Government Waste

Redevelopment Leaves Behind $30 Billion Debt, Hundred-Millions in "Other Expenditures"

Doomed agencies should sell off their property and disappear.

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There used to be a big functioning metal business here, until the Community Redevelopment Agency spruced the place up.

It turns out California's redevelopment agencies—which, I just love to keep saying, will be abolished in a week—have produced something beside corruption, poverty, and blight: The RDAs have also run up nearly $30 billion in debt that must be serviced by Golden State taxpayers. 

That's according to California Controller John Chiang in his most recent Community Redevelopment Agencies Annual Report [pdf].  

During the fiscal year ending on June 30, 2010, the state's 425 RDAs—urban renewal fiefdoms empowered by eminent domain and catering to political hacks, connected land barons, community organizers, and Chamber of Commerce flunkies—saw their property tax hauls get lighter by 4.5 percent, showing that the agencies failed in their specific purpose of redeveloping property in a way that ups its assessed value. Chiang writes: 

Total revenues decreased from $8.3 billion in the 2008-09 fiscal year to $8.0 billion in the 2009-10 fiscal year. Taxes and assessments, the largest revenue source, decreased from $5.7 billion to $5.5 billion, a 4.5 percent decrease. 

Unfazed by this drop in revenue, state RDAs increased spending by 16 percent over the same period: 

Total expenditures increased from $8.1 billion in the 2008-09 fiscal year to $9.4 billion in the 2009-10 fiscal year.  Interest expense became the largest expenditure in the year, remaining at the same level as the prior year total of $1.4 billion. 

Though interest payments are now the biggest line item, hundreds of millions of dollars of this spending is totally uncharacterized. On page 105 of the report you will find some $148.6 million in "Other Expenditures" listed for the Community Redevelopment Agency of Los Angeles (CRA/LA).

Mark Ridley-Thomas knows how to build buildings, as long as they're named after him.

This figure is especially striking when you consider that most of the expenses you would normally associate with redevelopment—such as administrative costs, planning, real estate purchases, rehab, disposal, relocation, construction, low/moderate-income housing subsidies, etc.—are all broken out in separate line items. 

Page 103 lists $1.6 million in Other Expenditures for the Vermont/Manchester Project. I have been covering this piece of property for years, and there has been no activity of any kind on this land since a portion of it was used to build a county welfare office in 2007. 

A spokesman for the controller's office says these expenditures are reported by the redevelopment agencies, which do not have to provide invoices or other documentation. [Controller Chiang's office provided more details after this article was published. See below.] I have a call in to the CRA/LA to find out what the agency actually spent $149 million on in a year, but given the imminent unwinding of the agency (which now handles media through contract spokesman after losing its regular PR staff), I don't expect them to have a reply. One former CRA/LA staffer is unable to guess at where all that money could have gone. 

Chiang's report came out in November, and in a recent story the Orange County Register's Teri Sforza highlighted the whopping debt redevelopment is leaving behind. From the controller's report: 

Total outstanding long-term debt increased from $29.4 billion in the 2008-09 fiscal year to $29.8 billion in the 2009-10 fiscal year.  Tax allocation bonds accounted for the largest portion of debt, remaining at the same level as the prior year total of $19.1 billion.

The former CRA/LA staffer suggests this debt is mostly a matter of accounting that will be handled by expanded "pass-through" payments the redevelopment agencies make to counties. But there is a way the RDAs could partially compensate the public for the value they have destroyed while making a sharp turn away from their history of grandiose mega-projects that destroyed communities, warped the state's civic life, and often produced nothing but vacant lots

The Broadway/Manchester Project, another CRA chef d'oeuvre that rivals Rick Caruso's Grove in elegance and curb appeal.

Most of the real estate titles in redevelopment project areas are owned by the redevelopment agencies themselves. The successor agencies of the RDAs should simply divide these properties into single lots and sell them without favor to individual buyers. This would bring in a windfall that would go a long way toward retiring redevelopment debt. It would also create an instant path to affordable real estate ownership in some of the state's most overpriced counties. 

Larry Kosmont, interim city manager for the city of Montebello, did not dismiss this idea out of hand in a recent interview, but he warned about the problems associated with a real estate fire sale held in a down market by the "dysfunctional family of public agencies" that will dispose of RDA assets. 

"Counties and cities have to come to some consent on a decision," he says. "So the result you get will be the lowest common denominator: whoever will take the land off their hands. Just subdividing [project areas] and selling the lots is a possibility. But who does the subdividing? You may have a piece that does not fit or is the wrong size or shape. These are not uncomplicated properties. In some cases they require additional assemblage, or they are contaminated, or there's a problem with access or zoning." 

Kosmont points to Montebello, which has about 20 pieces of property. "A lot of those may go for salvage value," he says. "They might be worth about $10 million in today's market. I'd doubt we'll get half of that." 

Montebello (page 106 of the controller's report) currently pays $1.4 million in interest per year. So selling all that property would not be enough to get the debt problem under control. But it would at least keep the city from sinking deeper into the hole. The beauty of selling something is that it then becomes the headache of another person who has willingly taken it off your hands. 

More important, selling off redevelopment properties in small lots would be the closest to "economic justice" these agencies have ever come. The truly fair solution would be to return all this land to its original owners, with compensation for lost value as well as pain and suffering. In the fallen world, that is not possible. But California, having taken the right step on redevelopment agencies, should now follow through by making sure the agencies' ill-gotten real estate is sold into private hands quickly, openly and without doing any more damage. 

Update: A spokesman for the state controller's office provides more detail on Other Expenditures: 

The "Other Expenditures" line includes pass-through expenses to section 33401, 33676, or 33607 of the Health and Safety Code, and all other expenditures for which account is not provided in the report.  For the Vermont/Manchester Project, other expenditures with the amount of $ 1,648,000 included Development Loans $ 1,000,000 + Educational Revenue Augmentation Fund (ERAF) payment 115,000 + Tax Increment Administrative Fees 19,000 + Pass-Through Expense to Health & Section code 33607 278,000 + Miscellaneous Expenses 236,000…

The $1,277,000 in the revenues section for the Vermont/Manchester project area is the gross tax amount apportioned by the county auditor to the redevelopment agency pursuant to section 33670 of the Health & Safety Code.  Yes, this amount is property taxes that allocated to the agency by project area.

Tim Cavanaugh is managing editor of Reason.com.

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  1. OT: Could somebody tell Chris Matthews to stop sucking my legacy’s cock. I wasn’t the Messiah of the Baby-Boomers, dude. Fuck you.

  2. No alt-txt? Where is the alt-txt?

    1. “The Broadway/Manchester Project, another CRA chef d’oeuvre that rivals Rick Caruso’s Grove in elegance and curb appeal.”

  3. The socalled “firesale” could last for decades. Holding onto an asset on the theory that its value will appreciate is speculation plain and simple. The fact that the position is in the red is hardly a reason to continue speculating.

    1. Also, having a fire sale would mean they might have to hire someone to run it.

  4. OT: Did Reason cover this today?

    Apologies if I missed it:

    http://seattletimes.nwsource.c…..index.html

    U.S. Navy SEALs parachuted into Somalia under cover of darkness early Wednesday and crept up to an outdoor camp where an American woman and Danish man were being held hostage. Soon, nine kidnappers were dead and both hostages were freed.

    1. Of course, this proves America is better than libertarianism. ROOOOOOOOOOOOOOOAAAAAAAAAAAADDDDDDDDDDDDDDDDDDDDZZZZZZZZZZZZZZZZZZZZZ!!!!!!!!!!!!!!!!!!!!!!1!!!1!!!

      U-S-A! U-S-A! U-S-A! U-S-A!

    2. This is obviously a game-changer in Obama’s re-election campaign. I bet those obstructionist Republican’ts in the House can’t say “Obama is soft on terrorism.” anymore. Also, Somalia…Way to go, Ron Paul. This is what your libertarian paradise turns into you, you punk.

      1. I guess O-bombster will try to use this to justify the killer-drone war on Somalia. He just might hit a real terrorist in a crowd of slaughtered innocents. Yay, Barry in 2012 — Security and War.

      2. Ed Shultz|1.25.12 @ 7:40PM|#
        …”Also, Somalia…Way to go, Ron Paul. This is what your libertarian paradise turns into you, you punk.”

        You left out “Roads!”

        1. The poor SEALs had to fly, and then walk, to get to the camp. So, no roads.

    3. I’m willing to bet that at tomorrow’s debate Paul will get a question about that and whether he would have sent the SEALs in.

      1. “Dr. Paul, you’ve heard of the SEAL’s rescuing hostages in Somalia. How do you think those terrorists feel about your racist newsletters, and don’t you think that this event proves that your friends, the Iranians, want to do us harm?”

      2. Dr. Paul, could you tell us why you oppose rescuing sick, blond American women from bestial Muslims?

    4. Does Somalia even count as a nation in terms of international/American law?

    5. Congrats to the SEALs for pulling off the rescue and not getting the hostages killed.

      What irked me about the story was the timing of the rescue to coincide with the SOTU Address. IIRC, the new moon was the day before the actual rescue, so just maybe the strike wasn’t delayed for political reasons…

      Be interesting to see how long the U.S. knew those hostages were being held in that camp.

  5. During the fiscal year ending on June 30, 2010, the state’s 425 RDAs?urban renewal fiefdoms empowered by eminent domain and catering to political hacks

    Tim, it appears you’ve slipped behind the times. Progressives finally discovered their distaste for Eminent Domain.

    1. There is a lot of hype to this project. However, the number of jobs created is being exaggerated and from what I understand, the portions of the pipeline that already exist may rupture because of the increased pressure necessary to transport the tar sands.

      /That may well be the dumbest post in the history of the Internet.

      1. Never underestimate the stoopid on the internet. Although, that is definitely a contender.

  6. Larry Kosmont, interim city manager for the city of Montebello, did not dismiss this idea out of hand in a recent interview, but he warned about the problems associated with a real estate fire sale held in a down market by the “dysfunctional family of public agencies” that will dispose of RDA assets.

    Breathtaking honesty here.

    Yeah, there’s still this problem, the RDAs, dissolved or not still own the properties they stole– the sale process could become incredibly politiized.

    1. Open auction, highest bid. What’s so political? Oh, right. “Community needs”.

    2. Not quite RDA facilitated, but, has anyone continued up on the scam that was the “Peace Dividend” at the former El Toro Marine Corps Air Station? And it might well be RDA facilitated; certainly City of Irvine and the Irvine Corporation-facilitated. My state university operated a satellite campus there (and the photos resemble greatly the LA crapsites) but found new, lower rent at the pricey Irvine Spectrum.

  7. “They might be worth about $10 million in today’s market. I’d doubt we’ll get half of that.”

    Everything I know about economics, I learned from the Lone Biker of the Apocalypse: Price, it’s not what you say it is, it’s what the market will bear.

    1. If you insert “or might not”, you can see that this sentence makes perfect sense.

      They might, or might not, be worth about $10 million in today’s market. I’d doubt we’ll get half of that.

      Note: there is no difference between saying “might” and “might or might not”.

  8. The SF Chron has been running a lot of non-vintage whines on the subject. Occasionally, they make the mistake of being honest:
    http://www.sfgate.com/cgi-bin/…..1MOL5B.DTL
    Turns out Oaktown has been using the RDA money as a slush-fund to employ old, drunken, uncle Ed for years and now *ED MIGHT GET LAID OFF!*
    But he probably keeps his pension and medical benes.

  9. How could anything OTHER than selling it off in small lots be fair?

    If you sell it off in big lots, you price the poor out of the market. If You sell it to a developer he’s got no competition and can bid low. Plus I wouldn’t trust the RDAs as far as kickbacks are concerned.

    At least in an auction, everyone has a fair chance of getting a piece of this land. A developer can always try to outbid individuals to buy up enough lots to get a continguous chunk. he just isn’t being given favored access to it.

  10. Those “other expenses?” That was me. Sorry, guys, I left the water running after showering the coke off my hooker’s ass cheeks. My bad.

  11. It’s Working in Walker’s Wisconsin

    The unions’ battle against Walker’s reforms has rested on the argument that the changes would damage public services beyond repair. The truth, however, is that the reforms not only are saving money already; they’re doing so with little disruption to services.
    At the outset of the public-union standoff, educators had made dire predictions that Walker’s reforms would force schools to fire teachers. In February, to take one example, Madison School District Superintendent Dan Nerad predicted that 289 teachers in his district would be laid off. Walker insisted that his reforms were actually a job-retention program: by accepting small concessions in health and pension benefits, he argued, school districts would be able to spare hundreds of teachers’ jobs. The argument proved sound. So far, Nerad’s district has laid off no teachers at all, a pattern that has held in many of the state’s other large school districts. No teachers were laid off in Beloit and LaCrosse; Eau Claire saw a reduction of two teachers, while Racine and Wausau each laid off one. The Wauwatosa School District, which faced a $6.5 million shortfall, anticipated slashing 100 jobs?yet the new pension and health contributions saved them all.

    http://www.city-journal.org/20…..alker.html

    1. love love love love city-journal

      great information source and great articles

    2. “educators had made dire predictions that Walker’s reforms would force schools to fire teachers.”

      Oh, the HORROR! A teacher fired? What next, an angel shorn of wings?!

  12. Merkel asks Europe to be more like Obama’s America
    http://www.bbc.co.uk/news/business-16720460

    1. Re: El Commentariosa,

      Merkel asks Europe to be more like Obama’s America

      The German people scratch their heads wondering why would they.

  13. The wintry west extends his blast,
    And hail and rain does blaw;
    Or the stormy north sends driving forth
    The blinding sleet and snaw:
    While, tumbling brown, the burn comes down,
    And roars frae bank to brae;
    And bird and beast in covert rest,
    And pass the heartless day.

    “The sweeping blast, the sky o’ercast,”
    The joyless winter day
    Let others fear, to me more dear
    Than all the pride of May:
    The tempest’s howl, it soothes my soul,
    My griefs it seems to join;
    The leafless trees my fancy please,
    Their fate resembles mine!

    Thou Power Supreme, whose mighty scheme
    These woes of mine fulfil,
    Here firm I rest; they must be best,
    Because they are Thy will!
    Then all I want-O do Thou grant
    This one request of mine!-
    Since to enjoy Thou dost deny,
    Assist me to resign.

  14. “The RDAs have also run up nearly $30 billion in debt…”

    They owe it to themselves so it doesn’t count

  15. Larry Kosmont makes a bit of a logical fallacy. Considering that RDAs acquired much of their lands from eminent domain, they likely didn’t pay market prices to buy land and property. Don’t know why the RDAs should then expect ‘market’ prices for their property now.

    1. ^This

    2. They should have something like the homestead act. Offer the property at $1 an acre to whoever signs up first.
      It populated the midwest.

  16. Considering that RDAs acquired much of their lands from eminent domain, they likely didn’t pay market prices to buy land and property.

    Actually, no, they more than likely paid higher than market prices. They probably also paid much higher legal and administrative costs than any private business would to execute the deals.

    There is hardly any possibility that any of this land can be sold at a “profit”.

    As to the size of parcels to be sold, it should be sold in whatever deeded parcels now exist. One of the reasons these agencies are undesirable is that the last entity you want subdividing land (and doing the planning that involves) is a governmental one.

    1. You can be sure they rarely paid a market price. Either they bought from cronies (above market, natch) after giving them the nod that they would be buying the land later, or they forced a sale in court (below market, likely).

  17. Gotta just love those bought and paid for politicians.

    http://www.vpn-privacy.tk

  18. What about the damage caused by the government roadways, built on land seized through eminent domain, that the Reason Foundation has long championed?

  19. I can only speculate that all the developers all got their fees out of the projects and are still riding around in their Mercedes and Lexus’

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