Economic Development - Larry Kosmont


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Economic Development - Larry Kosmont

  1. 1. Reviving EconomicDevelopmentEconomic Development WithoutRedevelopmentby:Kosmont Companies865 S. Figueroa Street, Suite 3500, Los Angeles, CA
  2. 2. 1. Cities lost RDAs; now busy unwinding amidst ~100 lawsuits2. Many local budgets are out of balance due to pensioncosts, reduced revenues and lost tax-increment3. Local government credit has been damaged;cities finding it more challenging to borrow4. State now coming out of ~$20 B budget gap, saved byProp 30, but still on borrowed time and can’t help cities5. PERS underwriting to reality of its underperformingportfolios; new rates to cities are a serious blow to recoveryState & local health assessment- anemic w/ a pulse2
  3. 3. Note: Not to ScaleEffectonLocalTaxBase1977 RevenueLevel1978 1986 1996Prop 13 – Property Tax reigned in; subject to 2/3 voteProp 62 – General taxes subject to 2/3 voteProp 218 – Special assessments to vote2011State kills RDAs &TIF wiped outRecession; pension costs32009For Cities, 35 Years of Tax Diets now limit $$ choices
  4. 4. LAB RESULTS:Income Tax: ~64% of General FundSales Tax: ~21%Other: ~15%Source: California Legislative Analyst; CA Dept of FinanceCalifornia’s Unhealthy Habits4Deficit lower in 2013 but GF hangs by a thread• Top 1% earners = 40.9% of income tax $$• Sales tax prone to major shifts• Prop 30 revenues are temporary• Fitch GO bond rating lowest in USA (A-)
  5. 5. Source: US BLS, 2013; CA BOE, 2012UNEMPLOYMENT IS THE NEW BLIGHTCaliforniaUSACA Unemployment Rate dropped from 11.3% to 9.4% in 2013Still highest rate in 20 years (since January 1993)More than 1.7 million people remain out of work~220 CA cities and 42/58 counties with >9% unemployment9.4%Mar. 20135
  6. 6. Diagnosis – Lead FootGoing Fast without much Gas6
  7. 7. RDAs used TIF. TIF surcharges economic development• Tax-Increment Financing (TIF) model allowed local agenciesaccess to significant & long-term source of funds• based upon property tax which is a stable funding source• Problem became that RDAs were 12% of state’s property taxbase and left state on the hook for schools• but TIF as a tool does not require a redevelopment agency• California now only one of 3 states w/o tax increment, 47 otherstates use it without a redevelopment agencyRedevelopment was the E.D. power tool7So what’s left after Redevelopment is buried?
  8. 8. Financing and Structures#1 Site-Specific Tax Revenue (“SSTR”) Pledge or Reimbursements#2 Long Term Ground Lease#3 Lease-Leaseback of City Assets#4 Tax-Exempt Revenue & Utility Bonds#5 Parking Authorities & Special Districts (CFDs, BIDs)Money Sources#6 EB-5: Immigrant Investor Program (Green Cards for Jobs)#7 Competitive Federal & State Grants (EDA/CDBG)#8 New Market Tax Credits (NMTC)Infrastructure Financing Districts (IFDs) not useful unless fixedHand Tools of Economic Development8
  9. 9. 9Hand Tools Used:• Utility Bonds for off-sites• Site-Specific Tax Revenue• New Market Tax Credits• EDA GrantResult– 2.6M year in sales tax600 jobsCity of South Gate – “azalea” Retail CenterThe Project:• 372K sf regional retail center (Wal-Mart, Ross, Marshalls)• Public Plaza & Events Center, City Services Annex• UNDER CONSTRUCTION; OPENING MID 2014
  10. 10. 10Hand Tools Used:• Lease-Leaseback• Site-Specific Tax RevenuePledge (Prop & TOT)• Mezzanine Reserve FundResult:2M yr. TOT & prop tax250 JOBSThe Project:• 147 room Hilton Garden Inn & 172-room Marriott ResidenceInn located adjacent to Metro station• Community use of meeting rooms; Fwy. Billboard use for City• UNDER CONSTRUCTION as of APRIL 9, 2013City of Redondo Beach – Marine Ave. Hotels
  11. 11. 11Hand Tools Used:• Site-Specific Tax Revenue• Development Agreement• Operating CovenantResults: 1.0 M yr. sales & prop250 jobsMacerich – Mall of Victor ValleyThe Project• Extreme Mall Makeover: Net increase of47,000 retail SF (531,000 total SF)• New Macy’s & JC Penney now open(replaced shutdown Gottschalks & Mervyns)11
  12. 12. 12• Property Management Plans (PMPs) are required by AB1484 todispose of real estate assets of former RDAs• Disposition of former RDA properties is an unprecedented event iresulting in one-time liquidation of over 5000 properties!• Approved Property Management Plans (PMPs) will governproperty sales of 400 successor agencies• Some properties can be retained for Economic Development• Project Development exception• “A” Properties that will attract private investment• Properties where zoning can upgrade value and useBE STRATEGIC ABOUT PMPS— PMP SHOULD UNLOCK PROPERTIESTHAT CAN RESULT IN ECONOMIC DEVELOPMENT (JOBS & TAXES)PMPs are next wave of E.D. Deals for Cities
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  14. 14. AB 1080 (Alejo) New form of RedevelopmentDesigned to serve disadvantaged areasSB 1 (Steinberg) Create Sustainable Communities AuthorityReintroduction of last year’s SB1156AB 243 (Dickinson) Infrastructure Financing District reform (IFD)Similar to AB2144AB 229 (Perez) IFD ReformMilitary Base Reuse AuthoritiesAB 294 (Holden) IFD Reform using State Infrastructure BanksAlso uses school share of property taxSB 33 (Wolk) IFD Reform-removes vote threshold/other fixesAB 662 (Atkins) IFD Reform-includes former RDA project areasAB 690 (Campos) California Jobs ActUses TIF for Job Creation (Jobs & Educ. Districts)―Unemployment is the New Blight‖What’s next for TIF in CA?: probably nothingRDAIFDJOBS14
  15. 15. • California voted by CEOs as least business friendly state• Without TIF California has…• no consistent way to do economic development and fuelprivate sector job growth to reduce unemployment• no way to incentivize public-private projects that generate newtaxes and jobs15TIF – Part of a Healthy Economic DietWithout TIF, California cannot compete effectively; Statealready branded as expensive, with taxes going up.TIF
  16. 16. *California Dept. of FinanceAND…CREATING JOBS FIXES THE BUDGET85% of State’s budget from Personal Income & Sales Taxand both sources are pumped by new jobs• Approx. 320,000 jobs = approx. $1B in new GF annual revenue*• California 3rd worst re: unemployment rate – 1.7M out of work• The State can restore TIF and use it to induce new jobs (AB690)• New jobs can balance the State budget & revive local communitiesTHE KEY IS NEW JOBS. NOT NEW TAXES.CALIFORNIA’S GENERAL FUND BUDGET SOURCES*Personal Income Tax: ~64%Sales Tax: ~21%Other Sources: ~15%16
  17. 17. Nov. (1st Tues) On the ballot Passed Failed Pass Rate2012 124 82 42 66%2011 47 33 14 70%2010 122 63 59 51%2009 52 26 26 50%2008 122 79 43 65%5-yr Total 467 283 184 65%Source:; CaliforniaCityFinance.comPROP # SYNOPSIS PASS /FAIL30 Gov. Brown’s Tax Increase for Education & General Fund PASS39 Income Tax Increase for Multi-State Business PASSMore State Taxes (mostly temporary source; expiring in 4-7 seven years)More Cities & County Taxes but Cal cities are already highest cost** Kosmont-Rose Institute Cost of Doing Business Survey 2012(Table includes local sales, business, utility user, parcel and hotel tax ballot measures)BUT…California’s approach is “Tax More”17
  18. 18. • Private investment that yields new jobs is core to local & State recovery• Without TIF, econ. dev. in CA is too limited to induce major private investment• TIF does not equal RDA! 47 States & DC have usable TIF statutes• BUT…bringing TIF back through IFDs will not restore jobs sufficiently• 8 New TIF bills are proposed in 2013: 3 revisit RDAs, 4 modify IFDs, one tiesTIF to job creation• Can new 2/3rd Democratic majority in State Legislature find a bill that restoresTIF that the Governor can support? Maybe next year. Not likely in 2013.IN THE MEANTIME:• PROPERTY MANAGEMENT PLANS CAN BE A WAY BACK TO ECONOMICDEVELOPMENT– PLAN AND USE WISE• E.D. ―HAND TOOLS‖ CAN PRODUCE PROJECTS W/ NEW TAXES & JOBS18Is the Future Rosy for California?
  19. 19. 1919This presentation is available
  20. 20. PUTTING CA TO WORK SHRINKS STATE BUDGET GAP$1 in new Prop. Tax Increment Invested ~$11 Income & Sales TaxT I FBUDGETJOBSSales & Income TaxGAP20