The End of California Redevelopment: Debt, Blight and Worse

The Saint ReportEnvironmental Planning, NIMBY, Planning and Zoning, Politicians and Planning, Property Development, Saint Consulting Links, saintblog, Urban planning0 Comments

By Matt McDonald, The Saint Consulting Group

In January, California’s State Supreme Court upheld legislation championed by Governor Jerry Brown to eliminate local redevelopment agencies. With one stroke, many cities were plunged into a financial and economic shortfall that could devastate urban centers for decades to come. The move was cheered by many critics, but few analysts have contemplated the long-range impacts, and it is becoming clearer that California’s political leaders didn’t understand what they were bargaining for.

In California, we often think of urban decay and blight as complicated, contemporary problems created by the state’s explosive growth following World War II. In fact, California was feeling the crippling effects of blight well before the troops came home. As early as March of 1944, Los Angeles was decrying the significant loss of its tax base due to the proliferation of “slums” in its urban center. In the years immediately following the Great Depression it was estimated that one-quarter of American cities were suffocating under the weight of blight.

In 1945, the Legislature crafted a remedy: The California Community Redevelopment Act. The legislation granted cities and counties who so chose to form local redevelopment agencies. The agencies in turn could buy and sell property, invoke eminent domain, issue bonds and seek investment from public and private sources. Local governments were allowed to siphon local property tax dollars away from traditional government services to spur the investment. Ostensibly aimed at creating incentives for developers to build affordable housing, the new legislation opened the door to a variety of government-backed construction projects. The tools available to cities to fight blight and urban decay were wide-reaching, powerful and backed by dependable streams of tax revenue.

Over the decades, cities used redevelopment in many cases to spectacular success. Following World War II, San Diego’s historic downtown Gaslamp District became a haven for pimps, prostitutes, seedy bars, peep shows and a runaway drug culture. Beginning in the 1970’s local boosters worked closely with the City Council and the Centre City Redevelopment Corporation to give the neighborhood not just a makeover, but a complete transformation that would help San Diego establish a national identity. Historic buildings were preserved, renovated and re-launched with trendy restaurants, clubs and shopping anchoring the now-bustling Horton Plaza area. Simultaneously, San Diego used the tools of redevelopment to spur massive investment capital projects like the San Diego Convention Center, upscale hotels and Petco Park, home of the San Diego Padres, which opened in 2004. Today, the Gaslamp District is the pride of the City and a glowing example of the power of redevelopment efforts.

At its height, over 400 cities and counties across California wielded the might of redevelopment. In the process, relationships formed between the business community and the elected leaders who managed redevelopment funds that caused a severe backlash from the public. As incidents piled up of elected and business leaders gaming the system to kick tax dollars into private projects, public resentment of redevelopment snowballed.

Yet, the redevelopment law had a serious flaw that ultimately led to its downfall: It did not define blight in any meaningful way. The power to declare what blight was or wasn’t rested in the eye of the beholder. Unfortunately, the beholder tended to be an elected leader who accepted campaign contributions from developers eager to use tax dollars to kick-start expensive development projects. In the decades after redevelopment began in California, city after city ran headlong into controversies about the rights and wrongs of parlaying tax dollars to spur private investment in new land use projects.

One infamous example in San Jose, a harbinger of the demise of redevelopment, was the Tropicana Shopping Center project – where the San Jose Redevelopment Agency literally attempted to use eminent domain to seize a struggling shopping center on the city’s east side and give it to another developer to build a shiny new one in its place. The court rejected the brazen attempt, but the resulting backlash of the Tropicana issue and others like it allowed detractors from the left (angry about tax dollar diversions from public schools), and the right (livid at the ability of local governments to eschew private property rights) to join together against a process that was spinning out of control.

In 2011, faced with a $26 billion budget deficit, Governor Brown proposed eliminating redevelopment to recapture $1.7 billion directed to cities away from schools. A bloody legislative and legal battle ensued, with redevelopment supporters – the cities who use the process – losing to Brown in the end. As of February 1, redevelopment no longer had the right to exist.

The fallout is devastating for local governments across the state. One element of the redevelopment mess that has received little attention is that in order to exist, redevelopment agencies were legally required to carry debt. That means in every case, despite whatever assets and investments a city made, there was a public debt issue to resolve. The legislation that killed redevelopment gave cities open and closed casket funeral options: take over your agency assets if you can handle the debt, or cede control of all redevelopment issues in your community to a state panel who will carve up the spoils.

In some cases, the debt issue is devastating: Rather than adopt a plan to manage the debts and assets accrued by its agency, the City of Los Angeles voted to walk away from $109 million worth of redevelopment debt and turn it over to state control. With too many lucrative assets to cast aside, San Jose opted to assume its redevelopment agency debt of $217 million. In every impacted community, political stakeholders are attempting to calculate the risks of either maneuver. In either case, it’s a matter of picking their poison: there is no room for economic growth or opportunity in the equation, just damage control. By the end of June 2012, the State of California will have reviewed required financial plans from local governments to relieve the debts of all former agencies. Only then will California know whether Jerry Brown’s power grab to seize $1.7 billion in tax revenues will be offset by overwhelming local debt that could result in devastating cuts to essential local services. The initial direct municipal job loss associated with the end of redevelopment statewide is estimated to be around 3,000.  However, once the outcome of debt management plans is fully understood, that number will grow exponentially – and the jobs lost will likely impact police, fire and public works service employees  in small towns and large cities alike.

The deep impact of the end of redevelopment is that public agencies in California have lost tremendous clout as business partners with the Golden State’s development community. While government abuse of the redevelopment process certainly deserved a kick to the teeth, the abrupt end of redevelopment crushes the hopes of many cities to combat the creeping virus of blight and urban decay. The development community knows that private investment has to lead the way forward, because the days of public-private partnership are, at least for now, over.

The death of redevelopment has been met with cheers by most members of the public. Supporters find it difficult to defend a process that became so bloated, mismanaged and powerful. However, what cannot be denied is that the vast majority of California’s 482 cities suffer from blight. One need only visit cities like Fresno or Oakland to see the creeping, devastating impact that blight can have on large swaths of a city landscape. The tragedy of the death of redevelopment is that no true leadership has emerged to articulate a new vision to fight the devastation that California started fighting in 1945. Only time will tell, but anyone placing bets that in 2022 Jerry Brown will be remembered as the Governor who destroyed economic opportunity in California’s urban centers is today making a very safe assumption.

Matt McDonald works for The Saint Consulting Group, a land use political consultancy based in San Ramon, CA – email mcdonald@tscg.biz

Leave a Reply

Your email address will not be published. Required fields are marked *