Uncertain future for Golden State redevelopment

Financing for smart growth and TOD faces possible cutbacks as redevelopment agencies are caught in California budget battle.

Redevelopment agencies have a checkered history in California. They began in the early 1950s for the purpose of removing “blight” — and were responsible for many a damaging “urban renewal” project in the state’s major cities. They’ve also been used to build auto malls, office parks, and sports stadiums.

The redevelopment agencies have proliferated — there are 399 active across the most populated state, including nearly every city with more than 50,000 people. Many of them have adopted better urban planning techniques in recent years and are currently responsible for much of the state’s affordable housing, brownfield redevelopment, infill development, and transit-oriented development (TOD).

The state’s budget crisis has set off a battle over redevelopment that is likely to have significant impacts on how smart growth is financed and implemented in the Golden State in coming decades, and may reduce the funding available for revitalization and TOD.

Referring to the impressive new transit village adjacent to the Pleasant Hill Bay Area Rapid Transit station (see page 10), James Kennedy, deputy directory of the Contra Costa Redevelopment Agency, said: “If not for the tool of redevelopment, the entire project would not have occurred and the BART site would not have been developed.”

Other notable new urban projects financed through redevelopment include Mission Bay in San Francisco, Downtown Brea, and the revitalizations of downtown Suisun, Hayward, and Cathedral City.
Redevelopment in California is driven by tax-increment financing (TIF), invented in the state in 1952.

Agencies can borrow based on anticipated additional property taxes to pay for infrastructure and housing. The TIF funds create a revenue stream to pay off the debt and other expenses. The problem is that the state pays local school districts — starved for revenues because of a cap on property tax passed in 1978 — for the taxes diverted to redevelopment agencies.

One of the first steps that Gov. Jerry Brown took upon entering office was to abolish redevelopment agencies as part of an effort to close the budget gap. A compromise has since been adopted: If redevelopment agencies can pony up a substantial portion of their TIF revenues — $1.7 billion in 2011 and $400 million a year after that —they will be allowed to stay in business.

Assuming this payment is declared legal — the California Redevelopment Authority (CRA) is challenging it in court — it looks like most agencies will pay and choose not to close their doors, says Kennedy, who is on the board of the CRA. Although the subsequent yearly payments are less than 10 percent of TIF revenues, the CRA is concerned that the state may raise this payment whenever there is another budget crunch.

Even as TIF is being used by more and more states, its use in California will likely be curtailed. “All recognize that redevelopment will be different,” says Kennedy. “And it is going to be smaller as a percentage of total property tax revenues in the future.”

Some of the likely responses to less TIF redevelopment money are these:

• Redevelopment agencies will focus their activities in areas that have strong political support — among them affordable housing, economic development, TOD, brownfield redevelopment, and compact infill growth that helps to meet the goals of greenhouse gas reduction set forth in SB 375. “There will probably be a statutory measure that will require redevelopment agencies to devote a larger percentage of annual revenues to job generation, brownfield remediation, smart growth/TOD, and affordable housing,” says Kennedy.

• Other methods of financing redevelopment will be explored by many cities. One such technique is called infrastructure financing districts (IFD). IFDs can be used to fund projects but they don’t use school tax revenues, so they don’t place fiscal pressure on the state. As it currently stands, however, IFD doesn’t allow governments to use tax proceeds from the district to secure long-term debt, Kennedy says — it’s a pay-as-you-go tool.

Redevelopment authorities play an important role in planning as well as development, notes Steve Lawton, Northern California CNU chapter president and former community development director for Hercules, California. Redevelopment districts are required to have physical, financial, and infrastructural plans for urbanization, he says.

Through redevelopment agencies, “government can be an actor in the shaping of the public realm — defining where the infrastructure goes, paying for it, and deciding where the parcels will be formed,” Lawton says. He calls them “the only strong force for urbanism in California government.”

Next year will tell how many redevelopment agencies remain and the extent to which they continue to play a strong role in revitalization.