Ppd 619 group_1_final_paper

CRA/LA

Redevelopment

Transition

USC Sol Price School of Public Policy

PPD 619: Smart Growth & Urban Sprawl

Group 1: Joy-Alonica Bautista, Jeff Khau,

Marisol Maciel, & Thomas Wong

Source: http://la.curbed.com/tags/budget

CRA/LA Redevelopment Transition

• • •

Background Context

� 1

Executive Summary

With the California Supreme Court decision to end Redevelopment recently, many local

governments, as well as the state, are scrambling through the fog to determine exactly how

the operations and obligations of the 400 Redevelopment agencies in the state will be

winding down. A question on the minds of many local officials should also be what tools

local governments can use to continue to spur local economic development in their

jurisdictions.

While Los Angeles is rather unique, given its size and other factors, the city can still take

lessons from other cities throughout the country to begin developing a game plan for

continuing its economic development efforts. We examine specific cities (Alhambra, CA;

Phoenix, AZ; Chicago, IL; and New York, NY) as models Los Angeles could look to moving

economic development functions from its Redevelopment Agency to the City.

Recommendations we suggest include:

� Implement Limited Transition Ordinance to incorporate language that addresses Municipal Code references related to redevelopment in offering a smoother transition between CRA/LA and City of LA’s Planning Department

� Create a streamlined and focused process for developers and businesses to do work in the City and establish long term relationships with the City

� Offer an array of commercial and tax incentives, tax rebates/credits in addition to re-visiting traditional resources such as Community Development Block Grants, Section 108 loans, tax- exempt bond financing, and New Market Tax Credits


• • •

Background Context

� 2

Background Context

For decades, Redevelopment Agencies have been a primary tool for cities to spur

development and revitalization of neighborhoods and to promote economic development

in California. Redevelopment agencies basically worked by taking a portion of future

property tax revenue increases (also known as tax increment financing), identifying blight

in a project area, and redeveloping that area to finance and support current projects.

Governor Jerry Brown and the State Legislature, seeking to plug the state’s large structural

budget deficit, identified nearly $2 billion dollars in funds it could take away from local

redevelopment agencies. The state passed two bills, ABX1-26 and ABX1-27. The former

called for the elimination of the agencies and the latter allowed them to continue operating

if they paid back a requisite amount of their property tax revenue. After cities challenged

the legislation, the State Supreme Court ultimately decided that the first legislation could

stand, while the second could not. This past February, California’s 400 redevelopment

agencies were essentially eliminated.

The process of transitioning to a post-Redevelopment climate in California will continue for

the forseeable future, with much still to sort out. As the state and local governments

determine how to wind down the obligations and operations of redevelopment agencies,

communities have to begin to reimagine how they will spur economic development

without the tools they once had through Redevelopment. Some cities in California have

already begun to think proactively about what new tools they may be able to use. The City

of Los Angeles can and should learn from these other cities and also look to cities in other

states, which may provide good examples of non tax-increment financing options to

promote economic development.

Case Study for California Cities

The aftermath of the elimination of redevelopment left cities to develop a resolution to

either take over the obligations of redevelopment agencies through a “successor agency” or


• • •

Case Study for California Cities � 3

to opt out and have another entity form a “local designated authority”. Most cities such as

San Francisco, San Diego, Ventura and Long Beach have decided to be the successor agency

while about a dozen have chosen to opt out: one of them being City of Los Angelesi. This

creates a unique challenge for City of Los Angeles because the redevelopment structure is a

separate entity from the City’s duties, which includes land use restrictions and zoning.

As cities across the state are contemplating how they can spur economic and real estate

development, City of Alhambra has been at the forefront of devising a plan that might be

helpful to City of Los Angeles.

Alhambra, California

Figure 1 City of Alhambra highlighted in red.

The City of Alhambra, as

a smaller charter law

city, has been able to

create a very

streamlined and flexible

structure to guide and

move development

projects forward. While

the city has separate

divisions for housing,

building, planning,

engineering/public

works, and even

economic development,

the City Manager takes a hands-on approach in moving projects through the requisite

processes. The City’s economic development efforts have been recognized by the California

Redevelopment Association and other regional organizations; including being named by

the LA County Economic Development Corporation as the 2010 “Most Business Friendly

City.”

Source: http://en.wikipedia.org


• • •


In the wake of Redevelopment’s demise, the city moved quickly to establish a means for

conducting economic development activities. The City Council approved and finalized an

economic development ordinance at its meeting on April 9, 2012. The ordinance

enumerates the right of the city to continue to use many of the economic development

powers and tools that it held through its Redevelopment Agency, including (but not limited

to):

• Purchase and dispose of property

• Acquire property by eminent domain, when necessary

• Provide for site preparation work, i.e., demolition, clearing and remediation

• Rent, manage, operate and repair city-owned property for economic development

• Rehabilitate, alter, construct or improve property

• Pursue public and private financial assistance

• Provide grants, loans, insurance payments, tax rebates or other assistance related to commercial and industrial activities, as well as market-rate and affordable multi-family housing

• Issue bonds or other forms of debt

Please see Figure 2 for an explanation of potential financing tools. Alhambra intends to

continue its aggressive economic development efforts with any and every tool available.

While some of the tools mentioned may ultimately hit hurdles (financially or legally), the

City is committed to creating one of the most business and economic development- friendly

environments in the state.

Currently the City is working on a 400,000 square foot retail center in which it may rebate

a combination of new sales and property tax along with a reduction in its planning and

inspection fees to underwrite the project’s proposed public parking structure. Also,

negotiations are set to begin on a new downtown mixed-use center which may include

140,000 square feet of retail space with 260 units of for-sale housing and public parking.

The city may elect to use CDBG Program Income from the sale of a former asset along with

a portion of new net assessed property tax generated from the project to underwrite this

proposal. Finally, Alhambra will be considering the construction of a 295-space downtown

parking structure and may elect to borrow from its reserves to underwrite its construction

cost.


• • •


Figure 2 Alhambra's Economic Development Tools

Section 108 loanslong-term loans secured by some form of collateral and revenues generated from a project or paid from a

portion of the city’s annual CDBG allocation

Annual CDBG allocationideal for infill development projects and tenant improvements under the category of job creation or

elimination of blight

CDBG Program Income net proceeds from any project made possible through the use of CDBG funds

New project-generated sales tax

rebatesnew net sales taxes from a development that can be rebated to offset project costs

New project-generated property tax

rebatesnew net property taxes from a development that can be rebated to offset project costs

Short term lines of credit secured and repaid by new net project generated property or sales taxes

Federal/State Grants or Economic

Development Initiatives

increases access to capital for small businesses–a key component of job creation, and helps provide

additional security for a Section 108 loan

Loans from General Fund or

Enterprise Reserve Fundsmay require a loan agreement as well as an interest component to do some types of projects

Sale of city assets set aside funds from sale of city assets

City fees that are discounted, waived

or deferrednegotiated incentives to make it easier to attract new businesses and investments

Brownfields assistanceassistance to assess and remediate abandoned or underused industrial and commercial property (possible

funding available via the EPA or Federal/State agencies)

Infrastructure Financing Districts

(IFDs)

bonds through IFDs can be used to help pay for infrastructure-type projects by diverting property tax

revenues to pay debt service from other local governments, except schools (requires two-thirds voter

approval)

Revenue bondsbonds backed by revenue generated from a project funded with bond proceeds and repaid by earnings

from the operations of a revenue producing enterprise

Conduit revenue bonds

tax-exempt bonds issued by chartered cities for economic development or multi-family housing. The bond

is payable from loan payments received from the non-governmental developer on the condition of a

public benefit, and presents no liability for the governmental entity

Community Facilities Districts

bonds used mainly to finance public works improvements and services or to pay for specific, limited

improvements related to privately-owned or real property (requires two-thirds voter approval to establish

the parcel tax, i.e., Mello-Roos)

Assessment Districts

a charge assessed against real property whereby there is a benefit from a particular public works or public

services project or activity undertaken by the city. The special weighted voter-approved assessment

becomes a part of the funding mechanism to defray the cost of the project

Potential Tools for Financing Economic Development


• • •

Best Practices: How Other Jurisdictions Accomplish Economic Development � 6

Best Practices: How Other Jurisdictions Accomplish Economic

Development

Best practices are regarded as the most effective and efficient method to accomplish a

particular objective. In this report, we have researched elements of current best practices

in economic development by providing three case studies of cities/jurisdictions that have

been successful at inciting local economic development. The cities we have chosen are

ranked to be the top 6 cities in the nation for the largest population and are

demographically similar to City of Los Angeles. These cities include: Chicago, Phoenix, and

New York.

Chicago, Illinois

The City of Chicago collaborates with different actors to carry out development and

redevelopment projects. Two of these are the Community Development Commission (CDC)

and the Department of Housing and Economic Development (HED). The HED, is comprised

of the Commissioner’s Office and the Bureaus of Housing, Economic Development, and

Planning, and Zoning to bring such activities into fruitionii. Other partnerships of the HED

include elected officials, community and business groups, delegate agencies, and

community stakeholdersiii.

The Department of Housing and Economic Development is responsible for implementing

economic development projects by assisting current businesses grow and attracting new

entrepreneurship endeavors in the area. HED is also in charge of assistance programs

related to affordable housing, housing preservation, and community-based homebuyeriv. It

must be noted that the bulk of the work is done by one of the three Bureaus. In addition,

the department implements the city’s initiatives as they pertain to historic preservation,

land use planning, sustainability, tax increment financing (TIF), workforce solutions, and

zoningv.


• • •


Such undertakings are possible through different financing mechanisms that the City of

Chicago currently has access to. For instance, the City provides tax incentives for projects

that will generate revenue and/or jobs to the City. In return, the investor is given a “tax

break” for a certain period of time. Chicago also obtains funding by selling land that it

currently owns. Usually the land is sold to parties whose investment will benefit the

community—whether it be monetarily, jobs, goods and/or services. Other sources of

financing include:

Finance Source Description

Housing Revenue

Bond

This is a bond that is given to finance multi-family housing projects or

single-family home mortgages.

Low Income

Housing Tax

Credit

This is a federal tax credit that is offered by the Internal Revenue Service

(IRS) as an incentive to develop affordable housing.

Private Loans Such loans may be used to assist in the costs (or cover them) of the

construction of affordable housing.

Fee Waivers Currently the City of Chicago uses fee waivers to finance affordable housing

projects.

Chicago

Community Land

Trust (CCLT)

The CCLT was created in 2006 as a means to preserve the long-term

affordability of homes. The Land Trust operates throughout the city and is

administered and staffed by the Chicago Department of Housing and

Economic Development. The homeowners enter a 99-year Deed Covenant

with CCLT.

Affordable

Housing Zoning

Bonus

The City of Chicago provides a zoning bonus for developers who build

affordable housing OR contribute to the City’s Affordable Housing

Opportunity Fund. In exchange, the City allows for additional square

footage.

Multi-year

Affordability

through Upfront

Investment

(MAUI)

MAUI furnishes interest-free forgivable loans to replace up to fifty percent

of a developer’s private first mortgage. The money saved is used to reduce

the rents of very low-income tenants that earn no more than thirty percent of

the area median income.

Affordable

Requirements

Ordinance

Under this ordinance, residential development that obtain financial assistance

or involve city-owned land to have a certain percentage of units at affordable

prices. The ordinance is applicable to developments that are 10 or more units

and it requires that the developers provide 10 percent of their units at

affordable prices. The units that are under this ordinance must remain

affordable over time.


• • •


Phoenix, Arizona

Figure 3 City of Phoenix's City Hall

Unlike those in California, Arizona

cities do not operate

redevelopment agencies. Rather,

each city is tasked to fund and

create redevelopment projects. The

City of Phoenix is the hub of several

interesting programs designed to

help incite local economic

development. These local programs,

managed by the Community and Economic Development Department, connect business

owners with the entrepreneurial resources, such as labor, land-use permits, and funding. A

recent presentation from the department states their strategic visionvi:

To position Phoenix as a globally competitive and sustainable city by cultivating the

world’s best talent, leading businesses, technologies and outstanding quality of life for its

residents.

The implementation of the strategic vision is broken down into smaller objectives. These

objectives are to align initiatives around Phoenix’s core strengthsvii, to focus on targeted

markets with greatest opportunity for sustained growth, to expand the pipeline of business

formation, enhance the Phoenix business climate, and improve Phoenix’s competitive

position in the new economic environment. Other collaborative projects between the

department and small business owners include developing a pilot business loan program,

providing outreach and programs to small and mid-sized businesses. Potential

communities include the Arizona Commerce Authority, the Phoenix Area Chambers and the

Service Core of Retired Executives (SCORE).

The Office of Customer Advocacy (OCA) was created to provide development assistance

and case management for new businesses in the land development and building permit

Source: http://blog.ecycler.com


• • •


processes. For many new business owners, the permit process can be lengthy and

discouraging, especially since there is no guidance along the way. The OCA hopes to change

this by walking the business owner through the process step by step to ensure the

application or permit request gets filled out completely and correctly. Adaptive reuse

permits are also available from this apartment. OCA's specializes in remodeling existing

commercial buildings, renovating historic buildings, converting residential structures to

business use, and revitalizing neighborhood retail centersviii.

Aside from the economic and community development department, the city council is also

taking action to boost economic activity. Within the first one hundred days of taking office,

Mayor Greg Stanton has “developed a partnership with Arizona State University and the

Mayo Clinic to create the Arizona Biomedical Corridor to create a new jobs and education

hub in northeast Phoenix near Desert Ridge”. Additionally, he has “pushed for a new

procurement policy that gives local businesses preference for city contracts under $50,000

to boost the small-business community and keep city dollars local”ix.

New York City, New York

New York City Economic Development Corporation (NYCEDC) provides the main engine for

economic development and growth within the City. NYCEDC creates affordable housing,

public parks and open space, retail development, and community and cultural centers by

leveraging partnerships between the public and private sectorsx. NYCEDC also manages

City properties and assets, which generate revenue and helps create jobs and new business

opportunitiesxi. With a mix of bond financing, new market tax credits, and incentives,

NYCEDC has been the leading economic development financing mechanism that helps

stabilize and expand the growth of NYC. Their variety in funding mechanisms from tax

abatements, incentives, and bond programs gives them more leverage to create public

private partnerships which in turn produce successful development projects. Listed below

are just a few successful programs they administer:


• • •


Exempt Facilities Bond Program: Private companies developing on public- owned

facilities near docks, wharves or solid waste recycling facilities can take advantage of triple

tax- exempt bonds to finance the construction and renovation of development projects.

These triple tax- exempt bonds include reduced interest rates, extended financing terms,

lower equity contributions, and the option to obtain construction and permanent financing

in a single loan.

New Market Tax Credit Program: The New Market Tax Credit Program (NMTC) allows

taxpaying investors to obtain credit against their federal income tax liability by

contributing to equitable investments in Community Development Entities (CDEs).

According to NYCEDC, “Substantially all of the qualified equity investment must in turn be

used by the CDE to provide investments to projects and businesses in low-income

communities”xii. Community Development Financial Institutions Fund administers the

program and ensures that credit total 39 percent of the original investment amount and is

claimed within the duration of seven yearsxiii.

Business/Commercial Tax Incentives: NYCEDC provides an array of tax incentives and

tax abatement options to stimulate business and commercial development. Commercial tax

incentives encourage companies to carry out large capital investments that result to

significant job creation and retention by providing sales and use tax exemptions, mortgage

recording tax waivers, and real estate exemptions.

The New York State Economic Development Council also plays a great role in driving

economic development within the various geographical areas in New York. The Council

offers a variety of economic incentives for corporations and businesses that are interested

in redeveloping New York such as Brownfield Clean Up Tax Credits, Excelsior Program that

promotes businesses in growth industries such as clean tech, information systems,

renewable energy and biotechnology, Industrial Development Agencies, Investment Tax

Credits, and Recharge New York Programxiv. Of the many programs they administer, IDA

program is more compatible to City of LA’s needs.


• • •

Recommendations � 11

Industrial Development Agencies, similar to redevelopment agencies, are created “to

promote, develop, encourage and assist in the acquiring, constructing, reconstructing,

improving, maintaining, equipping and furnishing industrial, manufacturing, (civic

facilities), warehousing, commercial, research and recreation facilities”. IDA’s accomplish

their mission by issuing tax exempt and taxable bonds for projects, conveying real property

tax abatements through PILOT (payment in lieu of taxes) or through lease transactions,

abating sales taxes for construction materials, abating mortgage recording taxes, and

through eminent domain.

Recommendations

Based on our research findings, we recommend that the Department of City Planning of the

City of Los Angeles implement a limited transition ordinance in which it incorporates

language that addresses Municipal Code references to redevelopment and zoning code

references to allow for the transition of decision making authority from CRA/LA to the

Director of Planning and the Planning Commission. This implementation will allow for a

more consolidated effort for future development projects by eliminating duplicity within

zoning codes. We also suggest that it considers exploring alternative financing tools aside

from the traditional financing mechanisms. The City of Alhambra recently enacted an

economic development ordinance that gives the city the flexibility to pursue alternative

means to reactivate redevelopment and tools for this purpose. The NYCEDC of New York

City currently makes use of exempt facilities bond program, new market tax credit

program, and business/commercial tax incentives as funding mechanisms to stabilize and

expand the growth of the City. These are economic options that the Department of City

Planning might want to examine for its future redevelopment projects. In addition, we

recommend for the City to look into the re-structuring and streamlining processes that can

combine economic development and planning fields in one entity. The City of Chicago’s

Department of Housing and Economic Development (HED) current organizational

structure may serve as a model for the City of Los Angeles. At present, HED has a staff of

more than 220 people that work within the Commissioner’s Office and the bureaus of

Housing, Economic Development, and Planning and Zoning to carry out projects related to


• • •

Recommendations � 12

housing, economic development, planning, and zoning. Lastly, the City of Phoenix has

proven to be successful in its strategic vision approach. It has decided to make the permit

process less complex to affected parties by creating the OCA. The OCA was assigned the

responsibility of assisting business owners with the application or permit request. While

we realize that the City of Los Angeles is a large and dynamic city whose needs may require

additional choices, taking a closer look at these case studies, and the options they offer may

serve as a starting point to reforming the City’s economic development and planning

structures.

i http://www.pe.com/local-news/politics/politics-headlines-index/20120115-region-cities-naming-redevelopment-successors-but-

many-details-nebulous.ece ii City of Chicago. “Our Structure.” City of Chicago. 2010-2012. Web. 11 Apr. 2012. <http://www.cityofchicago.org/content/city/en/depts/dcd/auto_generated/dcd_our_structure.html>. iii City of Chicago. “Department of Housing and Economic Development.” City of Chicago. 2010-2012. Web. 11 Apr. 2012. < http://www.cityofchicago.org/content/city/en/depts/dcd.html>. iv City of Chicago. “Department of Housing and Economic Development.” City of Chicago. 2010-2012. Web. 11 Apr. 2012. < http://www.cityofchicago.org/content/city/en/depts/dcd.html>. v City of Chicago. “Department of Housing and Economic Development.” City of Chicago. 2010-2012. Web. 11 Apr. 2012. < http://www.cityofchicago.org/content/city/en/depts/dcd.html>. vi http://phoenix.gov/webcms/groups/internet/@inter/@dept/@ced/documents/web_content/072436.pdf vii PHOENIX’S CORE STRENGTHS: Visionary City Leadership; Welcoming, Diverse City/Outstanding Quality of Life; Top Ranked Higher Education Institutions; Talented Labor Force/Strong Demographic Future; Strong Economic Pillars Across a Broad Spectrum of Sectors; Large Base of Employers/Corporate and Regional Headquarters; Strong Entrepreneurial Spirit; Enduring Relationships with Private and Nonprofit Sectors; Strategic Location in the Western United States; Modern Infrastructure and Multi-Modal; Transportation Systems; Abundant Community, Recreational, Arts and Cultural Amenities; Top Tier Convention and Tourism Destination viii http://phoenix.gov/development/aboutdsd/servicesandprograms/oca.html ix http://www.azcentral.com/community/phoenix/articles/2012/04/07/20120407phoenix-mayor-stanton-highlights.html x http://www.nycedc.com/service/financing-incentives. Web. 12 April. 2012. xi http://www.nycedc.com/about-nycedc. Web. 12 April. 2012. xii http://www.nycedc.com/service/financing-incentives. Web. 12 April. 2012. xiii http://cdfifund.gov/what_we_do/programs_id.asp?programID=5. Web. 12 April. 2012. xiv http://www.nysedc.org/index.php?option=com_content&view=section&layout=blog&id=9&Itemid=53. Web. 13 April. 2012.

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