Sunday, February 17, 2013

CA's Experiment with Redevelopment Agencies

California Governor Jerry Brown began deliberations with the Legislature over dissolving the state’s 400 redevelopment agencies in the winter of 2011, and by June of that year they finalized the legislation. The abrupt demise of California’s massive multi-billion dollar local planning instrument has left many cities with administrative gaps in their economic development initiatives, and nearly $2 billion remain in limbo while local governments struggle to keep funds in their jurisdiction. 

Sacramento contests that local redevelopment agencies were choking off much-needed revenue for state services with little benefit to the state at large, while local governments defended them as powerful tools for revitalizing urban centers and propagating ‘smart urbanism’. The move has pitted competing interests of public agencies against each other in a debate over who is best suited to take on their planning responsibilities.

What is a Redevelopment Project Area?

A redevelopment area is a special development district similar to enterprise zones, incremental tax finance districts, cultural districts and others, with several significant characteristics that set them apart. California redevelopment areas were designated by local municipal governments – typically a city or town, but sometimes counties as well – and they allowed the local government to capture a greater share of property taxes while reducing the private cost burden of new developments.

A dedicated semi-autonomous redevelopment agency (RDA, or RA) oversaw the administration of new developments in that area, including infrastructure enhancements, new construction, public spaces (including privately-owned public spaces as required by local codes), disaster preparedness, and business development and special financing. The redevelopment agency did not have full discretion over the jurisdiction, but shared administrative authority with other relevant agencies and coordinated stakeholder negotiations, community outreach and planning, permitting and review, and public services. 

After an area was declared a redevelopment project zone, the level of tax revenue collected by the state and other local agencies would be fixed for an extended period, usually between 30 and 50 years. All of the growth in property tax revenue from that point on would return to the local redevelopment agency with jurisdiction. As of June 2008, the total assessed valuation of land within redevelopment project areas was over $674 billion and combined revenues for FY2007-08 exceeded $10 billion.

An area placed under the jurisdiction of an RDA must have suffered from “blight”. Blight is generally defined as a state of disrepair or decrepitude, and is typically the product of larger economic trends such as deindustrialization, depopulation, abandonment, or crime. However, there remain no uniform criteria of “blight” among municipalities in California [1]. There is some qualitative language set out by local agencies, but it can include anything that is perceived by the community to be a burden on their welfare and value of assets. For instance, an abandoned half-burned industrial warehouse with recurring violent crimes and rats infected with contagious diseases near a school and struggling urban commercial corridor would undoubtedly be designated as urban blight. The property would present public health risks, safety concerns, unsightly grounds, and possibly pollution of nearby land – all of which would likely contribute to lower demand for land and property, and further deflate prices in the local land market.

Designations of blight are not always so clear. An undeveloped, untended parcel of land surrounded by new luxury apartments may also be considered “blight” if the community perceives it to be a burden on the price of their own properties.

The 400-plus redevelopment agencies comprised the California Redevelopment Association. Formed in 1976 the CRA functioned as a collective lobbying organization and statewide governing body that oversaw and coordinated the activities of its member agencies.

A (Very) Short History of California Redevelopment Agencies

Redevelopment agencies were first authorized in 1945 with the passage of the California Community Redevelopment Act, which allowed cities and counties to establish redevelopment agencies in order to tackle urban blight. State and local governments had all but halted their local development efforts during the Second World War as the federal government focused on streamlining industrial production across the United States. As resources and soldiers began to return home California, like many states, pressed for a rapid transformation of local markets in order to accommodate booming populations and to take advantage of the enormous opportunities for growth.

In the early 1950s the state legislature enacted several new policies to facilitate economic development and urban sprawl, including reforms to the California tax code that allowed for tax increment financing (leveraging future gains in taxes to finance current improvements). Redevelopment agencies were then authorized to use tax increments in order to make projects effectively self-sustaining. In 1976 the laws governing local redevelopment agencies were amended to require them to dedicate 20 of tax increment finances for affordable housing purposes.

By 1978 the California housing market had become remarkably unstable, in large part due to the frequent adjustment of property tax rates by state officials. Proposition 13, a public initiative to amend the state constitution, limited the tax rate for real estate by assessing properties at their 1975 values and restricted annual increases in the assessed value of real property to 2 percent per year (except for when the property exchanged ownership, at which point it’s base rate would be reassessed at the value that year) [2]. As a result, growth in California’s housing and real property values have significantly outpaced overall growth in property tax revenue.

This amendment did not immediately affect the success the redevelopment agencies, but it created an exceptional divergence of their benefits to the state and local governments. The tax levels of the properties within redevelopment areas could be frozen for the state and other local jurisdictions, but then properties could be developed with direct investments in infrastructure or projects themselves. When the properties were later sold with the additional benefits and amenities created by the special district, the inflated tax revenues generated by reassessed real estate values would be captured by the local redevelopment agency without additional state taxes. The redevelopment agencies chartered by municipal governments could then reinvest those finances into new projects or use them to repay public bonds. While redevelopment agencies were generally required by law to use tax increment revenues only within their jurisdictions or for administrative costs, local governments could leverage RDA assets as collateral in loans or other finances under certain circumstances.

The Case of San Francisco’s Redevelopment Agency

The San Francisco Redevelopment Agency (SFRA) was created in 1948 to oversee San Francisco’s redevelopment project area authorized several years earlier. By 2011, SFRA had become an established and integral agency in local administration with nearly 100 dedicated full-time employees and jurisdiction over 11 percent of the total land owned by the City and County.

The Agency's total budget for fiscal year 2011-2012 totaled $286.1 million, of which nearly $66.7 million was supported by non-tax increment revenue sources (land sale proceeds, leases, grants, developer contributions) [3].  The Agency proposed funding the difference between its work program and the non-tax increment revenue with $136.0 million in gross tax increment and $83.5 million from the sale of tax allocation bonds, i.e. bonds that would be repaid with tax increment revenues. The budget for FY2011-12 included a total investment in affordable housing of $56 million in various local programs, approximately 40% of its new work program budget. Of that total, $10.0 million represents the federally funded HOPWA program [4]. The agency further budgeted $38.0 million for public infrastructure and improvements, approximately $1.6 million for business improvement incentives and other inexpensive financial assistance, and $20 million in staffing and general administrative expenses.

The San Francisco Board of Supervisors – the City and County’s top legislative body – was responsible for approving redevelopment area declarations proposed by executive agencies and commissions. The Agency's primary focus for fiscal year 2011-12 as listed in their annual budget was (1) the creation of housing for low-and moderate-income households, (2) the implementation of the Transbay and Bayview Hunters Point project areas, (3) the on-going revitalization of the South of Market Project Area through beautification efforts, business development and affordable housing (4) the development of market- rate and affordable housing units as part of the Hunters Point Shipyard's Phase I redevelopment plan and the continued negotiation of the Phase II integrated development of the Shipyard and the Candlestick Point area, and (5) Initiating the establishment of a Mid-Market Project Area. The Agency also supported several ongoing revitalization and business development efforts including local job training and support of small businesses.

The SFRA was further responsible for administering or overseeing general services within its project areas, though other agencies such as Public Works, San Francisco Public Utilities Commission, emergency services, the Mayor’s Office of Housing, special district liaisons, and SFMTA coordinated operations. San Francisco is notably unique in its administration because it functions as both a city and a county (the geographic boundaries are the same), and so public services that are typically divided between city/town and county are integrated under the same leadership. This seems to have encouraged greater coordination among SFRA and other agencies than is seen in other jurisdictions.

To better understand the role of SFRA within CCSF administration, and the role of RDAs in California, consider two projects with notably different community interests: the Bayview Hunter’s Point Area (BVHP) and the Transbay Redevelopment Project Area. The Bayview Hunters Point Redevelopment Plan (BVHP Plan) provided the implementation tools to carry out many of the goals of the Bayview Hunters Point Community Revitalization Concept Plan collaboratively designed by community groups, CCSF agencies and public-private partnerships. At core of this blighted area is the 500-acre Hunters Point Shipyard located on the prominent peninsula along San Francisco's southeastern waterfront between the City's Financial District and San Francisco International Airport. Candlestick Park football stadium is immediately to the southwest while the Port of San Francisco and the Mission Bay project are immediately north of the Shipyard.

The Shipyard was included on the Department of Defense's 1991 Base Realignment and Closure (BRAC) list. In 1993, the San Francisco Board of Supervisors designated the Shipyard as a Redevelopment Survey Area. Congress then authorized the Department of Defense to transfer the Shipyard to the City under special terms and in 1997, and after an extensive multi-year community planning effort, the Board of Supervisors adopted the Hunters Point Naval Shipyard Redevelopment Plan. The Shipyard was divided by the Navy into six primary parcels according to the required levels and procedures for hazardous materials remediation [5]. During the submarine nuclear weapons testing in the Pacific in the 1950s and 1960s, ships that were not fully destroyed were hauled back to the Shipyard and rinsed down to reduce their radioactivity. This process, combined with the excess toxicity created by regular Navy operations, qualified the shipyard and its surrounding neighborhoods to be designated a federal superfund site. Following environmental remediation, SFRA oversaw efforts to attract new businesses and jobs to the neighborhood, develop access to transit, support existing cultural organizations and extend public services to low-income residents.

Conversely, the Transbay Redevelopment Project Area was created in 2005 with a focus on city and regional economic development. The Project Area is approximately 40 acres in size and located south of San Francisco´s Financial District along a major commercial corridor. The Project Area is roughly bounded by Mission Street in the north, Main Street to the east, Folsom Street in the south and Second Street in the west. The Project Area is currently composed of transportation-related infrastructure, a large number of vacant parcels, and commercial uses. [6] 

The area had already been identified by local planners as a desirable location to construct a new Transbay Terminal, a massive transit hub that would connect the Bay Area’s two major regional railways to San Francisco’s metro system and the anticipated high-speed rail network. By designating this area a redevelopment zone, the City authorized the San Francisco Redevelopment Agency to oversee and coordinate revitalization efforts across the zone in order to facilitate the work of the Transbay Joint Powers Authority.

The redevelopment program for the project area consisted of various projects and programs designed to alleviate “adverse conditions” in the surrounding neighborhoods. The concept plan included high-density, transit-oriented residential development along Folsom Street and between and Beale Streets, as well as office and hotel space surrounding the new terminal. At the same time, the concept plan attempted to balance density of new developments with fewer, taller towers far enough apart to allow sunlight and open space in the new neighborhood, and controls to ensure that ground-floor space is activated for other commercial use. The concept plan also incorporated significant new public improvements, including a major new public park, new pedestrian-oriented alleyways and widened sidewalks. [7]

The program was planned to be funded with approximately $430 million (in constant FY 2004/05 dollars) that the Project Area is expected to generate in net tax increment over the life of the Transbay Redevelopment Project Area. 

Conflicts of Interest in Economic Development

Sacramento faced a budget deficit of more than $25 billion heading into its 2011-2012 fiscal year out of nearly $90 billion in total expenses [8].  Proposition 13 prevented the state from capturing greater tax revenues from the surprisingly resilient property values statewide. The public education system was facing an ongoing lawsuit for falling below constitutionally-mandated levels of funding, but remained the largest block of expenditures by far. The state prison system had received a federal injunction for inmate rights’ abuses and overpopulation (reaching 175% capacity with 143,000 inmates, down from 173,000 in 2006) [9]. The capital struggled to manage these expenses as revenues continued to fall in the midst of the recession, and desperately searched for opportunities to reduce its costs.

Former California re-elect Jerry Brown thus began a statewide process of “realignment”, in which the structure and administration of public services would be rearranged among state and local agencies. Through these reforms Sacramento intended to significantly reduce its financial risks and liabilities while shifting services and other state-held responsibilities to local governments. Among these liabilities, the administration identified local redevelopment agencies as a substantial drain on state’s resources (in that they withheld potential tax revenues from state and county finances) and slated the entire decades-long state program for dissolution. Localities protested vehemently, and many cities including Los Angeles, San Diego and San Francisco began expediting their approvals for new redevelopment zones in order to secure financing.

The state alleged that RDAs had become corrupt, and were exhausting vital state resources and abusing their mandates. The governor’s office claimed that RDAs were costing California counties and state agencies up to $1.7 billion in potential revenues lost to new projects during FY2011-12 alone.  While many of the allegations were hyperbolic and political, they were not entirely unjustified. In some cases municipalities had declared redevelopment zones in areas with minimal blight, and even in new areas that had not been developed at all. In the case of Emeryville, the city used its redevelopment agency to finance the construction of a new stadium on open land. The City of Vernon used its redevelopment agency in tandem with special enterprise zones to create an effective tax haven for manufacturing and heavy industries. The city, which lacks any parks and whose resident population totaled 112 in 2010, was nearly disincorporated in 2011 after several serious charges of corruption and fraud came to light.

The core of this debate warrants special attention. The state argued that RDAs were capturing revenues that should go to other state and county priorities during economic hardship; that they were creating a structural deficit in the state’s budget; and that allowing local jurisdictions to determine redevelopment areas at the “burden” of the state was an unacceptable and uncontrolled liability.

Conversely, cities defended RDAs as critical planning tools that allowed for high-impact, concentrated and sustained interventions in blighted areas. They contended that RDAs effectively improved the property value and attraction of key areas, drew in new businesses and developers, improved the coordination of public, private and civil resources in host cities, and expedited economic development in urban centers.

The central question of this argument is about the counterfactual: would the growth and other improvements seen in a redevelopment district occur independently of RDA interventions? Additionally, each level of government is interested in its respective scope of responsibility. Cities are concerned with whether or not the resources dedicated to an RDA produce even greater benefits to its population, local economy and administration. Attracting business or development financing from elsewhere in the state is still viewed as a positive result. Sacramento is more concerned with whether RDAs are producing net benefits to the state at-large or if they are simply shuffling existing resources without increased returns.
There was no simple and standardized way to reliably measure and evaluate the state’s redevelopment program since RDAs were used for various priorities, and the governor’s administration took the shortage of reliable data as evidence that the program was not satisfying statewide priorities. 


Across the state, cities and counties had loaned more than $4 billion to their redevelopment agencies over the past several decades that had not yet been repaid. However, according to the law governing how agencies would be dissolved, local governments were unsure if they could recover that money. An additional $2 billion in funds for affordable housing were trapped in the state’s administrative review process. The League of California Cities filed a procedural grievance against the state on behalf of the protesting cities and redevelopment agencies, but in December 2011 the California Supreme Court upheld the decision to dissolve the agencies. The Court and legislature have worked to clarify how dedicated funds and other loans might be transferred to other local agencies, but they have encountered persistent legal complications. The state senate is currently reviewing legislation to expand the scope of authority of the state’s locally-administered infrastructure finance districts (IFDs) as a simpler alternative to redevelopment agencies, and several cities have already petitioned for new IFD zoning while transferring RDA personnel to appropriate agencies in anticipation.

On June 27, 2012, the California Legislature passed and the Governor signed AB 1484, a bill making technical and substantive changes to AB 26, the dissolution bill that was found largely constitutional by the Supreme Court on December 29, 2011.  In response to the requirements of AB 26 and AB 1484, the City and County of San Francisco has created the Office of Community Investment and Infrastructure as the Successor Agency to the San Francisco Redevelopment Agency (“Successor Agency”).  Pursuant to state and local legislation, the Successor Agency is governed by two bodies, the Oversight Board of the Successor Agency and the Commission on Community Investment and Infrastructure. Find our more through the sfgov webportal.

[1] State of California. Office of the State Controller. Selected Redevelopment Agencies: Analysis of Administrative, Financial and Reporting Practices. By John Chiang. Sacramento, CA: n.p., 2011. Web.

[2] Since 1911 California has allowed direct initiatives to be proposed and voted upon by the public, thus circumventing the regular legislative process. See more on the California initiative process at the PPIC website.

[3] Unlike the federal government, California’s fiscal year begins on July 1 of each year.

[4] State of California. San Francisco Redevelopment Agency. Fiscal Year 2011/12 Agency Budget. San Francisco Redevelopment Agency, 19 July 2011. Web. .

[5] Bayview Hunter’s Point Project Area agency webpage

[6] Transbay Redevelopment Project Area agency webpage

[7] ibid.

[8] State of California. Joint Legislative Budget Committee. Legislative Analyst’s Office. The 2011-12 Budget (2011). More information can be found through the CA-LOA web portal.

[9] See the ruling of the US Supreme Court in Brown v. Plata (2010).

[10] Figure included in the LAO 2011-2012 budget report summary.

[11] Howard, John. "The next New Thing: Infrastructure Financing Districts Get Close Look." Capitol Weekly. 21 July 2011. Web. 21 June 2012. .

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