Cities defend redevelopment strategies
Josh Dulaney, Staff Writer
Created: 12/01/2010 08:27:29 PM PST

The Fontana Redevelopment Agency ranks sixth in California in terms of long-term outstanding debt, according to the most recent data from state Controller John Chiang’s office.

With more than $650 million in such debt, Fontana is outranked only by Industry and the state’s biggest cities – San Jose, San Diego, San Francisco and Los Angeles.

While critics of redevelopment agencies say the entities are little more than corporate welfare centers for developers, city managers say the agencies are crucial to curing blight, building low-income housing and financing public projects such as parks, libraries, roads and sewers.

“What this state needs is development and the expansion of our economy, and really, redevelopment is the tool we use to accomplish that,” Fontana City Manager Ken Hunt said. Redevelopment agencies are separate entities from cities but are overseen by city councils and funded by borrowing money for development projects, which in turn is repaid from property tax revenues collected by the agencies.

A portion of the taxes from the increased assessed property values go to the redevelopment agencies, and that money in turn is used to help fund projects in the same area that generated the tax increments.

Redevelopment agencies also are required to make pass- through payments to school districts and other agencies such as fire and water districts.

Redevelopment zones initially came about to fight blight such as deteriorating buildings, inadequate infrastructure and high amounts of commercial vacancies in an area.

Also, vacant land under old laws could be declared a redevelopment zone.

That’s how city leaders were able to fill Fontana’s north side – the city’s largest tax increment producer in a city with 70 percent of its area designated for redevelopment – with shopping, restaurants and housing developments such Sierra Lakes.

While officials in cities like San Jose are struggling to fund redevelopment agency debt, Hunt writes at www.fontana360.blogspot.com that a look at revenues and expenditures in the Fontana Redevelopment Agency shows annual revenues of about $100 million and total bonded debt service of $32 million.

The numbers come in the midst of a tough economy and represent a well-managed agency that adds the infrastructure needed to attract businesses and investors, Hunt said.Fontana’s redevelopment agency in fiscal 2008-09 ranked fifth in California in gross tax increment revenue.

Agencies useless?

Some critics of redevelopment agencies say the entities aren’t necessary.

Among them is Bruce Whitaker, a recently elected councilman in Fullerton and statewide coordinator for Municipal Officials for Redevelopment Reform. “I question the necessity because these are the things the market would provide on its own, absent redevelopment,” Whitaker said.

He said the agencies legally exist to cure blight, but instead are abused by city leaders who broadly define what blight is and end up “playing big-time developer” with taxpayer dollars so they can nab pet projects.

“When you take that spending authority decades out and bring it into the near term, you can build some pretty things,” Whitaker said. “And you’re talking about a big potential problem when you hit these peaks and valleys. It induces the types of overbuilding that we’ve seen on the national level.”

Whitaker said that developers and businesses are too often let off the hook when taxpayers are made involuntary investors in commercial enterprises.

That especially occurs when future revenues are less than what is projected and there is nothing that effectively obligates large tax generators to stick around, he said.

“When a private company or a publicly traded company makes a risk like that, they become a stakeholder,” Whitaker said. “But then secondarily, when you see a lot of public funding, it allows them to skip out a lot easier when times are tough, and the taxpayers wind up holding the bag.”

Linda Daniels, deputy city manager of Rancho Cucamonga, whose redevelopment agency, according to Chiang’s office, has $485 million in outstanding long-term debt, the state’s 10th highest, compared redevelopment agency debt to a house mortgage and said it is necessary for the agencies to exist.

“The question is, `What do they do with the debt?”‘ Daniels said.

She said in Rancho Cucamonga the answer has been a host of projects including the Haven Avenue underpass, Foothill Boulevard improvements and various storm drain improvements.

That kind of work over the years has translated into removing barriers to economic growth, attracting businesses and creating jobs, Daniels said.

“It’s not going for corporate projects,” Daniels said.

Daniels said that when a city like Rancho Cucamonga uses the redevelopment system to install the infrastructure needed on fallow land where development occurs, “that is removing blight.”

Moving the money

But one critic of redevelopment agencies said redevelopment debt is bad for the same reason other government debt is bad: It takes real money to service the debt.

“In the case of redevelopment, the debt shifts funds from legitimate public services to corporate welfare,” Steven Greenhut, director of the Journalism Center at the San Francisco-based Pacific Research Institute and editor-in-chief at calwatchdog.com, said in an e-mail. Greenhut said cities too often use redevelopment funds to subsidize developers in the hopes that new developments bring in sales and bed taxes that can be use to prop up city budgets.

When projections don’t hold up, cities create bigger and bigger redevelopment areas as they chase new dollars to service all the debt from past projects, Greenhut said.

“Cities become giant tax-chasing machines,” he said. “This causes the fiscalization of land use – instead of seeing their role as the providers of basic services, city officials see themselves as central planners who must make sure that every parcel is used for its maximum tax potential.”

That creates overdevelopment of big-box stores and auto malls as redevelopment subsidies entice the construction of more stores than an open market would create, Greenhut said.

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