Very Interesting how the same thing that is happening all around the country is duplicated in Miami.
Chapter 1
There is an unknown layer of government in California, which few understand.
This unknown government currently consumes 8 percent of all property taxes statewide, $1.5 billion in 1997. It has a total indebtedness of over $41 billion.
It is supported by a powerful Sacramento lobby, backed by an army of lawyers, consultants, bond brokers and land developers.
Unlike new counties, cities and school districts, it can be created without a vote of the citizens affected.
Unlike other levels of government, it can incur bonded indebtedness without voter approval.
Unlike other government entities, it may use the power of eminent domain to benefit private interests.
This unknown government provides no public services. It does not educate our children, maintain our streets, protect us from crime, nor stock our libraries.
It claims to eliminate blight and promote economic development, yet there is no evidence it has done so in the half century since it was created.
Indeed, it has become a rapidly growing drain on California's public resources, amassing enormous power with little public awareness or oversight.
This unknown government is Redevelopment.
It is time Californians knew more about it.
State law allows a city council to create a redevelopment agency to administer one or more "project areas" within its boundaries. An area may be small, or it can encompass the entire city.
These project areas are governed by a redevelopment agency with its own staff and governing board, appointed by the city council.
Thus, an agency and city may appear to be one entity. Often city councils appoint themselves as agency members, with council meetings doubling as redevelopment meetings. Legally, however, a redevelopment agency is an entirely separate government authority, with its own revenue, budget, staff and expanded powers to issue debt and condemn private property.
Out of California's 471 cities, 359 have created redevelopment agencies. No vote of the residents affected was required. No review by the Local Agency Formation Commission (LAFCO) was done.
Californians often confuse redevelopment with federal "urban renewal" projects typical of large eastern cities of the 1940s-'60s. Sadly, the methods and results are often similar. Yet redevelopment is a state-authorized layer of government without federal funds, rules or requirements. It is entirely within the power of the California legislature and voters to control, reform, amend or abolish.
Blight Makes Right
All a city need do to justify creation or expansion of a redevelopment area is to declare it "blighted".
This is easily done. State law is so vague that most anything has been designated as "blight". Parkland, new residential areas, professional baseball stadiums, oil fields, shopping centers, orange groves, open desert and dry riverbeds have all been designated as "blight" for redevelopment purposes.
To make a finding of blight, a consultant is hired to conduct a study. New redevelopment areas are largely driven by city staff, who choose the consultant with the approval of the city council. Consultants know their job is not to determine if there is blight, but to declare blighted whatever community conditions may be.
Blight has been discovered in some of California's most affluent cities. Indian Wells, a guard-gated community with an average $210,000 household income, has two separate redevelopment areas.
Understandably, many homeowners fear an official designation of blight will hurt property values. Small property owners fear redevelopment's use of eminent domain. Building permits can also be denied if an applicant does not conform precisely to the redevelopment plan. So, local citizen groups often challenge the blight findings in court. Others are challenged by counties and school districts which stand to lose major property tax revenue if a new redevelopment area is created.
Recent state legislation has tightened definitions of blight, particularly those involving open and agricultural land. Yet, enforcement is lax, legal challenges costly and most agencies were already created long before recent reform attempts.
Once the consultant's blight findings are ratified, a city may create or expand a redevelopment area. Voter approval is never asked.
Citizens can force a vote by gathering 10% of the signatures of all registered voters within 30 days of the council action. Where this has occurred, redevelopment nearly always loses by wide margins (rejected in Montebello by 82%, La Puente by 67%, Los Alamitos by 55%, Half Moon Bay by 76%, for example).
The requirements to force a vote are difficult to meet, however. In the vast majority of cases, a popular vote is never held. Rather, the consultant's findings of blight are quickly certified. A law firm is then retained to draw up the paperwork and defend against legal challenges.
A growing number of law firms specialize in redevelopment. Like the consultants, they are members of the California Redevelopment Association, a Sacramento-based lobby. They are listed in the CRA's directory and advertise in its newsletter. Their livelihood depends on the aggressive use of redevelopment and increasingly imaginative definitions of blight.
To eliminate alleged blight, a redevelopment agency, once created, has four extraordinary powers held by no other government authority:
) Tax Increment: A redevelopment agency has the exclusive use of all increases in property tax revenues ("tax increment") generated in its designated project areas.
) Bonded Debt: An agency has the power to sell bonds secured against future tax increment, and may do so without voter approval.
) Business Subsidies: An agency has the power to give public money directly to developers and other private businesses in the form of cash grants, tax rebates, free land or public improvements.
) Eminent Domain: An agency has expanded powers to condemn private property, not just for public use, but to transfer to other private owners.
These four powers represent an enormous expansion of government intrusion into our traditional system of private property and free enterprise. Let us carefully consider the costs of this power and if it has done anything to eliminate real blight.
Chapter 4
It is troubling enough that redevelopment agencies divert property taxes from real public needs. But that is only part of the story.
By law, for a redevelopment agency to begin receiving property taxes, it must first incur debt. In fact, property tax revenues may only be used to pay off outstanding debt. Pay-as-you-go is not part of redevelopment law or philosophy.
Debt is not just a temptation. It is a requirement.
That is why redevelopment hearings inevitably feature three groups of outside "experts": the blight consultants, the lawyers, and the bond brokers who help the agency incur debt so it can start receiving the tax increment.
The bond brokers and debt consultants are easily located. They are listed in the California Redevelopment Association Directory. From city to city they phone, fax, travel and make presentations to sell additional debt. Naturally, redevelopment staffs are supportive. More debt means job security and larger payrolls.
Currently, total redevelopment indebtedness in California tops $41 billion, a figure that is doubling every five years (Table II).
Debt levels vary widely among agencies, but all must have debt to receive the tax increment. Table III shows those cities with the highest total redevelopment indebtedness. Debt levels have no relation with actual blight, as many affluent suburban towns have higher indebtedness than older urban-core cities.
Table IV shows outstanding indebtedness per-capita.
This is the amount of per-capita property taxes that must be paid to cover the principal and interest of existing debt. This amount must be diverted from the cities, counties and school districts before these redevelopment agencies can shut down and restore the property taxes to those entities.
One would expect that if redevelopment agencies had been successful in eliminating "blight," they would now be scaling back their activities and reducing debt. In fact, redevelopment indebtedness is growing rapidly, draining investment money that could have gone to buy other government bonds or into the private sector.
There are two reasons redevelopment debt is so attractive: First, redevelopment agencies may sell bonded debt without voter approval. Unlike the state, counties and school districts, the debts need not be justified to, or approved by, the taxpayers. A quick majority vote by the agency is all that is needed.
Second, bond brokers love to sell redevelopment debt. The commissions are high and the buyers plentiful. Since the debt is secured against future property tax revenue, they are seen as secure and lucrative. If an agency over-extends, then surely the city's general fund will cover the debts.
Most agencies project that ever-rising property tax increments will cover future debt service. During the 1990s, however, much of California's commercial and residential real estate declined in value. Property owners sought and received lower assessments, creating a crisis for those agencies banking on ever-rising property taxes. Some cities raided their general funds to service redevelopment debt.
Legally, it is unclear whether the state or individual cities are liable to bail out actually bankrupt agencies, but the expanding bubble of redevelopment debt must be a concern to all.
Redevelopment agencies typically issue new bonds to pay off existing ones, thus rolling over and compounding interest payments. This cannot go on indefinitely. Eventually, all existing debt must be paid with real tax dollars. Every dollar that must pay for this debt is a dollar that will not be spent on police, education and other pressing public needs.
The only way to avoid these ballooning interest payments is to stop issuing new debt and pay off existing principal as soon as possible. Chapter 11 explains exactly how this could be done.
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