State Redevelopment Association Fights Taking of Local CRA Funds

This month, every city in California made payments of redevelopment agency funding to replenish the state's supplemental education funding following two recent court decisions. The California Redevelopment Agency represents city and county redevelopment associations throughout the state. What are your thoughts on the state budget and the court decision that mandated the take of funds?

We think the court got it wrong. This take of money by the state is unconstitutional. Article 16, Section 16 of the state Constitution, which was put there by the voters in a statewide election in 1952, says very plainly that tax increment funds must go to redevelopment agencies for the purpose of paying for various debts and obligations incurred for project areas and project costs. For the judge to say that the Legislature can take that language and define redevelopment to be whatever it wants is just not something you can read into that provision in the Constitution, but it is the essence of the decision.

What explains how $2 billion in local redevelopment funds in California are legally available to the state Legislature as a source for meeting the state's current budget deficit?

I can't speak for the court, but in the case of the Legislature, they are desperate. The budget deficit is so large and the political environment is so poisonous that they are unable to get anything done. Rather than deal with their budget problems, either by raising revenues, cutting expenses, or some combination of both, they have shifted to the easier alternative, which is to take that money from local governments. I don't feel that the Legislature as a whole is anti-redevelopment, but they are desperate. They are going to look for funds, and have been looking for funds, anywhere they can find them or take them.

Advocates of redevelopment have asserted that local redevelopment projects in 2006-2007 contributed $40 billion to the California economy, generated $13 million in economic activity, and created 300,000 jobs. Are those figures accurate, and what are the consequences of the transfer?

Those are correct figures, stemming from a study that we did using a very well accepted economic model called M-Plan. Those numbers indicate that redevelopment is significant to the California economy. The consequence of taking these funds-$1.7 billion this week-means that literally hundreds of projects in the state will either be cancelled or delayed for an indefinite period time. As our model shows, when redevelopment agencies aren't making expenditures, jobs are lost. Those investments go into housing, infrastructure, and community improvements of all types, mostly in the construction area, employing construction workers or people who are in construction related industries. I can't tell you this is a normal year or that last year was. But we know that when these funds are taken away, agencies are not going ahead on projects. When they are not moving ahead on projects that means somebody's job is lost as a result.

When TPR last interviewed you, you spoke about the multiplier effect of such investments. Can you elaborate on that effect given the current experiences?

What we know from our own studies is that a typical redevelopment transaction leverages other public and private dollars. A typical real estate transaction for redevelopment has a one to six or seven leverage factor. If you use a very conservative multiplier of that $7 turning at least one more time in the economy because people who are receiving those dollars in turn buy more goods and services, than the leverage is one to 14. We know then that the impact of redevelopment is much larger than just outward expenditure. That is good for the economy.

Again referencing the interview from a year-and-a-half ago, you said, "Since the state itself has no official economic development program, we are the state's only economic development program." How would you update that assessment?

It hasn't changed. The state still doesn't have an economic development strategy. The governor has formed an economic development office nearing the end of his term. But we are the state's economic development program. We're the program that local governments are using to spur further economic development, further employment opportunities, efforts to help businesses stay in California, and, hopefully, prevent businesses from going off-shore or out of state.

In fairness, haven't most of the redevelopment funds over the years in California been spent on housing and blight rather than job creation and economic development?

That's my point. These investments being made by redevelopment agencies end up creating and supporting jobs.

But have the CRA expenditures created economic development?

The definition of economic development, in my mind, is a broad one. If we are helping local communities, for example, provide affordable housing, the affordable housing is available to workers working in other kinds of businesses.

Perhaps, but have the local CRA investments been made to further an economic strategy? Are not the state and its cities striving to rebuild their economy and attract additional jobs?

Redevelopment programs in local communities aren't the same as a statewide strategy for economic development, which is something the state still needs and the state should be responsible for. In lieu of that there are, in effect, economic development programs going on in local communities throughout the state.

You have been a city manager and thus bring a background in public service to your position at the state redevelopment association. How, given your expertise, does California get back onto the road of recovery given the frenetic, desperate nature of today's politics in the Capitol?

There isn't any question that the political environment is a mess. It is going to be hard to fix it. The California Redevelopment Association can only look out for the interests of local government. We think that Californians don't want to see local tax dollars used to fix the state's problems. We are doing what we can to make sure that local dollars stay local, whether redevelopment dollars, transportation funds, or property tax funds.

What explains the inability of that argument to win the day?

Number one, it goes back to the desperation that the state faces with the budget. Secondly, the governor and legislators don't see a connection between redevelopment dollars and the important benefits that they provide to local communities and, in turn, the jobs that they support. They are seen as an ATM machine, a place where you go to get money to solve the problems you are currently focusing on. They don't see the bigger picture of how this adds value to the economy and, in the end, dollars to their own treasury and local treasuries.

The speaker of the California Assembly served the CRA/LA prior to his election to the state Assembly, and many other legislators have similar experience. Is it really a lack of understanding, or might there be other explanations?

We want to give the new speaker a chance to show his leadership. This is going to be his first chance to bring the budget package together. We hope he will remember his roots and won't go after local government dollars, including redevelopment dollars. It is true that there are many legislators in both the Assembly and the Senate who used to be in local government, either on city councils or boards of supervisors. They seem to have forgotten that local governments have their own issues and their dollars should stay local. That just points out the really bad situation that the state finds itself in with budget deficits.

Do you have advice for the new CEO of CRA/LA, Christine Essel?

She is no neophyte. She is used to dealing in a large arena. I would encourage her to tell the story of redevelopment in Los Angeles to make sure that she helps the business community, local neighborhoods, and city councilmembers understand the important work being done by her agency and the value that it is brings to the greater Los Angeles community. She needs to help people to understand what redevelopment is and how it benefits Los Angeles.

This interview will be alongside a conversation with Mayor Bob Foster of Long Beach about the approval of the Golden Shore Master Plan, which was done without the benefit of redevelopment. You served in Long Beach. Is it still possible for cities to take bold action without substantial funding from redevelopment agencies?

For most cities, the redevelopment tools are the only tools at their disposal. Perhaps larger cities can use other resources and other funds. Some are using federal ARRA funds right now. But those are not long-term funds, and for most cities redevelopment is the only tool they have in the box. Losing those funds means that they aren't able to do important community improvements.

If we speak next year, what will we be talking about?

I hope that in a year we are talking about an Appellate Court decision that reversed the Superior Court decision and once again upheld the sanctity of the redevelopment funds, directing that they must be used for redevelopment. I know for sure that a year from now we will still be talking about huge state deficit problems. That isn't going away next year; it isn't going away in five years. It is up to current decision makers to determine whether it is going to go away in the years after that.