Ppd 619 group_1_final_paper


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CRA/LA Redevelopment Transition

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Ppd 619 group_1_final_paper

  1. 1. CRA/LA Redevelopment TransitionSource: http://la.curbed.com/tags/budget USC Sol Price School of Public Policy PPD 619: Smart Growth & Urban Sprawl Group 1: Joy-Alonica Bautista, Jeff Khau, Marisol Maciel, & Thomas Wong
  2. 2. CRA/LA Redevelopment Transition •••Executive SummaryWith the California Supreme Court decision to end Redevelopment recently, many localgovernments, as well as the state, are scrambling through the fog to determine exactly howthe operations and obligations of the 400 Redevelopment agencies in the state will bewinding down. A question on the minds of many local officials should also be what toolslocal governments can use to continue to spur local economic development in theirjurisdictions.While Los Angeles is rather unique, given its size and other factors, the city can still takelessons from other cities throughout the country to begin developing a game plan forcontinuing 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 movingeconomic 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 1
  3. 3. CRA/LA Redevelopment Transition •••Background ContextFor decades, Redevelopment Agencies have been a primary tool for cities to spurdevelopment and revitalization of neighborhoods and to promote economic developmentin California. Redevelopment agencies basically worked by taking a portion of futureproperty tax revenue increases (also known as tax increment financing), identifying blightin 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 structuralbudget deficit, identified nearly $2 billion dollars in funds it could take away from localredevelopment agencies. The state passed two bills, ABX1-26 and ABX1-27. The formercalled for the elimination of the agencies and the latter allowed them to continue operatingif they paid back a requisite amount of their property tax revenue. After cities challengedthe legislation, the State Supreme Court ultimately decided that the first legislation couldstand, while the second could not. This past February, California’s 400 redevelopmentagencies were essentially eliminated.The process of transitioning to a post-Redevelopment climate in California will continue forthe forseeable future, with much still to sort out. As the state and local governmentsdetermine how to wind down the obligations and operations of redevelopment agencies,communities have to begin to reimagine how they will spur economic developmentwithout the tools they once had through Redevelopment. Some cities in California havealready begun to think proactively about what new tools they may be able to use. The Cityof Los Angeles can and should learn from these other cities and also look to cities in otherstates, which may provide good examples of non tax-increment financing options topromote economic development.Case Study for California CitiesThe aftermath of the elimination of redevelopment left cities to develop a resolution toeither take over the obligations of redevelopment agencies through a “successor agency” or Background Context 2
  4. 4. CRA/LA Redevelopment Transition •••to opt out and have another entity form a “local designated authority”. Most cities such asSan Francisco, San Diego, Ventura and Long Beach have decided to be the successor agencywhile about a dozen have chosen to opt out: one of them being City of Los Angelesi. Thiscreates a unique challenge for City of Los Angeles because the redevelopment structure is aseparate 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 estatedevelopment, City of Alhambra has been at the forefront of devising a plan that might behelpful to City of Los Angeles.Alhambra, CaliforniaFigure 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 Source: http://en.wikipedia.org works, and even economic development,the City Manager takes a hands-on approach in moving projects through the requisiteprocesses. The City’s economic development efforts have been recognized by the CaliforniaRedevelopment Association and other regional organizations; including being named bythe LA County Economic Development Corporation as the 2010 “Most Business FriendlyCity.” Case Study for California Cities 3
  5. 5. CRA/LA Redevelopment Transition •••In the wake of Redevelopment’s demise, the city moved quickly to establish a means forconducting economic development activities. The City Council approved and finalized aneconomic development ordinance at its meeting on April 9, 2012. The ordinanceenumerates the right of the city to continue to use many of the economic developmentpowers and tools that it held through its Redevelopment Agency, including (but not limitedto): • 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 debtPlease see Figure 2 for an explanation of potential financing tools. Alhambra intends tocontinue its aggressive economic development efforts with any and every tool available.While some of the tools mentioned may ultimately hit hurdles (financially or legally), theCity is committed to creating one of the most business and economic development- friendlyenvironments in the state.Currently the City is working on a 400,000 square foot retail center in which it may rebatea combination of new sales and property tax along with a reduction in its planning andinspection 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 include140,000 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 witha portion of new net assessed property tax generated from the project to underwrite thisproposal. Finally, Alhambra will be considering the construction of a 295-space downtownparking structure and may elect to borrow from its reserves to underwrite its constructioncost. Case Study for California Cities 4
  6. 6. CRA/LA Redevelopment Transition •••Figure 2 Alhambras Economic Development Tools Potential Tools for Financing Economic Development long-term loans secured by some form of collateral and revenues generated from a project or paid from a Section 108 loans portion of the city’s annual CDBG allocation ideal for infill development projects and tenant improvements under the category of job creation or Annual CDBG allocation elimination of blight CDBG Program Income net proceeds from any project made possible through the use of CDBG funds New project-generated sales tax new net sales taxes from a development that can be rebated to offset project costs rebates New project-generated property tax new net property taxes from a development that can be rebated to offset project costs rebates Short term lines of credit secured and repaid by new net project generated property or sales taxes Federal/State Grants or Economic increases access to capital for small businesses–a key component of job creation, and helps provide Development Initiatives additional security for a Section 108 loan Loans from General Fund or may require a loan agreement as well as an interest component to do some types of projects Enterprise Reserve Funds Sale of city assets set aside funds from sale of city assetsCity fees that are discounted, waived negotiated incentives to make it easier to attract new businesses and investments or deferred assistance to assess and remediate abandoned or underused industrial and commercial property (possible Brownfields assistance funding available via the EPA or Federal/State agencies) bonds through IFDs can be used to help pay for infrastructure-type projects by diverting property tax Infrastructure Financing Districts revenues to pay debt service from other local governments, except schools (requires two-thirds voter (IFDs) approval) bonds backed by revenue generated from a project funded with bond proceeds and repaid by earnings Revenue bonds from the operations of a revenue producing enterprise tax-exempt bonds issued by chartered cities for economic development or multi-family housing. The bond Conduit revenue bonds 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 bonds used mainly to finance public works improvements and services or to pay for specific, limited Community Facilities Districts improvements related to privately-owned or real property (requires two-thirds voter approval to establish the parcel tax, i.e., Mello-Roos) a charge assessed against real property whereby there is a benefit from a particular public works or public Assessment Districts 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 Case Study for California Cities 5
  7. 7. CRA/LA Redevelopment Transition •••Best Practices: How Other Jurisdictions Accomplish EconomicDevelopmentBest practices are regarded as the most effective and efficient method to accomplish aparticular objective. In this report, we have researched elements of current best practicesin economic development by providing three case studies of cities/jurisdictions that havebeen successful at inciting local economic development. The cities we have chosen areranked to be the top 6 cities in the nation for the largest population and aredemographically similar to City of Los Angeles. These cities include: Chicago, Phoenix, andNew York.Chicago, IllinoisThe City of Chicago collaborates with different actors to carry out development andredevelopment projects. Two of these are the Community Development Commission (CDC)and the Department of Housing and Economic Development (HED). The HED, is comprisedof the Commissioner’s Office and the Bureaus of Housing, Economic Development, andPlanning, and Zoning to bring such activities into fruitionii. Other partnerships of the HEDinclude elected officials, community and business groups, delegate agencies, andcommunity stakeholdersiii.The Department of Housing and Economic Development is responsible for implementingeconomic development projects by assisting current businesses grow and attracting newentrepreneurship endeavors in the area. HED is also in charge of assistance programsrelated to affordable housing, housing preservation, and community-based homebuyeriv. Itmust 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, andzoningv. Best Practices: How Other Jurisdictions Accomplish Economic Development 6
  8. 8. CRA/LA Redevelopment Transition •••Such undertakings are possible through different financing mechanisms that the City ofChicago currently has access to. For instance, the City provides tax incentives for projectsthat will generate revenue and/or jobs to the City. In return, the investor is given a “taxbreak” for a certain period of time. Chicago also obtains funding by selling land that itcurrently owns. Usually the land is sold to parties whose investment will benefit thecommunity—whether it be monetarily, jobs, goods and/or services. Other sources offinancing include: Finance Source DescriptionHousing Revenue This is a bond that is given to finance multi-family housing projects orBond single-family home mortgages.Low Income This is a federal tax credit that is offered by the Internal Revenue ServiceHousing Tax (IRS) as an incentive to develop affordable housing.CreditPrivate 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 The CCLT was created in 2006 as a means to preserve the long-termCommunity Land affordability of homes. The Land Trust operates throughout the city and isTrust (CCLT) administered and staffed by the Chicago Department of Housing and Economic Development. The homeowners enter a 99-year Deed Covenant with CCLT.Affordable The City of Chicago provides a zoning bonus for developers who buildHousing Zoning affordable housing OR contribute to the City’s Affordable HousingBonus Opportunity Fund. In exchange, the City allows for additional square footage.Multi-year MAUI furnishes interest-free forgivable loans to replace up to fifty percentAffordability of a developer’s private first mortgage. The money saved is used to reducethrough Upfront the rents of very low-income tenants that earn no more than thirty percent ofInvestment the area median income.(MAUI)Affordable Under this ordinance, residential development that obtain financial assistanceRequirements or involve city-owned land to have a certain percentage of units at affordableOrdinance 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. Best Practices: How Other Jurisdictions Accomplish Economic Development 7
  9. 9. CRA/LA Redevelopment Transition •••Phoenix, ArizonaFigure 3 City of Phoenixs 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 Source: http://blog.ecycler.com development. These local programs,managed by the Community and Economic Development Department, connect businessowners with the entrepreneurial resources, such as labor, land-use permits, and funding. Arecent 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. Theseobjectives are to align initiatives around Phoenix’s core strengthsvii, to focus on targetedmarkets with greatest opportunity for sustained growth, to expand the pipeline of businessformation, enhance the Phoenix business climate, and improve Phoenix’s competitiveposition in the new economic environment. Other collaborative projects between thedepartment and small business owners include developing a pilot business loan program,providing outreach and programs to small and mid-sized businesses. Potentialcommunities include the Arizona Commerce Authority, the Phoenix Area Chambers and theService Core of Retired Executives (SCORE).The Office of Customer Advocacy (OCA) was created to provide development assistanceand case management for new businesses in the land development and building permit Best Practices: How Other Jurisdictions Accomplish Economic Development 8
  10. 10. CRA/LA Redevelopment Transition •••processes. For many new business owners, the permit process can be lengthy anddiscouraging, especially since there is no guidance along the way. The OCA hopes to changethis by walking the business owner through the process step by step to ensure theapplication or permit request gets filled out completely and correctly. Adaptive reusepermits are also available from this apartment. OCAs specializes in remodeling existingcommercial buildings, renovating historic buildings, converting residential structures tobusiness use, and revitalizing neighborhood retail centersviii.Aside from the economic and community development department, the city council is alsotaking 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 theMayo Clinic to create the Arizona Biomedical Corridor to create a new jobs and educationhub in northeast Phoenix near Desert Ridge”. Additionally, he has “pushed for a newprocurement policy that gives local businesses preference for city contracts under $50,000to boost the small-business community and keep city dollars local”ix.New York City, New YorkNew York City Economic Development Corporation (NYCEDC) provides the main engine foreconomic development and growth within the City. NYCEDC creates affordable housing,public parks and open space, retail development, and community and cultural centers byleveraging partnerships between the public and private sectorsx. NYCEDC also managesCity properties and assets, which generate revenue and helps create jobs and new businessopportunitiesxi. With a mix of bond financing, new market tax credits, and incentives,NYCEDC has been the leading economic development financing mechanism that helpsstabilize and expand the growth of NYC. Their variety in funding mechanisms from taxabatements, incentives, and bond programs gives them more leverage to create publicprivate partnerships which in turn produce successful development projects. Listed beloware just a few successful programs they administer: Best Practices: How Other Jurisdictions Accomplish Economic Development 9
  11. 11. CRA/LA Redevelopment Transition •••Exempt Facilities Bond Program: Private companies developing on public- ownedfacilities near docks, wharves or solid waste recycling facilities can take advantage of tripletax- 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 financingin a single loan.New Market Tax Credit Program: The New Market Tax Credit Program (NMTC) allowstaxpaying investors to obtain credit against their federal income tax liability bycontributing to equitable investments in Community Development Entities (CDEs).According to NYCEDC, “Substantially all of the qualified equity investment must in turn beused by the CDE to provide investments to projects and businesses in low-incomecommunities”xii. Community Development Financial Institutions Fund administers theprogram and ensures that credit total 39 percent of the original investment amount and isclaimed within the duration of seven yearsxiii.Business/Commercial Tax Incentives: NYCEDC provides an array of tax incentives andtax abatement options to stimulate business and commercial development. Commercial taxincentives encourage companies to carry out large capital investments that result tosignificant job creation and retention by providing sales and use tax exemptions, mortgagerecording tax waivers, and real estate exemptions.The New York State Economic Development Council also plays a great role in drivingeconomic development within the various geographical areas in New York. The Counciloffers a variety of economic incentives for corporations and businesses that are interestedin redeveloping New York such as Brownfield Clean Up Tax Credits, Excelsior Program thatpromotes businesses in growth industries such as clean tech, information systems,renewable energy and biotechnology, Industrial Development Agencies, Investment TaxCredits, and Recharge New York Programxiv. Of the many programs they administer, IDAprogram is more compatible to City of LA’s needs. Best Practices: How Other Jurisdictions Accomplish Economic Development 10
  12. 12. CRA/LA Redevelopment Transition •••Industrial Development Agencies, similar to redevelopment agencies, are created “topromote, develop, encourage and assist in the acquiring, constructing, reconstructing,improving, maintaining, equipping and furnishing industrial, manufacturing, (civicfacilities), warehousing, commercial, research and recreation facilities”. IDA’s accomplishtheir mission by issuing tax exempt and taxable bonds for projects, conveying real propertytax abatements through PILOT (payment in lieu of taxes) or through lease transactions,abating sales taxes for construction materials, abating mortgage recording taxes, andthrough eminent domain.RecommendationsBased on our research findings, we recommend that the Department of City Planning of theCity of Los Angeles implement a limited transition ordinance in which it incorporateslanguage that addresses Municipal Code references to redevelopment and zoning codereferences to allow for the transition of decision making authority from CRA/LA to theDirector of Planning and the Planning Commission. This implementation will allow for amore consolidated effort for future development projects by eliminating duplicity withinzoning codes. We also suggest that it considers exploring alternative financing tools asidefrom the traditional financing mechanisms. The City of Alhambra recently enacted aneconomic development ordinance that gives the city the flexibility to pursue alternativemeans to reactivate redevelopment and tools for this purpose. The NYCEDC of New YorkCity currently makes use of exempt facilities bond program, new market tax creditprogram, and business/commercial tax incentives as funding mechanisms to stabilize andexpand the growth of the City. These are economic options that the Department of CityPlanning might want to examine for its future redevelopment projects. In addition, werecommend for the City to look into the re-structuring and streamlining processes that cancombine economic development and planning fields in one entity. The City of Chicago’sDepartment of Housing and Economic Development (HED) current organizationalstructure may serve as a model for the City of Los Angeles. At present, HED has a staff ofmore than 220 people that work within the Commissioner’s Office and the bureaus ofHousing, Economic Development, and Planning and Zoning to carry out projects related to Recommendations 11
  13. 13. CRA/LA Redevelopment Transition •••housing, economic development, planning, and zoning. Lastly, the City of Phoenix hasproven to be successful in its strategic vision approach. It has decided to make the permitprocess less complex to affected parties by creating the OCA. The OCA was assigned theresponsibility of assisting business owners with the application or permit request. Whilewe realize that the City of Los Angeles is a large and dynamic city whose needs may requireadditional choices, taking a closer look at these case studies, and the options they offer mayserve as a starting point to reforming the City’s economic development and planningstructures.i http://www.pe.com/local-news/politics/politics-headlines-index/20120115-region-cities-naming-redevelopment-successors-but-many-details-nebulous.eceii 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.pdfvii PHOENIX’S CORE STRENGTHS: Visionary City Leadership; Welcoming, Diverse City/Outstanding Quality of Life; Top Ranked HigherEducation 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 andNonprofit 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 Destinationviii http://phoenix.gov/development/aboutdsd/servicesandprograms/oca.htmlix http://www.azcentral.com/community/phoenix/articles/2012/04/07/20120407phoenix-mayor-stanton-highlights.htmlx 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. Recommendations 12