Corporate Welfare

Loss of $1.7 Billion Leaves All Californians Richer

|

At the Orange County Register, Steven Greenhut finds yet another piece of good news in the recession: California's budget crunch has forced the state to cut $1.7 billion from its so-called redevelopment agencies. Greenhut suggests using that $1.7 billion as a reverse down payment on getting rid of the redevelopment agencies altogether:

Before you start accusing me of being callous, let's remind ourselves what redevelopment agencies are all about. Originally, redevelopment law was created to help cities clean up blighted areas. But urban renewal doesn't work, and cities have long ceased targeting truly blighted neighborhoods. They instead use redevelopment as a tax-generation mechanism and a means to subsidize new shopping centers, auto malls and big-box stores.

The way it works: A redevelopment agency conducts a blight finding proving that the targeted area is, indeed, blighted. It then creates a "redevelopment area." The agency floats bonds and uses that money to subsidize developers to build new projects within the specified area. The new property tax dollars—called tax increment—pay off the bonds. The new projects provide sales and hotel taxes, which the cities use to enhance their general funds. (In reality, cities often give away so much to developers that they end up losing on the deal.)

Constituent service provided by Mark Ridley-Thomas

While Greenhut gives redevelopment agencies some well deserved blame for helping create the big-box patchwork that dims the already limited visual appeal of Southern California, there's another side to the story. In many cases—unsurprisingly, in the very underserved areas community revelopment was supposed to help—the redevelopment agencies' use of tax increments, "New Market Tax Credits" and other incentives actually prevents deals from happening.

In south Los Angeles, the Community Redevelopment Agency's Marlton Square project and Broadway/Manchester project—two massive, costly, high-end retail ambitions—have gone where the woodbine twineth. (You can never truly die as long as you've got a government agency web page.) My favorite South Central white whale, the Vermont/Manchester project, remains in the eminent domain hell I wrote about more than a year ago.

In at least two of these cases, the developer screwed up the deal in part by planning much larger-scale projects than the local market could sustain. As a result, large parcels of land that could support modest commercial and residential buildings lie fallow, while a rogues gallery of community activists, government flunkies, gadflies, absentee landlords with bickering family members, architects, labor leaders, public policy majors and reverends gather every fiscal quarter or so to debate projects that never pencil out. (I have not looked closely into the third case: the Broadway/Manchester project currently led by developer AMCAL Multi-Housing, where "'affordable' never means less." But I see the CRA's most recent Broadway/Manchester report [pdf] has the developer "applying for Prop 1C funds for estimated project gap.")

I repeat the "in part" in the above paragraph. Chris Hammond and Eli Sasson—the major players, respectively, at Marlton Square and Vermont/Manchester—have personality issues, and in Hammond's case there are serious legal and ethical questions about his behavior. And with the boom long over, it will be many, many years before anybody wants to take a gamble on the site of what one of my community activist friends calls the "economic referendum" of 1992. (The voters win again!)

But those factors don't explain how centrally located real estate in one of America's most crowded cities can continue to generate no value for nearly two decades. To make that happen you need magic: a heroically corrupt agency beholden to union thugs; authorities determined to get "buy-in" from all "stakeholders"; and the monkey's-paw promise of free money from the government.

NEXT: Reason Writers Around Town

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. I’ve wondered to what degree redevelopment programs have contributed to the commercial real estate bubble. At the moment there is a huge level of outstanding debt that isn’t being repaid in conjunction with commercial real estate. I’ve seen numbers of upwards of two times the amount of commercial real estate available that is needed.

  2. “‘affordable’ never means less.”

    I predict that this phrase will soon become attached to Obamacare.

  3. the monkey’s-paw promise of free money from the government.

    RACIST!

  4. Oh sure, the humans may have a board with a nail in it, but they won’t stop there. No, they’ll get bigger boards, and bigger nails, and soon they’ll have a board with a nail in it so big, it will destroy them all!

  5. I’ve seen numbers of upwards of two times the amount of commercial real estate available that is needed.

    As always, Jim the Realtor turns the raw statistics into a haunting visual tone poem.

  6. The number of vacant stores on my morning running route has doubled. While this isn’t a valid measure. It is a sort of how things are hitting home.

    This city has seen a massive exodus to the county, like many, but I haven’t seen this many available properties (for sale not lease) ever.

  7. Greenhut suggests using that $1.7 billion as a reverse down payment on getting rid of the redevelopment agencies altogether…

    That would be a great accomplishment. I’ve heard that not one redevelopment agency that has ever been established in California, going back decades, has been shut down or shut itself down.

  8. I loved that last paragraph.

    @hmmmm

    What kind of properties, commercial or residential. The commercial availability is the most disconcerting. Most of the residential, in L.A. at least, seems to be short sales, of which only 3% ever go through. Although they are foreclosures in waiting. The sub500k housing market is extremely tight on supply right now because of the foreclosure moratorium.

    I have a great idea. Let’s increase sales tax in the county. That’ll bring those businesses back. What, we have already done that? I wonder how that is working out.

  9. I was commenting on the commercial properties. The residential trend in my area has some comparison issues due to how my city (independent) and county are viewed. Just from my morning runs and local experience(I tend to watch for sale signs) a lot of recently bought homes in the 150-200 range are back up for sale. That range, 150-200, is moving but not very quickly. Maybe I notice one sign gone every month or more. The higher end for around here 300-500 aren’t moving at all. There are homes that have had a sign in front of them for over two years.

    I haven’t looked locally(right around me) at foreclosures or short sales. I have seen a local realtor advertising short sales. I do know a lot of the starter home foreclosures are disappearing as soon as they hit the market. It is literally a 2 day process in some instances. The larger homes I have seen in foreclosures don’t seem to move as fast. I know rental property owners and some flippers are competing for entry level homes.

    The commercial market is very ugly. The strip malls are empty, I have two within a 1 mile radius that are completely empty. The amount of retail space available is staggering at the moment. I’m not as sure about production based or factory property. I’ve only looked superficially at those numbers and they don’t look good at first glance either.

  10. Completely off topic. I haven’t seen anything about Birmingham going bankrupt and asking for the national guard to patrol as they lay off cops.

  11. authorities determined to get “buy-in” from all “stakeholders”

    This chimera is the canary in the coal mine. There are two problems implied by this sentence:

    1) Satisfying everybody is impossible. Trying to proves that whatever government agencies get to approve this project don’t want it to happen, but they want to shift blame away from themselves.

    2) Letting anybody but the landowner and their customers be “stakeholders” is insane. What “stake” does a “community activist” or “labor leader” have? Unlike the developer and owner, I don’t see them putting up hard cash or anything else of value into the project. Why should they get a “stake”? Property rights matter.

  12. In my greater neck of “Greater Chicagoland”, the redevelopment that always seemed to last was the non-governmental “gentrification” kind – the kind where a few daring souls would rehab a house or 3 flat a mile or so from the nicer neighborhood and take their chances that they wouldn’t get vandalized or mugged too often and accept a few bumps along the way simply because the property they bought was dirt cheap yet close to decent amenities. Eventually more people follow and it ends when the demand no longer exceeds the supply of crummy-neighborhood-next-to-decent-neighborhood.

    Meanwhile, all the government-led gentrification projects with a couple hundred units going up at once usually signaled the END of redevelopment within a mile of the project. Government typically overestimates demand on those types of projects in order to sucker the taxpayers to support the boondoggle. Same shit happens in the burbs, but usually retail is the catalyst. In this area the dead retail and dead office buildings are a suburban phenomenon and the dead residential is a city phenomenon. Essentially the Republicans despise people and the Democrats despise productivity.

  13. It’s those scary gay people that pull off the gentrification. If you want to flip homes or invest in property follow the gay folks.

  14. No specific mention of the community activists who forced a ban on loft conversions in order to save skid row hotels?

    Of course the lofts tanked with the rest, but still! A major downtown area had crazy demand by developers to do skid row hotel conversions, and the city tried to put a stop to it!?

    You’ll never get rid LA of skid row–not while I’m on the city council?!

    It made the Republic of Santa Monica look sane by comparison! …for a while.

  15. THe boys in the planning office love to play monopoly and push for overinvestment in project areas. So we get vacant lots awaiting someone to put in some bureaucrat’s Taj and empty highrises.

  16. Letting anybody but the landowner and their customers be “stakeholders” is insane. What “stake” does a “community activist” or “labor leader” have?

    The one poised over your heart?

  17. That’s a really good point, Tim. The LA Times did a great front-page story a few years ago comparing the North Hollywood redevelopment area with a similar area without a redevelopment agency. The non-redevelopment area actually had more growth for an obvious reason — once government steps in, private property owners step back and wait for the officials to lead the charge. I know a strip mall developer who was about to remodel his site until it was put in a redevelopment project area. Then he stopped the project. Why invest given that the city was now in control and might use eminent domain on one hand or offer subsidies on the other? So the project stopped and the city never really got its act together. That’s another reason redevelopment slows actual regeneration of older neighborhoods.

Please to post comments

Comments are closed.