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LIKE A HOLE IN OUR HEAD

Will SwaimWed. August 27
 

Critics say Redevelopment Agency eats cash, produces blight


PHOTO by RUSS ROCA

In 1988, the Long Beach Redevelopment Agency greenlighted the demolition of the historic Jergins Trust building, a stately old high-rise and California landmark. They plowed it under to make way for a hotel. But today, 20 years later, there’s nothing there—or rather this: a chain-link fence with photoshopped graphics (on vinyl sheeting) depicting a downtown just bursting with hydrogen-bomb-powered sensuality and style, and, inside that fence, a 20-year-old hole.

The city budget has a hole in it, too, about $17 million deep. It seems reasonable to ask whether we want the Redevelopment Agency (RDA) grabbing some $80 million per year to knock down historical buildings (next up: Acres of Books) that would go otherwise to school districts, public health, fire fighters, cops, streets—the things that make Long Beach livable.

“You guys [in Long Beach] have a choice. Do you want Costcos or classrooms? Do you want Walmarts or hospitals?” asks Orange County supervisor Chris Norby.

Norby was referring specifically to the project that put a Walmart in the heart of downtown. He’s an Orange County supervisor, the author of Redevelopment: The Unknown Government, and, in the wonky world of urban planning, something of a prophet.

“Chris Norby has been so eloquent on this,” notes Fifth District councilwoman Gerrie Schipske.

“He’s probably the most articulate critic of redevelopment in the nation, and he’s in your backyard,” says the Cato Institute’s Randall O’Toole.

“Redevelopment is taking you down the wrong road,” Norby says of Long Beach. “You’re using taxpayer money that is intended for great public purposes, using that money to fund private development, and that development not only doesn’t alleviate blight, it is its cause.”

Through a complex funding mechanism, the RDA collects some $80 million per year in property tax revenue. Its objective: eradicate blight. But one man’s blight is another man’s Jergins Trust. When I asked former RDA board member and critic Terry Jensen to list the agency’s successes in turning tax dollars into new developments, he paused over his soup so long that I thought he’d found a bone or forgotten my question. But, no, he just couldn’t come up with any meritorious achievements—not on the spot, anyhow.

“When they bulldozed the Pike and rebuilt that whole area with chain restaurants, they sucked the soul out of Pine Avenue,” says downtown restaurateur John Morris, owner of Smooth’s.

Before she was a city councilwoman from the Second District, Suja Lowenthal was an RDA critic, once writing in the Press-Telegram of the agency’s “history of failure.”

“For a city that supposedly values homeownership and community and neighborhood businesses, I think redevelopment has really worked against it,” says Seventh District Councilwoman Tonia Reyes Uranga. “We have empty lots now—with white ranch fences—where we used to have maybe substandard commercial entities, but they were still contributing to the tax base. There were communities and homes there before. It’s like throwing the baby out with the bathwater.”

Maybe it’s time, says Norby, to turn the bulldozers on the very agency that deploys them. Maybe we should knock down the RDA.

“That agency was created to end blight,” he says. “But now they can’t stop themselves on account of all the cash coming in. They’re like the doctor who says he can’t give up on a dying patient: ‘I can’t pull the plug; he’s making me too much money.’”

Norby says there are reasons to pull the plug on the RDA now. First, of course, there’s the city’s budget crisis. Then there’s the state’s: Norby just returned from Sacramento, where he met with the governor’s staff to discuss using $5 billion in RDA cash statewide to balance California’s budget. That would take millions of dollars that could have been absorbed into the general fund out of Long Beach’s hands for good.

Craig Beck, director of the Department of Development Services, dismisses Norby’s suggestion as “knee-jerk.”

“Anything that would shift local resources out of this community is something that neither the agency nor the city would support,” he says.

The city’s “support” is irrelevant, of course: technically, RDA money belongs to the state, and “the state’s gotta find money wherever they can,” Norby said.

If the governor raids the RDA, Long Beach would find itself on the hook for the agency’s debts—of hundreds of millions of dollars to banks and bondholders—and no plan to pay it back.

“We need to get the revenue generated in our city,” says Schipske. “If the governor takes it, how are we going to pay that debt back?”

Additional reporting by Chris Ziegler.

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Viewing 26 Comments

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    The elegant Jergins Trust was where the hole has now lingered for two decades. A pedestrian subway and shopping court ran under it and linked downtown to the Pike and the long-lost beach. It is an icon of redevelopment's adverse impact on the city. I have never understood the agency's mad rush to clear sites and create more eyesores, including Long Weed Boulevard.
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    The City would do well to view Norby's comments as a wake-up call.

    The State has never shown any reluctance to raid various funds to deal with financial challenges. Since there appears to be a growing question in the minds of some of our elected officials concerning the overall benefits of the RDA, perhaps we would do well to disband the organization now, while the choice can still be our own.
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    John B!

    Keep in mind that the RDA's money is, technically, the state's money: state law allows local governments to collect money that would go otherwise to the state and counties; that means less cash for public health and education (for example) in exchange (one hopes) for an end to blight.

    Collectively, the state's RDAs believe the threat is real. Here's the call to action on their website:

    http://www.calredevelop.org/AM/Template.cfm?Sec...
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    Thanks Will!
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    Has there been a study to quantify the return on investment that Long Beach has received from monies spent on redevelopment projects? For example, how much rent has DDR paid for the property that currently houses The Pike? How much revenue has been generated by the parking garage?
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    Juan: Two reports may assist you with your question: “Independent Study of Redevelopment in Long Beach”, by a consulting team made up of Clarion Associates, Waronzof Associates, Consensus Planning Group, Jeanette Launer, and Donald Nollar – May 2005 and “2007 Year End Project Report”, by the LBRA itself. Both are readily found online.
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    Neither report provides any data that concludes what the R.O.I. has been for the taxpayers of Long Beach.
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    Geez, Juan, do we have to do *all* the work for you? I sort of thought to offer you a place to start and then let you proceed from there : )

    Try a 2004 CLB Memorandum from then CLB Director of Community Development Melanie S. Fallon to then City Manager Gerald R. Miller reporting on the Council's role in the redevelopment process. There are some figures within the memo that are specific to the Pike Property as well as other LBRA projects.

    Try also a Gazzette article from June 2006 that includes a paragraph concerning the DDR lease of the Pike Garage.

    Try also the City's Comprehensive Annual Financial Report (CAFR).

    Good luck!
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    Nothing of any substance. The most compelling element I recall is a report to Mayor Foster which states revenue shortages from the Pike garage are one immediate threat to the budget.
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    Juan:

    Part of the challenge with return on investment is this: what's the metric? Among redevelopment's supporters, it's sales tax, but redevelopment's critics will tell you that sales tax measures only retail sales, and retail sales numbers tell a very incomplete story. For example, if you knocked down a factory with 5,000 jobs and replaced it with a Walmart, sales tax in that particular zone might rise--because factories don't sell retail and Walmart does. But the jobs would be gone, and so housing prices might decline elsewhere in the city, retail sales would follow, and etc. You get the picture.

    Then there's the property tax valuation argument. If redevelopment succeeds, maybe prop taxes rise. But some studies show that cities with redevelopment agencies produce smaller gains in property values than cities without.

    Having said all this, I still haven't answered your very good question directly--are there studies in LB that can tell us whether redevelopment has succeeded in producing gains?--but perhaps you can see the complexity of the question.
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    It appears, that a confusing methodology was established in order to quantify whether redevelopment projects in Long Beach are good or bad. Its asinine, that there is no existing data, or cost-benefit analysis, to validate RDA projects such as Cityplace and The Pike. I do know, per the lease agreement, the developer of The Pike was to pay rent based on an ROI equation. After five years of operation, how much rent have they paid? That should be an easy question for city officials to answer.
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    The debate on redevelopment cannot be complete without discussion of its role in providing for affordable housing. State law requires 20% of all redevelopment set-aside tax increments to be used in developing or preserving affordable housing. Without Redevelopment funds, this investment in under served communities, very-low and low income residents would not exist. In a city with 34% of the residents earning less than $25,000 a year and another 28% earning between $25,000 and $45.500 the need for affordable housing and investment in these neighborhoods is immense. In 2004, LB had a median income of $61k, but it’s estimated that an average family would need an annual income of $128,000 to afford an average priced ($462k) single family home in Long Beach. This is an affordability gap of $438,900 for very-low income households and $411,900 for low-income households.

    The opponents of redevelopment rarely want to discuss the issues of redevelopment from the perspective of the poor, or even to acknowledge the broader policy problems resulting from the shift of local property tax revenues to state coffers under proposition 13 and the local dependence on sale tax revenue as a result. It is this local sale-tax dependency that drives the desire to attract more and more retail in redevelopment projects. If you run the pro-forma’s, you will see that the best “return on investment” for an RDA is often to invest in these corporate chains, as they will generally generate the best sale tax revenue for the city.

    A policy discussion on redevelopment cannot be honest or complete without a discussion of the current benefits of redevelopment to poor communities, or discussion of alternatives to the current redevelopment-offered levels of affordable housing investment. Also required in this debate is an analysis and recognition of the contributing role played by prop-13 in creating increased local sales-tax dependency, which has contributed to the need for sales tax revenue as a primary focus of commercial RDA projects.
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    Rgreen: Great point. Long Beach is one of the few cities that actually follows state law in sending 20% of its tax increment to subsidized housing projects. But that sort of begs the question: does that 20% produce the housing that poorer residents need? Or, as RDA critics contend, does the other 80% fuel job loss and the destruction of low-income housing?
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    The independent study by Clarion et. al, that I mentioned earlier considers some of the very same challenges you are raising.

    (Begin excerpt)
    "Stakeholders familiar with the size of redevelopment efforts in Long Beach realize the large amounts of money that have been spent on numerous projects, and sometimes wonder whether corresponding benefits have been received.

    This is a particularly important question in the case of redevelopment, since future revenues are often pledged for long periods of time to repay project debt. That means that the public has already seen many of the benefits of the new project (especially the market “bounce” that comes from putting a new commercial or retail development into the market), while costs will be spread out long into the future. When benefits appear soon and costs are deferred, it is difficult for the public to accurately weigh the relative costs and benefits of the project, and it is important for those who make the decisions to have a process for accurately weighing those factors in advance – and checking on performance over time.

    The case study analyses in Task 2.1 reflect our effort to measure the costs and benefits of some of the projects reflected in these numbers.

    • In the period 1999-2003 (the last year for which official state filing data is available) the LBRA’s annual filings with the Secretary of State’s office show average budget expenditures of almost $33,000,000 annually

    • While measuring costs and benefits of real estate projects is in theory a relatively straightforward process, in practice it can be much more difficult unless there is a complete record of the project. The older the project is, the harder it is to locate records and to locate staff members who were there at the time and can fill in the gaps in written records

    • Moreover, assessing redevelopment projects is more complicated than reviewing typical real estate projects, because the goals are more varied and complex. Redevelopment projects are intended to produce a combination of economic and social outcomes – and the latter are notoriously hard to measure. At a minimum, there needs to be agreement on what “social” or “soft” benefits are to be measured. We have approached this issue partly through our qualitative (and ultimately subjective) Definitions of Success. But many outcomes are not easily quantified for a cost/benefit analysis. For example, neither the LBRA nor the Planning Department have established a working estimate of the value of open space, which effectively precludes measuring the costs and benefits in the parks case studies.

    • In spite of very good cooperation from LBRA staff and Long Beach financial and GIS staff personnel, measuring costs and benefits of the case study projects proved much more difficult than expected. While the LBRA has kept voluminous records, those records were not always complete or easy to access. Among the problems encountered were:

    o The recordkeeping system is designed to support and produce documents mandated by law for project approval and implementation – rather than evaluation of project results

    o The Agency’s accounting and personnel systems track project revenues and expenditures (including LBRA administrative expenses) by project area – rather than by specific project – making project-level evaluations impossible in most cases

    o Moreover, there is no parallel tracking system that permits more policy oriented reviews of individual projects. For example, there is no system that permits analysts to compare actual to predicted project expenses, or to assess project feasibility by comparing project revenues with expenses

    o The Agency uses different revenue and expenditure categories in different documents, and over time, which makes it difficult to reconcile financial information to create a complete picture of project economics

    o The City’s outstanding GIS system, which contains a wealth of information, cannot aggregate data corresponding to either LBRA project areas or individual project boundaries

    • As a result, our case study efforts to measure costs and benefits have been more topical than comprehensive and systematic. We have undertaken financial and benefit analyses where data was available, but more often than not were frustrated by the inability to gather data that would permit meaningful analysis

    • Perhaps more importantly, it appears that the LBRA does not have in place a regular program to evaluate whether completed projects have achieved their objectives over time, or how the projects perform relative to expectations. In all fairness, periodic monitoring and evaluation of project outcomes should be a part of every city’s development and redevelopment efforts, but in our experience very few cities actually perform such reviews. Aside from the obvious need to provide decision makers with the facts and analysis they need to make informed decisions, such systems can play an important role in publicizing Agency and City success in redevelopment projects. Lacking this information, community opinions about LBRA performance must rely on more anecdotal (and potentially unreliable) information

    • Since many redevelopment project design and approval documents already include fairly accurate measurements of “blight” and other substandard conditions that create the need for the project, it should be possible to re-measure those items periodically after project opening to learn which aspects of redevelopment are working and which are not

    And the overall conclusion drawn:

    The comparisons...clearly identify many areas where the LBRA could improve its performance as a redevelopment agency. At the same time, they reflect the fact that – even when focusing on areas where the public, the PACs, or City Council have questioned its performance -- the LBRA is generally performing reasonably well. Not only is the Agency performing at the “moderately good” or “good” level (or above) against most of the “best practices”, but its performance is generally higher when viewed in light of the comparison cities. Many areas in which the LBRA received a lower score are areas where comparison cities also indicated weaknesses. Once again, it is important to remember that the scorecards did not cover areas of acknowledged strength or areas where concerns have not been raised by stakeholders in the redevelopment process.
    (End excerpt)

    Although this study did not, unfortunately, look at the Pike as one of its case studies, it did develop a scorecard that could lend itself to evaluating that project.
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    Reads like a redundant explanation for concluding what most of us already know;redevelopment in Long Beach has sucked.
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    Well, Juan, that's not precisely what it says, but it seems clear to me that you have a predisposition to believe that.

    Like all other government entities, the LBRA operates with our mandate. So I'll cease my good-faith efforts to assist you with your questions and, instead, encourage you to organize a majority of those who may be like-minded, have that mandate revoked and direct that our $80 million a year be put to better use.

    Regards.
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    I base my judgments upon results. The evidence, reveals that a vast majority of Long Beach RDA projects have been financial failures.
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    Juan: Considering that you opened your line of inquiry on this topic by seeking evidence of LBRA Project returns on investment, I’d be curious to see the ‘evidence’ you have now apparently unearthed to support your contention that a vast majority of these projects have failed.

    From the responses and discussions of both Rgreen and wswaim, and from the independent study I’ve cited, we learn that assessing LBRA successes or failures in an un-biased manner is far from an exact science. Based upon even the anecdotal evaluations that we *have* been able to locate, we learn that one man’s idea of success in this area is very often another man’s idea of failure.

    Thus, if you do, indeed, now possess ‘evidence’ that ‘a vast majority of Long Beach RDA projects have been financial failures’, please do share it with the rest of us!

    I, for one, am always anxious to learn!
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