September 30, 1989 - From the September, 1989 issue

Retain the Current $750 Million Cap on Tax Increment Spending by CRA

Ernani Bernardi, Councilman representing the Seventh District of the City of Los Angeles, argues that the current cap on tax increment spending by CRA should remain at $750 million. This article comes at the time when Mayor Bradley planned to increase the cap to $5 billion. The effects of such an increase, argues Bernardi, would further deplete the fund revenueing sources for the City, County and school district.


"My proposal is that we leave the $750 million cap intact, and join together to explore how the more than $1 billion that would have gone for bond interest and legal fees under the mayor's plan could instead be used for affordable housing and programs for the homeless."

For months now, officials of Los Angeles City, County, and the Community Redevelopment Agency have debated what may be the most important financial decision that has faced local governments in many decades.

The issue: raising or retaining the current $750 million cap on tax increment spending by the CRA in the Central Business District.

The real question: should $4.25 billion in property taxes go to the City, County and school district to be spent on such vital services as health care, police, schools, and roads? Or should it go to the CRA to build downtown high-rise luxury hotels, restaurants, and office buildings—projects that would exacerbate our problems with traffic congestion, air quality and overdevelopment?

Mayor Bradley's plan to increase the cap to $5 billion calls for the CRA to earmark half the additional money for affordable housing and programs for the homeless. The other half, $2 billion-plus, would go to the CRA with no strings attached. In fact, however, funds actually available for housing and homeless programs would be less than half of $4.25 billion, because about $1.2 billion would be required to pay CRA administrative and bond financing costs.

The Bradley plan would mean that over the next 20 years, the City would lose $1.4 billion in tax increment revenue to the CRA; the County would lose $1.9 billion, and the schools, $840 million.

The City, County and school district today cite lack of funds for the failure to provide adequate services; to hire enough police to win the war against gangs and drugs; to clean the streets of debris, graffiti, and to restore emergency medical services and programs for the mentally ill.

If the cap is lifted and the tax increment revenues diverted to the CRA, local jurisdictions would have no option but to cut services or raise taxes.

Every property tax dollar siphoned off by the CRA severely depletes the ability of the City and the County to provide basic services. What justification can there be for the local agencies to make the CRA a gift of billions of property tax dollars?

Indeed, the Country's official and self-serving position on the cap issue is that it won’t let its tax increment go to the CRA.

The County said it would not object to lifting the cap if three conditions are met: it would receive a full pass through of its normal (42. 7%) share of tax increment, the City and the CRA would cooperate fully in development of the county's civic center properties, and the current city-county litigation regarding homeless services be voluntarily dismissed.

The County agrees that the City stands to gain considerably from its civic center development, which will generate over $500 million in new revenues in additional sales taxes, hotel taxes, etc. Also, some 40,000 temporary jobs will come from the new construction activity, and 43,000 permanent jobs will be created from the new retail and office space.

(By the way, how will those 40,000 temporary and 43,000permanent new additional employees get to work? Will they be able to afford the upscale downtown housing that the CRA creates or will they join the rush hour freeway crawl?)

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It's fine for the County to talk of its objectives as a major downtown property owner, including plans for a Disney concert Hall, gift shops, restaurants, and a 400 room luxury hotel.

Why, though, should the County receive its tax increment share if the City does not?

I believe I have an approach under which the City and County each can receive its fair share of downtown property tax revenue while still providing funds for our critical needs in affordable housing and programs for the homeless.

My proposal is that we leave the $750 million cap intact, and join together to explore how the more than $1 billion that would have gone for bond interest and legal fees under the mayor's plan could instead be used for affordable housing and programs for the homeless.

The City and the County together could commit themselves to a 20-year, $1 billion housing program. In the meantime, the balance of the $3 billion plus would be apportioned to the City, County, and schools.

In an interest-bearing account, $1 billion might provide sufficient funds to subsidize rents for the 16,050 units under covenant to the city through my “15% Ordinance,” adopted in 1974. From 30,000 to 40,000 low to moderate income tenants could find housing in those units. If only the subsidy were available.

I believe strongly that it is in the taxpayer's best interest to leave the $750 million cap intact. Fortunately, it will remain intact, unless someone brings a successful court action to change it.

The cap was first proposed in 1975, when the CBD was established. Mayor Tom Bradley urged approval by City Council and CRA of the $750 million ceiling, which had been recommended by a citizen's advisory committee. “While it is unlikely that the Redevelopment Project will raise and expend anywhere near that amount," he wrote, “it is a safe, conservative maximum ceiling…”

The cap was locked in two years later by the Superior Court settlement of two lawsuits I brought against the CRA, suits which the county joined as plaintiffs.

The pressure is on today because the CRA could reach the spending limit—and have to close up shop in the CBD—as early as 1991. Shedding crocodile tears, the agency already has scheduled preliminary budget discussions over a $10 million cutback in its socially conscious programs for the homeless and downtrodden downtown.

If the cap stays intact, once the $750 million limit is reached, all property taxes generated in the 1550-acre downtown project will once again go to the City, County, and the schools—as it should.

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