Almanac

Viewpoint - March 23, 2011

Guest opinion: City defends use of redevelopment agencies

by Glen Rojas

There is another side to redevelopment that is absent in Jennifer Bestor's Guest Opinion last week on redevelopment agencies (RDAs).

The article includes a lot of accurate data, but the application of the data is based on conjecture. The conclusion that schools have been shortchanged over the years through loss of revenue funneled into redevelopment efforts relies on an assumption that property values would have been equal to the current assessed rolls without years of redevelopment efforts.

Clearly the state did not believe that "its pockets were being picked" when it created redevelopment agencies to, over the years, provide value to otherwise blighted areas. Redevelopment was intended to be a long-term investment in the state of California, and it works.

A conclusion anchored by only current year data does not allow consideration of the long-term benefits that have been realized by redevelopment in Menlo Park's Las Pulgas Community Development Agency project area.

Redevelopment agencies were formed to issue debt to fund major capital improvement projects, which in turn create the value necessary to increase property tax revenues increment to pay off the debt.

The redevelopment that has occurred in Menlo Park — such as the visible improvements along Willow Road east of U.S. 101 since 1981 — has added value to the tax rolls, which has been used to pay debt service on the bonds and provide for other improvements and services that make the community a better place to live and work. One can only speculate about what the area's current property tax rolls would look like if redevelopment had not occurred.

After assuming that the property tax would be $11 million or more under any circumstances, the article's graphic analysis tries to compare how the annual property tax is currently allocated (bottom portion of the diagram) to how it would be allocated if the agency were eliminated (top portion).

The agency's budget is incorporated into the city's annual budgeting process. For 2010-11, tax increment revenue of $10.6 million is expected to be spent on total debt service ($4.9 million); legally required funding of housing activities ($1.2 million); approximately $3 million for pass-through payments to other agencies (including schools); $80,000 for county tax collection administration fees; $70,000 for shuttle bus programs; and yes, that leaves $1.35 million which the city can use to fund additional public safety services ($1 million) and administrative overhead.

That leaves very little to sock away for future redevelopment projects, which can be extraordinarily expensive and take years of planning. It should be noted that if the proposal to eliminate redevelopment agencies succeeds, the debt service will still need to be paid, so that the actual amounts of property tax available to agencies would be much less than the amounts shown in the top portion of the diagram.

With continuous raids on the RDA by the state to fund schools (the most recent cost the agency $3.4 million in 2009-10 and $710,000 in the current fiscal year), it is very difficult to plan for the long-term redevelopment needs. Proposition 22 reaffirmed that California redevelopment agencies are indeed on-going governmental concerns, with the ability to procure credit and debt financing, and continue to plan and invest in redevelopment project areas.

The city understands the financial crisis that exists at the state level, but to divert funds from RDAs to fix the problem only shifts the burden closer to the taxpayer — at the local level.

Elimination of RDAs cuts off long-term plans at the knees, creates enormous confusion in municipal credit markets, further shakes the credibility of the state as a partner in local government efforts, and ignores the specific needs of residents and businesses in these areas.

Redevelopment has created a lot of "wins" for the state. Let's not dismantle this working mechanism that makes many areas of California desirable places to work and do business.

Glen Rojas is city manager of Menlo Park.

What is a redevelopment agency?

An RDA must establish a plan that in many respects is similar to a constitution or charter. It sets forth the basic goals, powers and limitations of the agency, including its time span — typically several decades. The RDA is required to provide an updated redevelopment implementation plan every five years. The Menlo Park agency's most recent plan, based on extensive community involvement, covers last fiscal year through June 30, 2014, and can be found on the city's website, MenloPark.org. The plan details the agency's service goals and objectives for housing and non-housing activities, with an additional emphasis on business development.

Comments

Posted by Jennifer Bestor, a resident of Menlo Park: Allied Arts/Stanford Park
on Mar 24, 2011 at 11:52 am

Jennifer Bestor is a registered user.

Glen, thanks for engaging on this. In tough times like these people need to know where tax revenues are coming from (or not coming from). The more unaware we are as voters, the poorer decisions we make.

You make three arguments in your response:
(1) the increase in the assessment rolls within the RDA is solely due to the activities of the RDA,
(2) there are not and never will ever be excess funds in the RDA that could backfill the now extensive out-of-pocket costs local schools are bearing, and
(3) the state was wise and all-knowing in allowing the creation of RDAs, yet is short-sighted and greedy in current attempts to control them.

On Assessment Increase, some increase in the assessment rolls must be the result of RDA activities. But I categorically reject the idea that all are. What has happened since 1981?
* 140% national inflation
* a 10X run up in state-wide property values (MP property valued at $100,000 in 1981 sells for $1M today)
* sale of a great number of properties with artificial 1975-base year Prop 13 tax bases, and
* the redistricting of the Willows from Ravenswood into MPCSD
Without those regional effects, no efforts on the part of the RDA could have increased the tax basis ten times, from $97M to $1.1B.

I'm not alone in my skepticism.

The independent PPIC's 1998 report, "Subsidizing Redevelopment in California," (Google Docs) concludes: "After correcting for local real estate trends, the author finds that redevelopment projects do not increase property values by enough to account for the tax increment revenues they receive. Overall, the agencies stimulated enough growth to cover just above half of those tax revenues. The rest resulted from local trends and would have gone to other jurisdictions in the absence of redevelopment."

They would seem to split the difference between us – in which case Sequoia High District kids are subsidizing the RDA to tune of $600,000 a year; MPCSD students by $240,000 a year; while the State is backfilling Redwood City by $60,000 and Ravenswood by $1.38 million.

Frankly, I'm a little reluctant to agree to 50% since a 1985-2010 secured assessment rolls comparison shows that, while the RDA grew faster than Menlo Park as a whole during that period (7.9X vs. 5.8X), as soon as we exclude the Sun/Facebook (TRA 8-080) property from both sides of the equation leaves us looking at 5.7X vs. 5.6X. But perhaps you would argue that the Sun campus was the crown jewel in the redevelopment effort, requiring RDA infrastructure investments that would have otherwise been impossible? I'd like to hear that data.

Focusing on the other two major blocks, the Willow wedge and Belle Haven, I can now see why the Willows area is seen as a cash cow for Belle Haven improvements – that wedge (TRA 8-108) only increased 4.2X vs. 6.1X for Belle Haven (TRA 8-092).

Of course, Pacific Parc Townhouses were still considered part of 8-092 in 2010 (the families that sued to get into MPCSD). Since their complex is paying $152K a year -- $6K/home – which normally would mean almost $50K to the underlying school district – that may boost the 8-108 area toward par.

But it illustrates how RDA has the right to put up housing on previously commercial property, with no responsibility for funding the schools that have to educate those children. (The new Heritage Oaks, wedged between 101 and Willow, is another such example – a previously commercial property, now townhomes, paying incremental property taxes of $82K+ into the RDA -- none of which goes to MPCSD [normally $27K would], but which hands MPCSD three kids to educate at $21K more out of the pool.)

One wonders how the City would view the RDA if it were a separate entity. Would it be so keen if it couldn't backfill public safety activities? Or is this seen as a hard area to police, but an easy one to educate?

On the next subject, Empty Pockets, Glen, you accuse me of taking a snapshot view of the RDA, turn around and -- take a snapshot view!

The RDA has 20 of its 50 years left to run. Let's look back 20 years: its tax increment revenues were $2,128,095 – 20% of what they are today. What do you see happening over the next 20 years? Simple turnover at current underlying market values should be good for at least a 2X run up.

So neither of us is talking about the discretionary $1M that the City has laid claim to for "additional public safety services" after the costs of shuttle bus service, administrative services, housing activities, and, of course, the $5M a year of debt service on the latest bonds. We're talking about the millions a year that are still unrealized gains.

We both know there have been at least eight series of bonds – each larger than the last -- issued by the RDA (1982, 1985, 1988, 1992 [$25M], 1996 [$32M], 2000 [$44M], 2006 [$75M]). Does the City wait for the next real-estate boom-let, then issue tranche #9, the debt service on which will allow the then-manager to claim that, once again, there's no money to fund the schools?

This is behaving like a guy who maxes out his credit cards on charitable donations, then expects his roommates to cover the rent because he's such a saint.

Before that, I think it is incumbent upon the City Council to sit down with all underlying agencies and have an honest discussion about what should be done with additional tax increments.

And, third, the state view of redevelopment. Review of in-depth analyses suggests that what began as a minor tool after WWII, was still seen as a state revenue-neutral growth mechanism in 1984 – though cracks were appearing as project sizes doubled and terms stretched out by decades – and then emerged by the early 90's as a significant drain on state coffers. (State Treasurer Jesse Unruh's 1984 "Use of Redevelopment and Tax Increment Financing by Cities and Counties" and the PPIC's aforementioned 1998 "Subsidizing Redevelopment in California," aren't bad places to start – both online.)

Did the state see the light in the tunnel? Yes. Did it realize it realize it was a headlight? No. Was it a train? Yes. A diesel freight with 200 box cars.

They say that a rising tide floats all boats. Well, we're in a falling tide and it's exposing a lot of barnacles. One is that, at this point in the RDA saga, school kids are subsidizing redevelopment. There is no such thing as a free lunch – and I think our elected and appointed officials owe it to the citizenry to be clear about the extent, source, and potential alternatives for that lunch.


Posted by Roxie Rorapaugh, a resident of Menlo Park: University Heights
on Mar 24, 2011 at 1:10 pm

Jennifer Bestor's post is right on as well as informative. Thank you Jennifer for doing the research, noting the facts that can be documented and pointing out Mr. Rojas' assumptions and leaps of logic that he needs to clarify at the least. Your conclusions are logical and well articulated.

The RDA Emperor has no clothes !


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