October 29, 2010

CA Redevelopment Law: Can a Powerful Tool be Repurposed?

Caveat Emptor: this is a wonkier post, so read at own peril.

Earlier this month, I had the privilege of attending the Berkeley Dept of City and Regional Planning (DCRP) open house, where I sat in on a class titled "Sustainable Redevelopment." Professor Cecilia Estolano, the recent former Executive Director of the Los Angeles Community Redevelopment Agency (CRA/LA), taught the class.

The class outlined the system of redevelopment in California. Briefly, and hopefully without too many mischaracterizations, let me set the three main redevelopment tools in CA law: 1) Community Redevelopment Agencies, which have authority to buy and assemble land, 2) Tax increment financing, which provides the strong profit motive for the CRAs, and 3) eminent domain, which among other things, also keeps costs down for redevelopers.


California state law provides for the existence of locally derived Community Redevelopment Agencies. They are not centrally administered, and though there is a central body, the federalist structure retains significant independence for each CRA. According to Estolano, a lot of cities that are too small for a city council and a CRA will fuse the two bodies, such that a copy of the meeting minutes might read "Move to close City Council meeting. Motion appoved. Motion to Open CRA meeting. Motion approved" or something similar. The decentralization can also create a situation where smaller CRAs lack legal, real estate, and economic expertise sufficient to combat pressure from external developers. But onward:

CRAs were originally tasked with reducing blight. The definition of blight, however, was/is problematic: to be blighted, an area had to show physical and economic blight. Criteria included overcrowding, unsafe, unhealthy, or poorly maintained building stock, low property values, even irregular lots with under multiple ownership. (Picture Boston's North End, which thankfully weathered a redevelopment storm of its own, or any other district with "European" narrow/angular street patterns and residential/retail mixed use.) Redevelopment Agencies had to establish a relationship wherein blight caused a lack of utilization, that without public-private redevelopment, would lead to further stagnation.

Such a liberal definition of blight gave Redevelopment Agencies (in my notes as RDAs, not sure if these are technically identical to, or different from CRAs) the authority to declare a project site "blighted." Sidenote: not sure what the accountability structure is here, ie, who or what evaluates RDA blight designations. In practice, the law gave redevelopers the ability to take control of low-income areas for the purposes of redevelopment.

Tax Increment Financing (TIF)

With the land assembled, CRAs needed funds to fuel the projects intended to better utilize the blighted zones. Enter TIF, which allows the CRA to accumulate funding by leveraging future increases in property values in the project sight as collateral. The first step is to assess existing property values in the project area--these revenues, pursuant to state law, are divvied up among local bodies like the schools, libraries, etc. But above this baseline, all growth in tax revenue accrues to the CRA. Needless to say, this arrangement creates incentives for projects that will boost property values the fastest: skyscrapers, big box stores, and luxury this's and thats's. Any regard for previous residents of the project site is notably absent, as is any eye for social justice, social services, or even any doubt that boosted property values are one and the same as economic development. A subsequent law required that increases in tax revenue be subject to the same redistribution formulas as the baseline tax revenue, but the incentives are the same regardless of whether local institutions do or do not get to share the windfall.

Because the CRA is a public agency, it can get sweet rates on the bonds it purchases. And it can only use the money inside the project zone, giving rise to disparities of community investment. And CRAs are chartered for 45 years, which allows them to reap the TIF driven money tree for a substantial amount of time.

Eminent Domain

Enough has been said about this already without me needing to add much. The ability to requisition property from private owners for a larger project, be it a highway or a stadium. Eminent domainers have been historically required to pay only fair market value for the property, which, because it is frequently in a designated blighted area, is frequently inconveniently low for the property owner.

Overall, a powerful framework for redevelopment. Needless to say, incentives are aligned in favor of the monied few, and against the non-monied multitude, but the essential question to be asking is what provisions can be added or subtracted from this framework to create redevelopment projects that value context, value social and environmental justice, and value reduced carbon footprints?

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