds.
By far the largest expenditure (34.6%) by redevelopment
agencies is the repayment of bonds. Just over $2 billion was
paid to bondholders in Fiscal Year 2005-06. Of that, more
than half (56%) went to pay interest. This is a very high price
to pay for very marginal results. It is a powerful incentive for
bond brokers to keep selling debt to redevelopment agencies.
While redevelopment apologists claim to be "rebuilding"
our cities, barely 22% went for actual real estate
development, and another 7% for land acquisition, much of it
still vacant.
Significantly, $721 million — 12% — 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), butj ust over 2% is actually
spent on housing subsidies. Redevelopment agencies would
much rather attract new retailers than residents.
The California Redevelopment Association has tried to
disavow these figures and has attacked this publication by
name for providing them. But the numbers in the 2005-06
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 Governmenf
Debt Payments
Real Estate Development it
Administration
Property Acquisitions
Housing Subsidies
Other
TABLE 7.1
Total Redevelopment Expenditures by Category
$721 million
(12%)
$418 million
(7%)
$145 million
(2%)
$1.321 billion
(22%)
$1.319 billion
(22%)
$2.075 billion
(35%)
SOURCE: Community RedevelopmentAgencies Annual Report, Fiscal Year2005-2006, California State
Controller's Office, Table 4, Page247. Debt Interest Payments include Interest Expense: $1,094,960,574
and Debt Issuance Costs: $76,338,927. Total: $1,171,299,501. Debt Principal includes Tax Allocation
Bonds: $458,982,099., Revenue Bonds: $141,702,700., City/County Loans: $207,753,689., Other Long-
term Debt: $95,586,356. Total: $904,024,844. Real Estate Development includes Site Clearance Costs:
$7,237,904., Planning Survey & Design: $49,651,673., Project Improvement/Construction Costs:
$1,109,901,191 ., Disposal Costs: $5,243,148., Loss on Disposition of Land Held for Resale: $39,967,832.,
Decline in Value of Land Held for Resale: $18,028,747., Rehabilitation Costs/Grants: $90,838,690. Total:
$1,320,869,185. Administration includesAdministrative Costs: $557,167,038. and Professional Services:
$120,178,147., Operation of Acquired Property: $43,465,065. Total: $720,810,250. PropertyAcquisitions
include Real Estate Purchases: $278,298,544., Acquisition Expense: $26,562,222., Relocation
Costs/Payments: $28,841,221 ., Fixed Asset Acquisitions: $84,625,730. Total: $418,327,717. Housing
Subsidies include Subsidies to Low & Moderate Income Housing: $145,094,608. Other includes Other
Expenditures: $1,319,449,411.
Redevelopment The Unknown Government
21
8 The Myth of Economic Development
"Economic Development" is a common
cliche among city governments and redevelop-
ment 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 ofblight. 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.
T h e first systematic statewide analysis of
redevelopment agencies was published by the
prestigious Public Policy Institute of California
in 1998, entitled SubsidizingRedevelopment 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-economicallycomparable 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 8.1).
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 j obs.
22 Redevelopment. The Unknown Government
Especially hit are minority communities.
Historically black Inglewood lost nearly $1
million in annual tax revenues when it lost the
Kings and Lakers to the redevelopment -
subsidized Staples Center. City stafftried to bar
a Latino -oriented Gigante supermarket from an
Anaheim redevelopment zone because it was
"too ethnic". Largely Hispanic and Black cities
have been big losers in the struggle for equitable
sales taxes (Table 6-2).
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
The Myth of Economic Development
redevelopment activity does NOT generate
economic development and does NOT eliminate
blight.
State auditors have also shown that
California's enterprise zone program gave $262
million (FY 2003-04) in business tax breaks to
connected corporations without any appreciable
economic benefit to depressed areas.
This should come as no surprise even to the
most ardent redevelopment boosters.
Everywhere in the world, those countries that
respect property rights and free consumer
choice outperform those that place economic
decisions in the hands of bureaucrats and
politicians.
"Isn't economic development great?"
Redevelopment: The Unknown Government 23
The Myth of Economic Development
140%
120%
100%
80%
60%
40%
20%
0%
TABLE 8.1
Per Capita Income Growth
Redevelopment vs. Non-Redeve lopment Cities
Cities Cities
with Redevelopment without Redevelopment
This survey reflects the 313 cities with redevelopmentagencies, 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 Government
BAY AREA:
Status
The Myth of Economic Development
1979
1989
Growth
TABLE 8.2
Benicia
$9,312
Personal Income Growth Comparison Between
122%
HAS Redevelopment
Cities With and Without Redevelopment
$9,288
$19,833
A Region-by-RegionPer-Capita Income Growth Survey
CENTRAL VALLEY:
Among Cities cf Comparable Size and Socio -Economic Levels, 1979-1989
LOS ANGELES BASIN:
Status
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%
WAS Redevelopment
Chico
$6,065
$10,584
74%
SMALL CITIES:
Status City 1979
NO Redevelopment Etna $4,812
HAS Redevelopment Industry $4,539
SOURCE: U.S. Census Bureau, California State Controller's Office
1989 Growth
$9,333 94%
$7,853 73%
Redevelopment. The Unknown Government 25
9 Housing Scam
B y state law, redevelopment agencies must
spend 20% of their budgets on housing. This
housing set-aside fund was intendedto 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.
When Anaheim "improved" its working
class Jeffrey -Lynne neighborhood, it forced
existing apartment owners to sell to Southern
California Housing Corp. Half of the units were
demolished, over 400 tenants evicted and those
that remained saw their rents doubled. Public
subsidy: $54 million.
The Brea Redevelopment Agency
demolished its entire downtownresidential 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 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.
Indian Wells certainly does not want any
working-class people in its gated city of
mansions and golf courses. The Indian Wells
Redevelopment Agency repeatedly 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 20% 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 redevelopmenthas
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 2005-
2006 State Controller's Report summary (page
247) shows roughly 2% was spent on housing
subsidies.
The CaliforniaRedevelopmentAssociation
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 earners or
expand low-cost housing. Like much else in
redevelopment, the original intent has been
ignored.
"Local governments are penalized for
housing and rewarded for other things," states
William Fulton, editor of California Planning
and Development Report. "Many cities don't
want to accommodate housing."
26 Redevelopment. The Unknown Governmenf
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T he 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.
T he fiscalization of land use ties up too
much property in commercial zones, thus
keeping out needed housing. The actual
redevelopment -f indedhousing that is built may
gentrify an area, but the poor residents are
simply shifted elsewhere.
Often the poor have nowhere to go at all.
Describing L.A.'s Skid Row homeless the
Catholic Worker's Jeff Dietrich writes, "They
are here as a result of the city's redevelopment
Scam
3
policy, which over the years has slipped billions
oftax dollars into the pockets of rich developers
while systematically stripping the urban core of
its lowest cost housing."
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
k
Eminent Domain forPrivate Gain
10 Eminent Domain for Private Gain
"Nor shall private property be taken for
public use withoutjust 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, militarybases 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 bwners are
pressuredto sell to the redevelopment agency,
which acquires the land on behalf of the
developer. If refused, the agency holds a public
hearing to determine "public need and
necessity" to impose eminent domain. 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 mid -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 redevelopmentplanners prefer
to work with one huge parcel under a single
ownership. Entrepreneurs and homeownersjust
get in the way.
Historically black communities are
particularly hard hit by displacement. In her
pioneering book Root Shock (2004) Dr. Mindy
Fullilove traces the cumulatively devastating
impact on African-Americans of urban
redevelopment schemes from the 1940's to the
present. She writes:
Sometimes I just stand here and the tears
come down, thinking about what used to be.
What used to be: houses not buildings, neon
not vacant lots, neighborhood not
emptiness...In every city, where I was
studying the effects ofurban renewal, I asked
people, "What was it like before urban
renewal."
Typically, it is small family-owned
businesses that are targeted for eminent domain.
The Veltri family ran a popular Italian
Redevelopment: The Unknown Government 29
Eminent Domain for Private Gain
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 a brew -pub.
For 40 years, family-owned Belisle's stood
at the corner of Harbor and Chapman, famed for
generous portions of homestyle cooking and 24-
hour service. The Garden Grove Redevelopment
Agency then seized the property for a developer
who built an Outback Steakhouse.Belisle's was
demolished and never found another location.
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.
The Lancaster RedevelopmentAgency used
eminent domain to seize a 99 Cents Only Store
to give the site to a Costco.
Churches, too, are targets of eminent
domain. The Cypress Redevelopment Agency
condemned Cottonwood Christian Center's
property for a new Costco.
Even public health facilities are declared
blighted for private party eminent domain
seizures. In 2003, the SantaAna Redevelopment
Agency condemned an Orange County Health
Facility housing over 200 restaurant inspectors.
The property was turned over to a BMW
dealership. The agency's logic: public health is
blight; selling more German cars is economic
development.
T h e 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 an El 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.
S ome corporate beneficiaries openly defend
the aggressive use of eminent domain. Costco's
Vice President for Legal Affairs Joel Benoliel
writes "without the power of eminent domain,
there would be little urban renewal in our
cities." That so-called "urban renewal" schemes
have proven such failures only shows how
destructive property seizures have been.
Apparently Costco's legal spokesman sees
respect for property rights as an impediment to
economic progress. Of course, it is never giant
corporate retailers who are subject to eminent
domain.
That the success of a city's renewal
depends on the number of big box retail outlets
is, indeed, a frightening standard.
T h e looming threat of eminent domain was
made even more immediate by the 2005 Kelo
vs. New London decision, in which the U.S.
Supreme Court ruled any government can seize
any property for any reason it sees fit at the
time. In it's narrow 5-4 edict, the court removed
all federal property protections.
Public outrage has been swift and
overwhelming. Congress passed a resolution
opposing the decision. Legislatures in 38 have
hurried to enact their own protections, even as
cities see the ruling as a blank check for
massive land seizures. The City of Riviera
Beach, Florida, is proceeding to condemn over
2,000 homes to make way for a private boat
marina development, displacing 6,000 largely
low income/minority residents. Both liberal and
30 Redevelopment. The Unknown Government
conservative commentators on Fox'sHannity &
Colmes Show are in rare agreement that such
land seizures must end.
The BB&T Corporation, the nation's ninth
largest financial institution headquartered in
Winston-Salem, announced it would not loan
money to developers on property seized by
eminent domain.
H e r e in California, newspapers as
politically diverse as the Orange County
Register and San Francisco Chronicle reported
reader sentiment running 9-1 against Kelo.
Strong bipartisan outrage includes both State
Senator Tom McClintock and Congresswoman
Maxine Waters.
Anaheim is the largest of many cities to
pass a charter amendment banning third -party
eminent domain in the city. Both the state
Republican and Democratic parties took
positions against eminent domain abuse.
Packed hearings have been held
throughout the state gathering huge crowds
calling for statewide protections against
property seizures.
Vp .
Eminent Domain for Private Gain
Many legislativeproposals emerged, some
strong, others weak. AB590 by Mimi Walters,
Assemblywoman (R -Laguna Niguel) sought to
limit eminent domain to public use, while
AB 1162 by Assemblyman Gene Mullin (D -
South San Francisco) sought a moratorium on
the takings of owner -occupied homes, but
would leave renters and business owners
unprotected. Neither passed.
Without legislative action, voters can
enact real protection on the February 2008
special primary. Sponsored by the Howard
Jarvis Taxpayers' Association the "California
Property Owners and Farmland Protection Act"
will ban Kelo type eminent domain abuse in
California.
The power to take property from one
private owner and give it to another private
owner lies at the heart of the coercion that
makes redevelopment so dangerous.
--Y
HOMEOWNERS
SMAI --
31f 5%K P-SS55.
"What's mine is mine... and what's yours is mine!"
Redevelopment. The Unknown Government 31
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 $2.9 million 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
contributedto 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.
T h e 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 Unknown Government, and
personally attacked 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.
T h e CRA has two core constituencies:
agency staff members whose salaries derive
from redevelopment and private businesses that
profit from redevelopment.
Redevelopment staff control agency agendas
and recommend actions. Agency members —
usually elected city council members — tendto
rely more on staff than on their own judgment.
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 2003 CRA
Directory includes 53 commercial developers,
37 bond brokers, 50 law firms and 131 separate
consulting firms.
The CRA Annual Conference in Monterey,
held March 8-10, 2006, boasted over 100
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.
F o r 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 ofwhat 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.
32 Redevelopment. The Unknown Government
O
io '
r'
IND
Aw
What You Can Do
"Your gravy train ends here!"
34 Redevelopment: The Unknown Government
12 What You Can Do
Clearly, redevelopment is out of control.
Under the 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 handouts and
special interests.
There are many volunteer citizens groups
that have sprung up specifically to end
redevelopment abuses. The San Jose -based
Coalition for Redevelopment Reform (CRR) is
one ofthe largest and recently chartered a bus to
testify before legislative hearings in
Sacramento.
Grass roots activism can work to protect
your neighborhood. When the Garden Grove
RedevelopmentAgency targeted 800 homes for
demolition for an unspecified "theme park,"
residents rallied to stop the plan.
Encourage your city to work for co-
operative sales tax sharing agreements with its
neighbors, as allowed for in Proposition 1I.
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 judgments independent of
those who profit by it.
Support candidates like Charles Antos,
whose 2002 election to the Seal Beach City
Council created an anti-redevelopmentmajority
that abolished the agency.
STATEWIDE ACTIVISM: Municipal
Officials for Redevelopment Reform (MORR)
and Californians United for Redevelopment
Education (CURE) are two statewide networks
committed specificallyto 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-
813-5899 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
323-567-6737to get involved.
LEGAL CHALLENGE: County and
school officials must be more aggressive in
appealing redevelopmenttax diversions. Grand
Juries must broaden their probes into
redevelopment.
Despite, the Kelo verdict, there are still
many ways redevelopment abuses can be legally
challenged. A growing number ofpublic interest
lawyers are willing to defend small property
owners against redevelopment agencies.
The state, counties and schools districts
are increasingly suing to stop redevelopment
revenue raids against vital services.
STATE LEGISLATION: It is wholly within
the powers of California voters, the state
Redevelopment: The Unknown Govemment 35
r� t
���•\ice
d I.:: - 4pwI
.6 OT
legislature and governor to reform, alter or
abolish redevelopment laws. The following
issues must be addressed:
Oversight: Greater oversight at the county
level is needed to protect local revenues from
redevelopment diversions.
A proposal by Assemblyman ChuckDevore
(R -Irvine) gave each County Board of
Supervisors final authority over redevelopment
area creations, extensions and amendments
within their jurisdictions. This would have
assured the counties' full share of local property
taxes needed for public services. It was killed
by CRA allies and developer interests.
Eminent Domain Controls: The
legislature or the voters must restore protections
placed in doubt by the Kelo decision. By statute
or constitutional amendment, Californians must
have equal assurances to own and enjoy their
homes and businesses without fear of them
being seized to benefit another.
Sales TaxReform: Some type ofper capita
sales tax disbursement would end predatory
redevelopment and return cities to an equal
footing. Assured of a stable revenue flow based
on population size, cities could concentrate on
providing basic services, rather than subsidizing
new businesses.
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.
36 Redevelopment. The Unknown Government
ComprehensiveFiscalReform: 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 tax
Additional Set -asides: In addition to the
20% mandatory set-aside for housing, new
controls could be placed on redevelopment
spending. For example, 20% of redevelopment
funds could be spent on water quality, 20% for
law enforcement, 20% for school construct and
20% for transportation. Redevelopment funds
would then be directed to serve the public
interest.
Concern over redevelopment abuse is
growing and cuts across party lines. It includes
pro -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.
What You Can Do
It includes labor unions opposed to
subsidizing non -unionized big box retailers and
small business owners fighting against just
trying to stay afloat. It includes
environmentalists concerned about suburban
sprawl and preservationists lamenting the
demolishing of historic downtowns.
Facing ever growing needs with ever
scarcer revenues, the growing pot of
redevelopment money will be restored to serve
the public. It's just a matter of time.
More Californians are asking themselves
about the proper use of public funds; More
Costcos or more classrooms? More multiplexes
of more libraries? Public health or private
development? When enough do, change will
come quickly.
When redevelopment agencies are no
longer the unknown government, policies
promoting fiscal responsibility, fair play and
free enterprise will finally be restored.
Redevelopment. The Unknown Government 37
38 Redevelopment: The Unknown Government
13 Sources / Suggested Further Reading
Barbour, Elisa & Lewis, Paul, California and the Local Sales Tax, Public Policy Institute
California, San Francisco, CA 1999.
California Debt Advisory Commission, Recommended Practicesfo r Redevelopment
Agencies, Report CDAC-5, Sacramento, CA, 1995.
California Department of Finance, California StatisticalAbstract, Sacramento, CA 1997.
California Legislature, Senate Committee on Local Government, Redeveloping
California: Finding theAgendafor the 1990's, Report 457-5, Sacramento, CA 1989.
California Redevelopment Association, Directory of MemberAgencies and Allied Firms,
CRA, Sacramento, CA, various issues.
California Redevelopment Association, Redevelopment Journal,
CRA, Sacramento, CA, various issues.
California State Auditor, Statewide RedevelopmentAgencies, 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 2005-06, Sacramento, CA.
Commission on Local Governance for the 21st Century, Growth WithinBounds:
Report of the Commission on Local Governancefor the 21st Century, State of
California, Sacramento, CA 2000.
Dardia, Michael, Subsidizing Redevelopment in California, Public Policy Institute of
California, San Francisco, CA 1998.
Fullilove, Mindy Thompson, M.D. Root Shock: How Tearing Up CityNeighborhoods Hurts America,
and What We Can Do About It, One World Books, Ballantine, New York, NY 2004
Greenhut, Steven,Abuse of Power: How the GovernmentMisusesEminentDomain, Seven Locks Press,
Santa Ana, CA 2004.
Los Angeles County Grand Jury, Report on RedevelopmentAgencies in Los Angeles
Redevelopment. The Unknown Government 39
County, Los Angeles, CA 1994.
Morgan, William S., Redevelopment Handbook, Diehl, Evans & Company, Irvine, CA 1997.
Rosentraub, Mar, Major League Losers, Basic Books, New York, NY 1996.
State Municipal Advisory Reform Team (SMART), GeneratingRevenuefor Municipal
Services, State Controller's Office, Sacramento, CA 1999.
U.S. Bureau of the Census, County and CityData Book 1995, Washington, D.C. 1995
Von Haden, Lloyd, Redevelopment: Boon or Boondoggle?, Von Haden, Vista, CA 1992.
40 Redevelopment: The Unknown Government
MORR
MUNICIPAL OFFICIALS FOR
REDEVELOPMENT REFORM
Redevelopment: The Unknown Government
Ninth Edition: September 2007 (10,000 copies)
Eighth Edition: February 2006
(10,000 copies)
Seventh Edition: August 2004
(10,000copies)
Sixth Edition: September 2002
(10,000 copies)
Fifth Edition: July 2001
(10,000 copies)
Fourth Edition: April 2000
(10,000 copies)
Third Edition: August 1998
(7,000 copies)
Second Edition: May 1997
(5,000 copies)
First Edition: October 1996
(5,000 copies)
Redevelopment: The Unknown•�Government
Municipal Officials for Redevelopment Reform