Redevelopment

1) Do Redevelopment Agencies Have too Much Debt?
  • Voter approval - California voters approved a constitutional amendment in 1952 that added a requirement that a redevelopment agency must have debt in order to receive property tax revenue.  No other form of government has this unusual and arcane requirement.
  • No defaults - Buyers of redevelopment bonds have never lost $1 of their investment.   Despite the loss of property dollars due to Proposition 13, earthquakes and the most secure recession since the 1930's redevelopment agencies have continued to pay their debts.  During the recession, the state had more problems paying its debt obligations than did redevelopment agencies.  According to Mr. Ken Kurtz of the rating agency Moody's Investor's Services, "Redevelopment bonds pose no risk or financial liability to the fiscal health of city, country or state government."
  • Issuance of redevelopment bonds is quite modest.  Over the past four years, only 2.2 percent of all new state and local bond issues can be attributable to redevelopment bonds.
  • The principal amount of all outstanding redevelopment property tax supported bonds is $7.9 billion.  This is less than half of the State's outstanding principal of $18.2 billion of general obligation debt and lease-revenue bonds as of June 30, 1996.

2) Is Redevelopment Just Corporate Welfare?

  • No.  The purpose of redevelopment agencies is to eliminate blight and create jobs.
  • Excluding debt service payments, redevelopment agencies spend money for:
    • Public infrastructure (sidewalks, streets, parks, etc.) - 40% of expenditures.
    • Affordable housing rehabilitation or construction - 20% of expenditures.
    • Administrative costs - 14% of expenditures
    • Design, architecture and engineering costs - 6% of expenditures.
    • Real estate and state-mandated relocation costs - 6% of expenditures and
    • A variety of programs, such as graffiti removal, commercial rehabilitation loans: and public facilities like police stations, fire stations, and community centers - 14% of expenditures.
  • Between 1986 and 1996, redevelopment agencies assisted the private sector to:
    • Create 301,000 jobs for California residents located in the most distressed areas of the state.
    • Construct 65,221,000 sf of industrial buildings.
    • Rehabilitate 6,568,000 sf of industrial building.
    • Construct 100,783,000 sf of commercial buildings.
    • Rehabilitate 22,905,000 sf of commercial buildings.

3) Does redevelopment assist only new development in cow pastures?

  • NO!  This is an old problem that the Legislature has already solved.  There are examples of such development in the past, but this practice was stopped by two major redevelopment reform laws:
    • IN 1984, the legislature added 33320.1 to the Health & Safety Code to require that 80 percent of the land within a project area be previously developed for some urban use.   No more that 20 percent of a project area could be vacant land; and
    • In 1993, AB 1290 (Isenberg) prohibited redevelopment agencies from assisting retail developers on vacant land that is greater than 5 acres.  Further, agencies cannot assist auto dealerships on vacant land of any size.

4) Should there be a vote on redevelopment bonds similar to general obligation bonds?

  • Unlike general obligation bonds, redevelopment tax allocation bonds do not require an increase in the property tax rate to repay principal and interest.
  • Unlike general obligation bonds, neither the redevelopment agency or the city is required to pledge their "full faith and credit" to repay the bond debt.
  • Requiring a citywide or countywide election for bonds that are supported solely by property taxes generated within a smaller project area is unfair - those without a direct interest in the project area will control its funding and its future.  This is especially egregious in large cities and counties where voters will be asked to approve bonds for an area far removed from their residence.  Voters will often have little knowledge about the project area or interest in solving its problems.
  • No agency has ever defaulted in the more that 45 year history of tax increment financing.
  • Unlike general obligation bonds for school or parks where specific projects can be identified, only very general uses of redevelopment bonds are known at the time of the issuance because prospective developers, businesses, tenants, employers, etc., will not enter into serious negotiations until they know that financing is secure.  It's a real-life "Catch 22" situation.  Voters may not approve the bonds until the details of the final project are known, and the parties to the final project will not commit until they know that the agency bonds will be approved and bond proceeds for project funding will be available

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