Shortchanged

Shortchanged

Controller raises questions about California’s multibillion-dollar blight busters

By Jake Armstrong 03/17/2011

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Redevelopment cleaned up the once-mean streets of Old Pasadena and buoyed flagging commerce in the city’s Northwest neighborhoods, creating hundreds of affordable homes in the process. But the practice is now at the center of a political tug of war between local governments and Gov. Jerry Brown, who proposes to dissolve redevelopment agencies and spread the $1.7 billion in their collective coffers among school districts, counties and the state. 
 
Pasadena City Council members, joining a rush of other city officials, weeks ago began shoring up the debts and assets of the Pasadena Community Development Commission, as the city’s council-staffed redevelopment agency is known. The council began laying the groundwork for transferring PCDC assets to the city at a special meeting on Jan. 18 — eight days after Brown released his proposal — with a unanimous vote to ink a $7 million promissory note to formalize what the PCDC has borrowed from city. 
Last week, the council voted to transfer 20 properties worth more than $100 million from the PCDC to the city’s ownership. That could keep those properties from being sold to the highest bidder and the proceeds being funneled to the county, as Brown proposes.
 
But some, like former Councilman Sid Tyler, question whether the council has a full understanding of the impact such moves may ultimately have, given the speedy response — both actions were made at emergency meetings with just 24 hours of notice — and paltry discussion of the financial implications, apart from losing redevelopment money.
 
“We don’t know what the impact on the General Fund income statement is going to be on the balance sheet. Until you know that, I don’t know how you can make an assessment here,” said Tyler, adding he recalls questionable “outsized” administrative expenses being charged to the agency.
 
City Councilman Terry Tornek said the risk of losing the public facilities attached to those properties — a fire station and the Villa-Parke Community Center among them — and millions of dollars worth of redevelopment funds outweighs the risk of not acting. “You can get burned,” he said. “But the other side of it is we have public facilities, we can’t be put into the position that some of those properties are transferred to a state agency and we have to buy them back.”
Brown’s proposal also faces a legal challenge from the League of California Cities, which claims the takeaway violates three voter-approved ballot measures that expressly prohibit such moves. Pasadena Mayor Bill Bogaard serves as second vice president of the league, which lobbies for local government. 

Five-star blight
Meanwhile, California State Controller John Chiang’s analysis of 18 redevelopment agencies in the state, including Pasadena, uncovered numerous instances of auditing and reporting deficiencies, while finding that loose standards for blight allowed one city a golf course renovation.
 
Chiang’s analysis found that Pasadena and the 17 other agencies all had deficiencies in the reporting of their financial dealings, with “poorly prepared or nonexistent” annual reports that often failed to describe the agency’s activity, status of sizeable loans, properties the agency owns, and the number of jobs created, all of which the agencies’ own independent audit reports failed to identify. Eight of the agencies also failed to transfer a combined $40 million to school districts, as required.
Pasadena Unified School District officials last week notified 60 administrators, teachers and others that they may be laid off to help close an $11.5 million budget gap in for 2011-12. The district issued 160 notices last year but saved 121 jobs through savings.
Sure, schools need money, but how much schools would receive under the plan remains fairly nebulous given the legal challenges and political tumult around the state budget, according to Tornek. “The answer is obviously yes, but the answer is not necessarily to try to grab it all from redevelopment money.”
 
Redevelopment agencies can take action only after declaring an area blighted by crime, economic inactivity and a variety of other factor. But Chiang’s review found just about anything can be deemed blight given the current legal definitions. For example, the Palm Desert Redevelopment Agency determined a fully functional golf course amounted to blight and spent $909,000 and five years renovating greens and bunkers to reach a five-star rating. “The fact that the RDA continues to insist that a 4½-star golf course is blighted further illustrates our point that virtually any condition could be construed to be blighted,” Chiang wrote. 

Don’t worry
Since 1989, the PCDC put $21.8 million worth of redevelopment tax money toward building 1,200 housing units, 604 of which are considered affordable housing, according to city Housing Director William Huang. The city stands to lose about 100 more affordable units already in the pipeline if the PCDC is dissolved, and funding new projects would be extremely difficult since the city currently leverages every redevelopment dollar for $3 to $7 from federal and county sources, he said.
 
“It’s really the only permanent source of affordable housing in California,” Huang said. “That’s kind of the lynchpin for affordable projects.”
 
Redevelopment is credited for creating 11,500 jobs, according to the state controller’s report, which simultaneously cast doubt on the methods redevelopment agencies use to calculate job creation. 
 
Redevelopment in California debuted in 1945 with a law allowing local governments to form redevelopment agencies to counteract blight. Seven years later, voters approved a measure allowing the agencies to fund themselves by freezing the property tax rate in blighted areas and culling or borrowing against funds from future property tax increases as land values increased, a system known as tax increment financing. 
 
The PCDC took in $28 million worth of incremental tax revenue in 2010 and had $55 million in the redevelopment fund. 
By law, redevelopment agencies are required to put 20 percent of tax increment revenues into a fund for low- and moderate-income housing. But Pasadena is one of only two cities in the state that had special legislation enacted to reduce that amount, and tax increment money from the Lake Avenue redevelopment area funds a police and fire pension system.
 
Tyler, who was on the council for 12 years, said he thought the PCDC served the city poorly because of the way it accounted for funds and debts, including millions of dollars in un-itemized “administrative expenses” at one point. That represented about 20 percent of the PCDC revenues at the time. 
 
“That seemed to be very outsized,” he said. “There wasn’t much attention paid to really understanding what’s going on in this agency. They kept saying to me, ‘Don’t worry about the debt to the city, we’ll never pay it back.’ Then why not write it off?” 

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Comments

I think it would have been helpful had you expounded a bit on the redirection of redevelopment funds to PUSD issue (or not mentioned it at all). The law related to redirecting RDA funds to school districts was meant as a way for the state to borrow money to help it fund schools, not as an additional source of revenue for school districts as the article makes it sound. The amount of funding due the district would not change under this situation and the only thing it really achieves is allowing the state to use more money somewhere else in its budget (ie on something other than school funding). Furthermore, RDA funds are local tax revenue that the state is borrowing and must pay back (with interest? which is paid by.. whom?). Lastly, the article text mentions PUSD's shortfall immediately after saying that eight agencies chose not to make their transfer. Note that Pasadena was not one of those as might be interpreted by that context.
The report can be accessed here:
http://www.sco.ca.gov/eo_pressrel_9789.h...
(see the pdf link at the bottom of that page)

posted by navigio on 3/21/11 @ 12:57 p.m.
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