When State Controller John Chiang sends his auditors into the unfathomable recesses of the Los Angeles Community Redevelopment Agency, he hopes the city officials will not engage in their usual practice of hiding bad news.
As he told one city manager in a previous fiscal examination, “you let me see everything.”
Chiang, the state’s fiscal watchdog, spoke Sunday to the Pacific Palisades Democratic Club. Like Gov. Jerry Brown, he was unrelenting in promising cuts in state services.
One of the Brown cuts would wipe out the state’s more than 350 redevelopment agencies. The agencies have the power to declare land blighted, buying it at a low price and selling it to developers, Billions of dollars are involved in these incredibly complicated transactions. Basically, the agencies borrow money to buy the land and also for the infrastructure needed for the developments. Property taxes may rise but the money is diverted to pay off the debt, depriving schools and other services of revenue. Some of proceeds from the deals are now shared with schools. But not much. Brown correctly wants much more for schools, law enforcement and other worthwhile causes.
Chiang said his auditors will try to find out how much money is actually diverted by the redevelopment agencies to schools and other uses. He said his auditors will also look at “the compensation packages of top officials.” And he wants to know how the redevelopment agencies define “blight.” The agencies notoriously engage in the practice of declaring empty land or other useful property blighted and then turning them over to developers.
I wish the controller’s auditors a lot of luck when they demand that the redevelopment agencies open their books. There are only 300 auditors, Chiang said. That means there are 50 more agencies than auditors. And some of them, like the Los Angeles CRA, are huge. The Los Angeles agency is a labyrinth of complicated deals. The bureaucrats, having seen state and city auditors come and go, will be well prepared for Chiang’s people.
I’m not even counting the political pressure. City government is a powerful lobby in Sacramento. The redevelopment agencies’ lobbying organization, the California Redevelopment Association, has banks and other financial concerns, real estate developers and lawyers as members. All have a huge financial stake in saving the redevelopment agencies. All have powerful lobbying clout. Assembly Speaker John Perez is a former member of the Los Angeles Community Redevelopment Agency board. Expect these powers to put roadblocks in the way of Chiang’s audit.
So when Chiang demands that the redevelopment agencies “show me the money,” and city officials reply “what money?” he had better have a Plan B
Why should Los Angeles borrow $350 million to tear down a perfectly good convention center building and rebuild it on another expensive downtown location?
Because if the arrangement is approved by the City Council and mayor it’s a terrific deal for Anschutz Entertainment Group, the developer and owner of Staples Center and L.A. Live, which wants to build a football stadium in the downtown complex. That would permit AEG to land a National Football League franchise and make many more millions.
It’s definitely a case of misplaced priorities. We taxpayers would be going further into debt for a stadium when the city is so broke it slashed library hours. Library supporters are pushing Measure L on the March 8 city ballot, which would provide neighborhood libraries with enough money from current city revenues to help restore library service hours to at least six days a week, purchase books and support literacy and afterschool programs.
I don’t like ballot box budgeting but Measure L seems worthwhile. At least people can vote on it, which is more than I can say for the stadium deal.
Nobody knows how the stadium deal would work since Tim Leiweke, who runs AEG here on behalf of its billionaire owner, Philip Anschutz, offered the city council little more than a salesman’s smile when he explained things to a friendly council committee. But from talking to city officials, I have a general idea.
Several years ago, the city’s Convention Center and Exhibition Authority borrowed $450 million through the sale of tax- exempt revenue bonds to build an addition to the convention center, West Hall. It’s the green building you pass on the Harbor Freeway. The city leased the convention center from the authority and is paying off the bonds with city funds. In the current budget, $48.8 million is set aside for the yearly payment of this debt, which is now down to $445 million. It will take 30 more years to repay it, city officials said.
Under the NFL stadium proposals that have been aired in the press, the $350 million bond issue for the football facility would probably be added to the convention center authority’s existing $445 million debt, bringing total indebtedness to $795 million. This would boost debt repayment, or service, payments by $25 million or possibly $30 million a year, officials said. In other words, more than $70 million a year would come from the city treasury to repay the combined debt of the convention center and the football stadium.
That would buy a lot of library books.
AEG boss Leiweke said revenue from the football stadium will repay the $350 million he wants to borrow from the city.
I talked to Controller Wendy Greuel and Councilman Paul Koretz, who is chairman of the council’s Governmental Efficiency Committee. Both said it would be great to have an NFL team back in LA but they had questions.
Greuel, the city’s fiscal watchdog, said she wanted to make sure city funds aren’t used for the stadium. She also wanted to know details of the stadium financing and where the replacement for the demolished West Hall will be built. “And what about the bond?” she said. “I have said I will continue to look at it to see that it is the best deal for L.A.”
Koretz said he is concerned about the borrowing in view of the city’s bad financial outlook. He said he was also “concerned how much bonding capacity the city actually has and how the market responds to the $350 million in bonds.”
As Koretz told me, “There are a lot of questions, not a lot of clear answers.”
If redevelopment agencies were to be eliminated, as Governor Jerry Brown has proposed in his budget, California’s public schools would receive an extra $1 billion a year.
That administration estimate is an illustration of the huge amount of property tax dollars being wasted by these agencies—created to eliminate slums but now used mostly to subsidize land developers. Brown wants this money to be shifted to the schools and other important services, such as law enforcement.
In other areas, the Brown budget would cause widespread misery. Medi-Cal, which provides medical are for the poor, would be cut by $1.7 million. The Medi-Cal cuts would limit doctors’ visits to 10 a year and payments for prescription drugs would be sharply cut, among other reductions. The University of California and California State University budgets would be cut by $500 million each. The CalWorks program, which provides funds to welfare recipients getting back into the work force, would be reduced by $1.5 million.
That leaves the proposal to eliminate the hundreds of local redevelopment agencies just about the only bright spot.
Redevelopment agencies acquire land at a low price, either through purchase or eminent domain. They sell the land to developers at bargain basement rates and then float bonds to pay for infrastructure needed to develop the land. Property values often rise in a redevelopment zone, as do property tax revenues. But most of the tax increase goes to pay off the bonds issued by the redevelopment agency. This amounts to a subsidy for developers.
Proponents say the new developments raise property values and tax revenues tax revenues and create jobs. But the Brown team convincingly argues that property values would rise without redevelopment.
`“Over time, most of the increase in value of all of the properties in the redevelopment area has been generally the result of inflation in the economy and of property values, “ the budget document said.
Saddled with the need to pay off bonds, the redevelopment agencies get most of the property tax money. That money should go to schools, law enforcement and other services that help the public.
The administration proposal would provide an immediate shot of additional revenue for Medi-Cal, the courts and other local services. By the time the program is fully underway in 2012, schools would get an additional $1 billion a year; counties $290 million; cities $490 million and districts that provide various other services $100 million.
Mayor Antonio Villaraigosa and redevelopment officials all over the state are opposed. There will be a fierce battle in the legislature. But, hopefully, in the end advocates for public schools and their students will be able to defeat the land developers and their allies.
Among the good news coming out of Sacramento this week was the Sacramento Bee’s report that Gov. Jerry Brown wants to eliminate the hundreds of redevelopment agencies that suck money from the schools for the benefit of land developers.
Redevelopment is a huge boondoggle. I learned that in the ‘90s from my friend and news source, the late Norton Halper, who used to drag me over to the Hollywood Denny’s and force-feed me the redevelopment story. Norton was the greatest of L.A.’s city hall gadflies, badly missed today.
Redevelopment was conceived as a way of clearing so- called slums. Too bad Norton is not alive. He would have loved visiting Chinatown, where the Los Angeles Community Redevelopment Agency has actually created slums. Two old, once-popular restaurants, Little Joe’s and the Velvet Turtle, have long sat there, rotting and abandoned, while the CRA and the developers are engaged in an incomprehensible dispute that will certainly cost the taxpayers money.
City redevelopment agencies acquire such land either through purchase or condemnation. They do this by labeling the land “blighted.” Developers then can buy the land cheap from the redevelopment agencies . The redevelopment agencies float bonds to pay for streets, sewers and other infrastructure. If the land increases in value, the increased property taxes pay off the bonds. If the deal doesn’t work out—as so many don’t—then the redevelopment agency and the taxpayers are on the hook. The agencies claim to create jobs but can’t prove how many.
The most famous example of a phony redevelopment deal was in the City of Industry. The city annexed huge amounts of largely rural land , declared it blighted and made it a “redevelopment area.” Hotels, warehouses, office buildings and a possible National Football League stadium are the beneficiaries. The losers are the impoverished school districts around Industry, deprived of property tax revenue that is being used to pay off the bonds. In L.A., Hollywood was declared blighted, and developers there benefited from huge undeserved redevelopment subsidies. The fact is, Hollywood, being on a subway line, would have redeveloped by itself.
Governor Brown is on the right track. Close down all the redevelopment agencies. Let redevelopment beneficiaries like billionaire Phillip Anschutz, who owns downtown’s LA Live and Staples Center, finance their own projects. If we end the subsidies, we can put the money to better use—the schools.