Community redevelopment agencies about to become history

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As part of Governor Jerry Brown’s budget cutbacks, 425 local redevelopment agencies will shut down on Feb. 1. While some legislators want to delay the process or allow local governments to retain unused money for low and moderate income housing, the closings won’t be reversed. “I don’t think we can delay this funeral,” Brown said, assuring he would veto any attempts to do so. The primary reason for closing the redevelopment agencies is, of course, money. California has a multi-billion dollar deficit, and the governor decided it can no longer afford the cost of redevelopment.

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The State Controller’s Office says redevelopment agencies created over 36,000 jobs in fiscal year 2009-2010. Expenditures were $9.4 billion with the biggest single item being interest expense at $1.4 billion, which is 21%. Projects included low income housing, street and bridge repairs, water treatment plants, revitalizing downtown areas, commercial and industrial development, and more.

In what could be unintended consequences, bond rating agency Fitch has placed all California tax allocation bonds on review because of uncertainty about the transition process and concern over how the bonds will be repaid. Moody’s recently downgraded $11.6 billion of these bonds for the same reasons. An S&P analyst said the elimination of CRA could lead to lenders requiring variable interest loans, which will raise costs for borrowers.

The tiny community of Friant in Fresno County received $1 million in redevelopment funds, much of it in loans, but has nothing to show for it. The agency was established 20 years ago but failed to build or redevelop anything, including a badly needed sewage treatment plant many were hoping for. All the money went for operational expenses, debt service, and plans that were never realized. If a town of Friant, which has about 500 people, essentially frittered away $750,000 (they have $250,000 remaining), one can rightfully wonder if other areas may have done the same. But here’s the crucial point.  Its debt has not gone away. This is precisely what is worrisome to the bond rating agencies.

Mayor Pro Tem of Auburn, Kevin Hanley, says redevelopment was working fine so why kill it now? Downtown Auburn used redevelopment funds to transform itself, creating new businesses as well as jobs. It built sidewalks, added lighting, increased parking spaces, and residents love it, he says. But it was only able to complete about 20% of its streetscape plan before CRA was dismantled. Now those plans are on hold, as are plans in hundreds of other communities.

There probably was waste in some community redevelopment agencies. But much of worth was also built. Blighted areas were improved. Businesses moved back. Downtown areas have more shoppers now and became magnets. Sewage treatment plants were improved. But I keep coming back to that startling 21% of funds being spent on interest payments. That’s too much. Maybe California overreached. Hey, the real estate boom was supposed to go on forever because this time was different. But it wasn’t. Now California can’t afford what it thought it could.

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3 comments
Kirkconnell K
Kirkconnell K

This makes me wonder if there were other benefits from some project, like a decrease in crime. It's sad that an opportunity appears to have been squandered by some agencies and now it means no more money for others

Bob Morris
Bob Morris

Some of the CRAs did good work. Others just seemed to be patronage.

Cactus Thorns
Cactus Thorns

I guess it is all in how you read the numbers.... 12% of all taxes were tied up in RDAs and they managed to eek out 36,000 jobs? I got this feeling that those 36,00 jobs created by the 400+ RDAs are all civil servants.

With 11% unemployment for years RDAs seem to have been a failure. Lets try something different. Let the market decide who the winners and losers are.