In March the Westside Urban Forum held, “Life After the CRA: A New Paradigm for Affordable Housing and Economic Development,” featuring LA County Supervisor Zev Yaroslavsky, LAANE co-founder Madeline Janis, and Community Corporation of Santa Monica Executive Director Sarah Letts. Moderated by Renata Simril of Jones Lang LaSalle, the discussion reveals an understanding that CRAs in California are dead, despite efforts in Sacramento. TPR presents the following excerpts from the conversation.
“We don’t know how it will end up, but one thing is certain: we are not going back to the way it was.” -Zev Yaroslavsky
Zev Yaroslavsky: Obviously, the County of Los Angeles has a huge stake in this. The Board of Supervisors has probably five different opinions about how to proceed, but I think the majority of the Board is pretty faithful to what the Governor’s legislation is designed to do, which is to maximize the transfer of the tax increment to the counties, cities, and school districts. The City of Los Angeles itself has a stake in this---they will get 28-30% of the tax increment generated in the City that is not needed to pay off the former redevelopment agency’s enforceable obligations.This is clearly uncharted territory, and nobody knows where it’s going to lead procedurally and legally.
The redevelopment agencies in this state have been cruising for a bruising for a long time. Originally redevelopment was designed to infuse blighted communities with economic development and turn those neighborhoods around. Blight was to be the key factor in determining where redevelopment was to be approved.
When I first became a city councilman in the 1970’s, redevelopment was gaining momentum. More often than not, the tool of redevelopment was used appropriately to invest in blighted communities and in areas that would never get sufficient private investment without this tool. Over the last three or four decades, blight became an afterthought in redevelopment, and money spent by the agencies was used to underwrite projects in economically stable or even flourishing communities. Underwriting your skyscraper, your museum, or your football stadium had absolutely nothing to do with the original purpose of redevelopment. That’s where the abuses came in as redevelopment veered wildly off course.
Where do we go from here? There are several bills that are pending now in Sacramento. The Board of Supervisors supports the Darrell Steinberg bill as it was originally proposed---to preserve the housing funds in the redevelopment agencies’ successor agencies and allow them to continue to finance affordable housing projects. One area where redevelopment has worked in California has been in the creation of affordable housing. The Steinberg bill keeps those housing funds in play locally. We support that.
Speaker Perez’s bill also preserves the housing funds, but it also does several other things that undermine the Governor’s bill. Perez’s bill redefines what an enforceable obligation is, and it expands the range of expenses that could be sheltered from taxing entities under the cover of collective bargaining agreements. We oppose this bill.
Since the Supreme Court’s decision validating the Governor’s position on redevelopment, cities have been engaging in quite a bit of hanky panky. Two egregious examples are right here in L.A. County. The City of L.A. and their defunct redevelopment agency entered into a “cooperative agreement” attempting to shelter $900 million from the local taxing entities. The City of Palmdale similarly tried to shelter $1 billion in redevelopment funds by entering into an agreement with its CRA. Both efforts are shams. The Perez bill statutorily recognizes the validity of many of these “cooperative agreements,” and in so doing runs afoul of the Governor’s strategy and intent.
This is going to be a long process. The Board of Supervisors is close to appointing its oversight boards. It’s a seven member oversight board, with the County appointing two members while the Flood Control District appoints the third one (within the boundaries of the City of L.A.), the cities appoint two members, including one representing the labor unions, the County Board of Education appoints one and the community colleges appoint one. These boards are not necessarily going to be of one mind. Even our county appointees may have differing points of view. In the end, however, the State Department of Finance will be the arbiter of what funds stay with the successor agencies and what funds go to the local taxing entities.
This process would be a nightmare if it had been done before, but it’s a nightmare on steroids inasmuch as it has never been done before. We don’t know how it will end up, but one thing is certain: we are not going back to the way it was.
Over time we need to find a way to go back to addressing what redevelopment was originally designed to do---to focus on blighted communities and infuse them with a heavy dose of economic development. The legislature, rather than doing all it can to protect a flawed system, should focus on encouraging redevelopment in truly blighted, economically depressed communities. And they should do all they can to promote the development of affordable housing, which can only be done by preserving the housing trust funds that have accumulated over the years as a result of redevelopment.
Madeline Janis: I was on the board of LACRA for ten years, and I share a lot of the same concerns that Supervisor Yaroslavsky expressed. Over the years we’ve tried to push the agency in a certain direction, and I know some of it was controversial. I think that government has a really important role in development, particularly in creating jobs, affordable housing, and in helping businesses and communities meet sustainability mandates. Redevelopment played that role to some degree, and we need a tool to continue to play that role to encourage job growth and to create affordable housing.
Part of the problem with the redevelopment law was a real conflict between the public purpose, which was to create jobs and affordable housing in communities that are really suffering, and private profit. I think those things got really mixed up, and I think when we brought politics into the mix and you had twelve members of the City Council who were running redevelopment agencies, it was kind of an insider’s deal. It did become, to some degree, a source for well-connected developers to get their projects done.
I think a lot of people, including our current mayor, made a push for transparency and establishing clear principles for business. That was a constant struggle in my ten years with the agency. But I don’t think the way this unfolded is good at all. It’s a mess, and I’m worried about potential sale of properties that that really need to be considered potential County development tools for impoverished communities. Most properties that the redevelopment agencies own are properties in blighted areas. Blighted for me means impoverished. I think that’s a problem in the law.
There are two bills just introduced by Senator Steinberg that are really just the beginning, and I’m hoping that counties will be able to support these bills. One bill will make successor agencies won’t sell all properties in firesale. That would not be good for California. SB 151 helps to put some order to that process, and I think it is worth supporting. SB 1156 is the beginning of a new conception for what economic development could be, what that tool could be, and needs a lot more work.
Sarah Letts: My experience in affordable housing development is framed at the polar opposite ends of the process. I spent many years working for nonprofit developers in Los Angeles and Chicago that were created to take on risks. At the other end of the process I spent 11 years working for Fanny Mae, where we wanted a deal that would fit inside our box. We were risk adverse, and we said no when we decided something was too risky. My perspective on redevelopment is that it often created a bridge between those two poles.
Development is inherently risky, and institutional lending is inherently risk-averse. You need redevelopment to create that bridge between the two. My big hope is that we come up with some major new source of funding that can become the new bridge between the opposite ends of the spectrum when it comes to developing real estate.
I’m in favor of the bill SB 1220, which is estimated to come up with $700 million per year for affordable housing. We’re also in favor of SB 654 because we do need to protect the affordable funds that the former redevelopment agencies had and because we do need to create a bridge between risk-averse entities and risk-taking entities.
We also need to create a more efficient and effective process. Part of the problem with a lot of the deals is the alphabet soup of financing sources. The project I worked on in Chicago had eight sources of financing. It’s just a nightmare. It’s nearly impossible on the front end to get those deals done. They’re terribly inefficient, and it really does increase the cost of doing a deal when you have to have that many layers of financing to piece together.
On the back end it’s also very inefficient. We have many regulatory agreements to comply with, and there’s reporting that takes place for decades. We’re producing reports for decades for all these different agencies, and I don’t know if they even have time to read all the reports. In envisioning life after redevelopment, I believe we have to come up with a more efficient and effective way to deploy scarce resources.