October 3, 2014 - From the October, 2014 issue

CRA Dissolution Process: A City of LA Status Report

Tim McOsker, a partner at Glaser Weil LLP, serves on a three-member Governing Board responsible for winding down Los Angeles’ Community Redevelopment Agency by meeting its legal obligations. McOsker updated TPR on the process following California’s dissolution of CRAs in 2012, including the creation of a long-range property management plan. He comments on the impacts of dissolution on Los Angeles properties, the future of TIF, and the options for cities looking to incent economic development. Prior pieces in TPR’s series on TIF can be found here, here, and here.


Tim McOsker

"To date, the return from the former CRA of LA to various taxing entities over the first two and half years has been well over half a billion dollars.”

Tim, TPR last interviewed you weeks after California’s Community Redevelopment Agencies were dissolved in 2012 and shortly after you’d been appointed to the three-member governing body charged with tying up the affairs of LA’s CRA. Bring our readers up to date on what’s transpired regarding LA CRA dissolution in the last two years.

Tim McOsker: The governing body and our oversight body went through a process to determine which projects were enforceable obligations as defined by the statute and would be completed using tax increment financing (TIF)—and, unfortunately for many folks, which projects would not be completed. On a six-month cycle, we’ve prepared the Recognized Obligation Payments Schedules (ROPS) to let the state know which obligations are being pursued and how we are spending TIF. The remaining tax increment has been returned to the state every six months for distribution to the various levels of government, also called the “taxing entities.”  To date, we’ve returned a great deal of tax dollars to the taxing entities.

In the City of LA, we have also completed our long-range property management plan, which covers how CRA-owned properties will be sold. We submitted the plan to the state and are awaiting approval. Once the state approves the plan, we will begin completing the wind-down of affairs by disposing of those properties accordingly. 

At the time the governor dissolved CRAs, an LA Downtown News headline read, “CRA’s Demise Puts Downtown Properties in Limbo.” What was the actual impact in those early years of CRA dissolution, and what have fixes like AB 1484 done to provide more certainty in the LA marketplace?

When the dissolution took effect, the LA CRA was holding about 400 parcels of property, which amounts to approximately 100 different projects—because some projects have multiple parcels. The first version of the dissolution law was interpreted to require entities like ours to wind down affairs and sell all of the properties as quickly as possible.  Statewide, that would entail a lot of sales of former CRA lands all at once.

Urban centers like Los Angeles saw the prospect of so many properties being up for sale at the same time—raising the specter of diminishing the values of properties and creating what some folks described as “chaos.”

Subsequently, AB 1484 slowed down the process and allowed each agency to put together a “long range property management plan.” The amended law took a longer view of how properties would be sold. Each agency was directed to put properties in different buckets: some to be sold right away, some to be held longer, and some to be simply deeded over to the local government for governmental uses. Each agency submits those plans to the state Department of Finance—as I mentioned, LA is awaiting approval of that plan now.

AB 1484 gave everybody an opportunity to plan for sales in a more orderly manner and over a longer period of time. It is very likely that the plans might protect the property values and not put urban-core areas with lots of parcels, like the City of Los Angeles, in limbo.

The Governor’s premise in 2011 was that redevelopment had lost its way, especially in Los Angeles, and that dissolution would bring as much as $1.7 billion in revenues to the state that were being lost and misused. Can you share what you’ve learned in these last two and a half years about whether the governor’s objectives are being met?

I can, with respect to the City of Los Angeles. But it would be difficult, or maybe even inappropriate, for me to comment on the statewide estimates for how much tax money would be returned to taxing entities.

The LA CRA has had an arms-length relationship with the Department of Finance, but has remained in constant contact and negotiation. While we needed to negotiate over certain issues regarding the return of some of these tax monies, we have not had to file any litigation. The ROPS process has been pretty smooth, given the circumstances.  To date, the return from the former CRA of LA to various taxing entities over the first two and half years has been well over half a billion dollars.

Are the revenues you cite “ongoing”? Is that “new” money being targeted or is it now just a part of the city’s general fund?

Yes, it is an ongoing flow of money. We account for and return unused increment, taxes that are not tied to an enforceable obligation, every six months. The total return to all entities from LA CRA has fluctuated from approximately $35 million to well over $100 million during each of those periods. The fluctuation is due to the differences in when enforceable obligations are paid or completed.

As we move forward, that number will normalize. We estimate it will be around $100 million every six months.

This flow of money becomes general revenue to each entity. As such, the money can be used for the priorities of each taxing entity—a matter determined by their governing officials. 

The avowed purpose of redevelopment, when it was created, was to bring back to market dilapidated neighborhoods and to stimulate the economy, with much of its revenue going to affordable housing. Is that where the money being returned to local government is likely to go again? Are the tools in place in local government today to accomplish the CRA’s statutory mission of yesteryear?

With respect to housing, the dissolution law provides that “housing assets” and funds attached to housing that the old CRAs held were to be returned to local agencies, restricted for the purposes of housing. In the short term, housing sites, revenues, and some of the tools used for assisted-housing projects remain in place for local entities.

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As to the other economic development purposes of the former CRAs: Cities, counties, and local entities do not have the same tools today that they had under the former redevelopment law. They will have to come up with other creative ways to do economic development with returned funds, if they so choose.  On the other hand, they can also choose to use the funds for police, fire, and other core services. 

What are likely to be the creative ways cities incent economic development with returned funds going forward?

Cities generally will have to look at new tools that may be coming their way. For example, the governor has a measure sitting on his desk that would allow for broader use of Infrastructure Financing Districts (IFDs). If that becomes law, I think local jurisdictions will look to see whether IFDs can become a tool for investment and economic development.

Otherwise local government will have to use more traditional methods—like committing revenues for personnel and programs that would promote economic development, and otherwise trying to entice jobs and development in their cities. 

Tim, the state’s Department of Finance has been taken to court by California cities scores of times and faces 180 lawsuits. What’s been the litigious relationship between the CA DOF and the LA CRA over these past two and a half years?

We’ve certainly engaged in some tense negotiations with the DOF, but we’ve taken every opportunity to mediate or arbitrate issues under the statute.  So far, as I mentioned, we haven’t reached a point where we’ve needed to file any litigation against the state.

What’s been the impact of the credit rating on the CRA’s obligations?

We haven’t seen any drop in the LA CRA ratings since the dissolution. Our bond ratings in different project areas range from A to BBB. I think some of the lower ratings have more to do with the Great Recession than with the dissolution law. 

All in all, looking back to 2011, did the dissolution affect the real estate development landscape of metropolitan Los Angeles and the City of LA?

Clearly there are areas of LA that need redevelopment, and we’ve seen a number of projects not go forward because they weren’t enforceable obligations as defined in the dissolution law.  If the TIF tools still existed, we’d see a number of neighborhoods that would have ongoing economic development projects with the assistance of local government.  That’s what we’ve lost for now.

But I am not sure we have seen some of the effects that other jurisdictions report, like falling credit ratings or the chaos of litigation here in the LA CRA. 

In your opinion, is the future of TIF dim or bright? Is it needed or not needed?

I think a broad use of TIF is not likely in the near term.

As far as whether it’s needed, my personal view is that tax-increment financing tailored to a well-defined purpose, and used in a way that does not impact needlessly the provision of other core services like education, police and fire, or health and safety for a community, would be beneficial. But I think all parties need to continue working toward a model that works.

If TIF were to be authorized again, what would a well-functioning, well-defined, targeted, TIF program accomplish that isn’t being accomplished in the marketplace right now? 

Say, for example we had a system of TIF for economic development targeted to create jobs. We would have a measurable way of defining the goal. Remember, these are finite dollars. We would have to create a system capable of looking back to measure and see whether we achieved our goals. In my example, were jobs created that were helpful to the community? Did the jobs last?  How many were there, and did they benefit the community broadly though additional spending and community investment?  If not, how would the use of TIF be curtailed or adjusted in the future to better meet the stated goal?

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