A lot of focus will descend upon the state of California in 2012 to determine how local redevelopment initiatives fare—some promising ones might be dead in the water...and it's a shame.
Reported in Brownfield Renewal in early 2011, as part of a Cover story, was an ambitious redevelopment effort that had been taking shape for several years in Lynwood, Calif., located just south of Los Angeles. This multi-faceted project appeared to have a lot of upside—all in the hope of transforming a lower-income city into a revitalized residential, commercial and light industrial urban center.
As the feature was being prepared and later published, there was a cloud of doubt hanging over the Lynwood endeavor--and all the others across this vast state. That's because at the time, more than 400 local redevelopment agencies in the state were facing elimination by the governor. This all came to fruition in late 2011, and now many will be watching to see what the fallout is in the Golden State.
Here's what has occurred to this point: Faced with a massive budget shortfall, Gov. Jerry Brown signed two bills into law last year. The first dissolved all redevelopment agencies and required them to turn over their property tax revenues to the state. The second allowed agencies to continue operation if they paid the state a portion of their property tax revenues each year. The California Redevelopment Association and other entities challenged both bills. On December 29, the California Supreme Court upheld the first but struck down the second as unconstitutional. By February 1, agencies must turn over their assets to successor agencies that will wind down projects with enforceable obligations for commitments already made.
Critics of redevelopment hailed the decision, citing insufficient oversight of how redevelopment funds have been applied, an overuse of eminent domain and a need to divert money to education and public safety. In the development community, the loss is acute.
We all know that affordable housing developers in particular depend on redevelopment agencies to enable and expedite their efforts. According to a recent report in Atlantic Cities, a journal that tracks urban redevelopment, “we are very concerned about the lack of affordable housing funds this will create,” says Cynthia Parker, president and chief executive officer of BRIDGE Housing, a nonprofit organization in San Francisco. “We have about 30 projects that include redevelopment money, and last year we spent a fair amount of time getting commitments in place as part of the enforceable obligations of the agency. So we have plenty of work that will be started in the next two years. But beyond that, everything becomes quite murky.”
Kim Kilkenny, chairman of Centre City Development Corp., a nonprofit corporation that implements downtown redevelopment on behalf of the city of San Diego, commented in the Atlantic Cities report that the elimination of these steering agencies represents the “poster child for unintended consequences. Many of the projects we were moving forward on aren’t going to happen now, depending on how enforceable obligations are defined. So, affordable housing, public parks, fire stations, and other public infrastructure are going to take a serious hit.”
Future brownfield development in the state becomes uncertain as well. The Polanco Redevelopment Act provided redevelopment agencies with procedures for cleaning up hazardous materials and gave the agencies and subsequent property purchasers immunity from liability. One insight tied to this development is that developers that want to build a project in an urban area needs the right parcel and help from the city to complete it in time for the market. Without redevelopment agencies, a growing number of people believe it will be hard to assemble a site, perform environmental cleanup and build infrastructure.
Infrastructure financing districts are one possibility, allowing cities or counties to issue bonds to pay for public works projects and use property tax increment revenues to pay back the bonds. “But most cities in California receive only a small share of property taxes that could be dedicated to bond repayment, after excluding property taxes from educational districts," says Libby Seifel, president of Seifel Consulting, a real estate consulting firm in San Francisco, who was quoted in the report. “And right now, if 12 or more registered voters reside within the proposed district, approval from two-thirds of all voters in the district [is required].”
Complicating matters further, a proliferation of lawsuits is likely, especially given the short time frame. A senate bill under consideration would extend the handover deadline from February 1 to April 15. In Atlantic Cities, it was noted that "there are complicated issues to resolve related to bonds and contractual obligations, including obligations to employees and their unions,” says Seifel. “A number of agreements and projects are jeopardized. More legal guidance and time [are] needed to work out the implementation details.”
If there is a silver lining to this situation it's that other public redevelopment agencies around the U.S. might use the California example as a lesson learned—a cautionary tale—of how they might need to more intensively evaluate their own programs, how they're using their tools to make sure they're being deployed in a responsible manner in order to avoid becoming extinct...just like what's transpired in California.
