City officials across the state are up in arms over Governor Jerry Brown’s plan to do away with several hundred local redevelopment agencies as a way to help balance the state’s beleaguered budget.
Orange County’s commercial real estate development community isn’t too keen on the idea, either.
“We’re very concerned—these redevelopment agencies are important to our business,” said Jim Camp, legislative affairs chair for NAIOP SoCal, a regional trade association.
“This is one of the things that actually work in state government,” said Camp.
In one of his first big moves after taking office on Jan. 3, Gov. Brown proposed earlier this month eliminating 400 RDAs across California.
$5 Billion Annually
The agencies reportedly control some $5 billion in property taxes every year. The governor’s proposal—if it makes it through the state legislature—immediately would cut about $1.7 billion of redevelopment funds in the next fiscal year.
Local projects, both large and small, could feel big hits if the changes occur.
Among the most prominent projects, development of Irvine’s massive Great Park project could take a huge hit financially if the city’s redevelopment agency is eliminated.
Close to two-thirds of a projected $1.5 billion in public money to develop the park could be at risk under the governor’s proposal, according to a recent report in the Orange County Register.
Elsewhere, Santa Ana’s redevelopment agency reportedly has an annual budget of close to $60 million. In the last couple of years, the money has been used to buy foreclosed homes and run-down buildings, among other deals.
Garden Grove’s redevelopment agency, which has used its money recently to help foster new retail, food, and other business on Harbor Boulevard, has close to a $20 million annual budget.
The governor’s office is trying to frame the proposal as a clear-cut way to help balance the state’s annual budget, which is expected to face a $25 billion shortfall over the next 18 months. That’s about 30% of the total yearly budget.
The move essentially would redistribute property tax revenues from the redevelopment agencies to local governments and schools that need the money more, according to the governor’s office.
Local RDAs and backers in city government have billed the agencies as a way to push ahead projects in blighted areas, differing sharply with Gov. Brown.
Officials with the Community Redevelop-ment Agency of Los Angeles, one of the more active RDAs in the state, blasted the governor’s proposal as a threat to “dismantle an economic tool that has a 60 year track record of success in creating jobs and stimulating economic activity.”
According to estimates from the League of California Cities, projects receiving RDA funding support close to 300,000 full- and part-time jobs a year throughout the state, including 170,600 in construction. The projects generate about $2 billion in state and local tax revenue annually, according to the group.
Jobs
RDAs are one of “the only ways to create jobs at the city level” said NAIOP SoCal’s Camp, who also is an executive vice president with Newport Beach-based developer Greenlaw Partners. “There’s a misconception that (RDAs) just hand money over to developers, to line their pockets. That’s not how it works.”
State officials have pushed back some on that line of thinking, asking for concrete examples of redevelopment agencies providing a good bang for their buck.
“The heated debate over whether RDAs are the engines of local economic and job growth or are simply scams providing windfalls to political cronies at the expense of public services has largely been based on anecdotal evidence,” said state controller John Chiang, in a statement.
Camp points to a multi-year project he worked on in the City of Industry with the development unit Newport Beach’s Voit Real Estate Cos.
Between 2006 and 2008, Voit worked to turn a dilapidated former Campbell’s Soup Co. plant into a corporate headquarters for FreshPoint of Southern California, a division of Houston-based Sys-co Corp., the country’s largest food distributor.
Campbell previously had tried to sell the obsolete, 20-acre property for nearly 10 years, but found no takers due to environmental concerns.
Ultimately the Industry Urban-Redevel-opment Agency stepped in and bought the property, helped resolve the environmental challenges, and sought out developers who could guarantee a project that would bring jobs for the area.
Camp helped land FreshPoint, and Voit ended up building a 144,000 square-foot build-to-suit and two speculative buildings at the site. The total cost of the project was close to $40 million.
Making Money
In addition to bringing a new business to the area, “the redevelopment agency actually made money off the project,” Camp said.
More recently, Irvine-based Hopkins Real Estate Group and the Newport Beach-based commercial property group of LNR Property Corp. have used RDA backing for the development of the Boulevards at South Bay, an $850 million retail and housing project near Carson’s well-known blimp fields.
The project’s being built on a former landfill that closed in 1965. As of last year, it was the largest shopping center development under way in Los Angeles County.
The 168-acre project is expected to include about 1.25 million square feet of shops and restaurants, 200 hotel rooms, 1,150 homes and 400 apartments. The city reportedly is contributing about $100 million to the project through its RDA.
Getting rid of RDAs will make a large percentage of similar projects unviable going forward, Camp said.
“It will hurt job creation and economic growth, and remove a valuable tool” for cities to clean up contaminated sites, Camp said.
There are some grumblings in the development community that RDAs aren’t as effective as they could be.
A recent story in the Los Angeles Downtown News cited “some private developers” who have “lamented that the RDA essentially provides another layer of bureaucracy that slows down the entitlement process and jeopardizes projects that don’t take public money.”
No specific developers were cited in the article.
Camp contends that argument isn’t true. Typically, a developer will either need to get entitlement approvals either directly from a city council or a redevelopment agency.
“It’s usually not both,” he said.
State officials also have questioned the effectiveness and legality of some RDAs.
Controller Chiang last week said his auditors were beginning reviews of 18 RDAs across the state to see how their funds are used and whether they fully comply with laws.
Only one of the RDAs being audited is in OC, the Placentia Redevelopment Agency.
Last year, when the state’s proposal to transfer about $1.7 billion in local redevelopment funds for state purposes was upheld in a mid-year court ruling, Placentia’s RDA was cited by the League of California Cities as one of four cities that refused to send the money to Sacramento.
The city of Placentia reportedly opted to give the state $25,000 of the $842,936 it owes, offering the smaller payment as a good faith payment pending a settlement.
Placentia Welcomes Audit
The staff and board of Placentia’s RDA said last week that they “welcome the opportunity to be reviewed” as part of the current audit by state officials.
More than anything, the funding battle is an example of the need for developers to be vigilant about the potential of job-killing measures—which typically are done though land-use proposals—getting pushed through California’s state legislature with a Democratic governor at the helm, according to Camp.
“I’m encouraged that the governor realizes that we need to cut the budget” but targeting RDAs isn’t the best way to do that, he said.
Mayors from some of the largest cities in California also are pressing the case for the survival of RDAs.
Santa Ana Mayor Miguel Pulido and Anaheim Mayor Tom Tait joined colleagues at a meeting with Brown last week in Sacramento. They said the governor agreed to assign staff to study his proposed cut of RDAs, but made no commitments.
Pulido said he viewed the move optimistically.
“As we sat and spoke to the governor, the reason I’m very optimistic is that he not only listened—he brought in staff and we began a dialogue,” Pulido said during a press conference following the meeting.
An initial round of talks was expected to continue through last week.
