Redevelopment
agencies (RDAs) grew out of the federal urban renewal programs of the 1940’s.
While RDAs were first authorized in California in 1945, over half of the RDAs
in the state were created after the passage of Proposition 13, which limited
growth in property tax revenues. By 1998, there were 351 active RDAs, mostly
created by cities, with over 700 project areas. Today 80% of all cities and 47%
of all counties have an RDA for a total of 384 RDAs throughout the state.
While
RDAs are theoretically independent agencies, in practice, they are completely
controlled by the jurisdictions that form them. Their purpose is to provide a
method of financing local redevelopment projects to alleviate blight in urban
areas. Once an RDA is formed, it can declare areas within its jurisdiction as
blighted and then include them in its designated project areas.
RDAs
are financed through what is called “increment financing”. Once an RDA forms a project area, most of
the increase in property tax revenue in that project area goes to the RDA. The
RDA receives this increment for the life of the project. The term of the project area and the goals
to be accomplished in that time are identified in its implementation plan.
State law limits each project area to a term of no more than 40 years. Without
RDAs, the increase in property tax revenue would be distributed to the county,
the city, and the areas schools and special districts.
In
California, RDAs currently receive over 8 percent of all property taxes
collected in the state every year.
Originally, RDAs received all of the increase in property tax revenues
collected in the project area. In
response to criticism from local governments, the state allowed jurisdictions
to negotiate with RDAs to share a portion of the increment. Traditionally, these “pass throughs”
amounted to about 14% of the increment, with a third of that percentage going
to county governments. Schools however,
had no incentive to negotiate “pass throughs” because the state reimbursed
schools for any revenue lost to RDAs.
Most of the current RDA project areas in Santa Cruz County were
organized under these rules. In 1993,
in response to continuing criticism, the state passed AB1290 that set a uniform
“pass through” rate of 33% for all new project areas.
RDA increment revenue is not used to fund redevelopment projects directly. RDAs are first required to incur debt, usually by issuing bonds. The borrowed funds are then used to complete RDA projects and the incurred debt is then paid off using the increment revenue diverted from other uses. In this way, future RDA revenue is leveraged to allow projects to go forward earlier in the term of the project area. In addition, many RDAs have become adept at leveraging RDA funds to obtain additional funding through federal and state grants that increase the overall financial impact of the RDA in its project areas.
Proponents
of RDAs say that they allow government to do what private enterprise cannot. For instance, chronically depressed areas
are generally not attractive to business developers. With significant RDA
investment in basic infrastructure, community beautification, and business
assistance, the area can become much more attractive. This results in business recovery that would not otherwise have
happened. Additionally, RDAs can use
their power to acquire property through eminent domain to assemble small
parcels into larger properties in order to entice large retailers and other
commercial users to relocate in older developed areas. Finally, since RDAs are required by law to
divert 20% of their revenue to the development of affordable housing,
significant revenues are set aside for this purpose that would not necessarily
be allocated to this use by the local jurisdiction.
In
sum, RDAs redirect a significant amount of property tax revenues to
redevelopment projects. This provides
the jurisdictions in which they are formed with a greater share of the property
taxes to which they would otherwise not have been entitled. Additionally, they allow for the issuance of
bonds without voter approval and provide extended powers of eminent domain to
facilitate large developments.
While
the laws governing RDAs have been overhauled periodically, critics still
remain. For example, many critics
charge that, while the intent of an RDA is to do what private industry cannot
do, in practice, what they sometimes do is force private property owners to do
what local governments or large developers want them to do. The use of eminent
domain by local governments is normally limited to the taking of private
property for public use. However, the
expanded powers of eminent domain granted to RDAs allow for the forced transfer
of private property from one private party to another.
Many
critics also complain that a redevelopment “industry” has arisen around these
structures that actually instructs developers in how to “extort” concessions in the form of “corporate welfare” from local governments.
More
importantly, critics charge that developments pursued with the cooperation and
assistance of an RDA are often relieved of such planning requirements as impact
fees or given lucrative tax exemptions that give them a significant advantage
against private businesses already located in the area. Additionally, this allows for significant
interference by local officials in development in the local market. Politically “connected” developers can be
supported while “politically incorrect” projects are left to work their way
through the normal planning process.[2]
Additionally,
while the term “blighted” was intended to apply to previously developed areas
in need of renewal, many RDAs include within their project areas large tracts
of undeveloped
vacant
land. Many jurisdictions have also been charged with creating RDAs in
prosperous areas which are not really “blighted”. The statutory definition of “blighted” is quite broad, but some
jurisdictions have included districts that are clearly not within the plain
meaning of the word.
In
theory, since RDAs are financed through the growth in property values in its
project areas, it essentially pays for itself over the life of the project.
However, general economic trends could also be contributing to the increase in
property values. RDAs do not generally
evaluate projects for their specific effect on property values, so no actual
numbers are available to evaluate their performance. However, current estimates are that RDAs are responsible for, on
average, one half of the increase in property values.
Finally,
because of the requirements of the increment financing system, incurring debt
is actually a requirement of the RDA system. This, critics charge, has lead to
a dramatic expansion of public indebtedness in recent years as jurisdictions
use RDA financing for development projects they could not otherwise afford.
In
conjunction with its investigation of the revenue effects of land use decisions
the Grand Jury sought to examine the role played by RDAs in this process and to
perform a general review of the current operations of each of the local RDAs.
·
Elected
Officials
·
City
Managers
·
Planning
Department staff
·
Redevelopment
Agency directors
·
Economic
Development Department staff
Additionally,
the Grand Jury interviewed local business leaders and development
consultants. The Grand Jury also relied
on numerous local newspaper articles, web resources, and planning documents to
prepare for these interviews and guide our investigation.
Findings
1.
RDAs
are intended to generate funds for redevelopment projects in blighted urban
areas.
Response: Santa Cruz County Board of
Supervisors AGREES
Response: City of Capitola AGREES
Response: City of Santa Cruz AGREES
However, Section 33030 of California Redevelopment Law (Health and Safety Code) provides the definition of blight, which includes both physical and economic blight, and includes situations such as inadequate public improvements, lack of parking among many situations, and others which lead to economic decline.
Response: City of Scott Valley AGREES
Response:
City of Watsonville AGREES
2.
Because
RDAs generate significant additional revenue, many local governments are
tempted to form RDAs in areas that do not fit the intended purpose of an RDA or
to expend such funds on projects that only tangentially serve the purpose of
relieving urban blight.
Response: Santa Cruz County Board of
Supervisors
Without further information, the County can neither agree nor disagree with this finding.
Response:
City of Capitola DISAGREES
The City of Capitola created a Redevelopment
Agency and is in the process of expanding the project area of that agency for
purposes that are consistent with Redevelopment Law. The City of Capitola uses the proceeds from its RDA in a manner
that best serves the City of Capitola and that is completely consistent with
Redevelopment Law. The City of Capitola
does not know whether the uses of RDA funds in other jurisdictions do not fit
the intended purposes of an RDA, nor whether the projects of other
jurisdictions only tangentially relieve urban blight.
Response: City of Santa Cruz DISAGREES
The City of Santa Cruz’ RDA projects meet
the definition of blight as set forth in the legislation. AB 1290 was adopted by the State Legislature
in 1994 and SB 211 in 2001 to curtail redevelopment abuses. SB 211, in particular, gives the State
Attorney General the power to seek legal action in the adoption of
redevelopment projects which do not follow the prescribed legal procedures or
have inadequate findings of blight.
Response: City of Scotts Valley
DISAGREES
Scotts Valley disagrees since we have no knowledge of other agencies
reasons for forming RDA’s. In the City
of Scotts Valley, the Redevelopment Agency was established for a specific
purpose in a blighted area. Many of
those projects were to improve the infrastructure such that economic
development could occur, thus eliminating the blighted conditions.
Response: City of Watsonville DISAGREES
The City and Agency uses its redevelopment funds to relieve economic and physical blight. Language in AB 1290 has eliminated any ambiguity that may have existed in the past in the specific requirements governing what conditions are required in order to declare an area blighted.
3.
The
county and all four cities in Santa Cruz County each have their own RDA with
one or more project areas.
Response: Santa Cruz County Board of
Supervisors AGREES
Response: City of Capitola AGREES
Response: City of Santa Cruz AGREES
Response: City of Scotts Valley AGREES
Response: City of Watsonville AGREES
4.
The
county RDA includes the largely residential areas of Live Oak and Soquel and
concentrates on improvements to neglected residential infrastructure such as
streets, bridges, sidewalks, and trees.
The county has numerous large fully developed residential areas. Because
it lacks the corresponding commercial areas usually found in city centers, the
county does not have the revenue base required to provide infrastructure
improvements in these residential neighborhoods. The county has turned to an RDA in Soquel and Live Oak to, at
least partially, solve this problem. In
fiscal year 2001/2002, the RDA generated $9,854,577 in increment for capital
projects and $3,254,876 in increment for affordable housing projects. The RDA is expected to complete its projects
sometime between 2015 and 2020.
Response: Santa Cruz County Board of Supervisors
PARTIALLY AGREES
The County’s
projects have served to improve infrastructure for both the residential and
commercial areas. While expanded
commercial areas could serve to increase tax revenues to support services to
the Live Oak and Soquel areas, it is unlikely those revenues would also support
the cost of upgrading the area’s infrastructure. Under the current redevelopment plan, the Agency has until 2027
to complete its projects.
5.
The
Scotts Valley RDA includes the main city corridors of Scotts Valley Drive and
Mt. Hermon Road and concentrates on improvements to traffic flow in this
area. Significant improvements have
been completed which have transformed a small town’s main street into the
necessary traffic route required to support recent growth and development.
Another priority has been the purchase of a large parcel on Mt. Hermon Road for
future development as a Civic Center and retail complex. RDA funds have also
been used for the construction, renovation and preservation of historical and
government buildings such as the Hollins Stables Barn near the Borland
Complex. In fiscal year 2001/2002, the
RDA generated $989,309 in increment for capital projects and $663,693 in
increment for affordable housing projects.
Response: City of Scotts Valley AGREES
6.
The
Santa Cruz City RDA has two project areas which encompass nearly all of the
commercial areas of the city.
Traditionally, the RDA was concerned with flood control and the
rebuilding of the downtown shopping area after the 1989 Loma Prieta
earthquake. Recently, they have
expanded their projects to include:
·
major
improvements to Mission Street, the major traffic route on the west side of the
city
·
general
business promotion and street improvements in the eastside business district
·
transformation
of industrial areas along River Street and in Harvey West to large store retail
use
·
renovation
of the Del Mar Theatre
The RDA has been working to develop an arts center in the historic Salz Tannery property, which is located along River Street north of Highway 1. In fiscal year 2001/2002, the RDA generated $3,920,501 in increment for capital projects and $1,980,987 in increment for affordable housing projects.
Response: City of Santa Cruz AGREES
7.
Most
RDAs finance their operations through bonds to be repaid through increment
financing. The City of Santa Cruz RDA is almost entirely funded through loans
from city enterprise funds and a $1,000,000 loan from the city’s Community
Trust. This is a practice not available
to county governments. RDA officials
assert that significant savings are realized through this practice because of
the high costs associated with issuing and administering RDA bonds.[3] However, these enterprise
funds are collected from ratepayers for the purpose of providing services such
as water and sewer facilities.
Theoretically, they are intended to be held for some time in order to
finance future capital improvements or emergency repairs. However, it is not clear that ratepayers are
generally aware of this practice. City officials left us with the impression
that they had not considered what would happen if the enterprise fund suddenly
needed access to its reserves.
Presumably, repayment terms would be governed by the documents associated
with the loans. When questioned they responded “Well, I guess we would have to
pay it back.”
Response: Santa Cruz County Board of
Supervisors
This finding concerns the City of Santa Cruz Redevelopment Agency. The County has no knowledge of issues related to this finding.
Response: City of Capitola PARTIALLY
AGREES
Redevelopment projects are frequently
financed through debt. The activities
of the City of Santa Cruz RDA are beyond the jurisdiction of the City of
Capitola.
Response: City of Santa Cruz DISAGREES
The City of Santa Cruz disagrees with this finding particularly with respect to the statement “is almost entirely funded through loans from City enterprise funds and a $1,000,000 loan from the City’s Community Trust.” With respect to an explanation on the RDA’s borrowing activities, please see below.
a. The RDA has one loan from an enterprise fund—the Water Fund—which has a
current outstanding balance of $45,851, the background of which is explained in
Recommendation #3 on Page 8. This loan
pays interest to the Water Fund at an interest rate set by the City Investment
Portfolio, which is the same rate these monies would earn in the Water
Fund. The loan at current interest
rates will be repaid in seven years.
b. The loan from the City Council Trust Fund is for the Mission Street
Under-grounding Project and was approved by the City Council and RDA at public
meetings. The funds in the City Council
Trust Fund have been derived from the sale of City-owned real estate. The City Council Trust Fund has no
relationship to any of the City’s enterprises.
c.
The major debt instrument of
the Merged Project is a Tax Allocation Bond originally issued in 1989 and
refunded (refinanced at lower interest rates) in 1996 in the amount of $4.2
million. The bulk of the RDA’s other
debt instruments as reported on the annual Statement of Indebtedness filed with
the County Auditor are obligations through Owner Participation Agreements and
Cooperation Agreements with the City of Santa Cruz.
Response: City of Scotts Valley
GENERALLY AGREES
However, we are unable to comment on the City of Santa Cruz RDA and their loans through the enterprise funds.
Response: City of Watsonville NEITHER
AGREES NOR DISAGREES
The City of Watsonville doesn’t have the information
necessary to comment of the Santa Cruz RDA’s method of funding its projects.
8.
The
City of Capitola RDA encompasses the retail areas along 41st Avenue
between Highway 1 and Capitola Road.
Historically, the RDA has concentrated on the development of the
commercial areas located along 41st Avenue. Recently, they have had difficulty
identifying suitable projects. Currently, they are discussing the renovation of
the Rispin Mansion into a bed and breakfast inn. In fiscal year 2001/2002, the
RDA generated $707,943 in increment for capital projects and $351,390 in
increment for affordable housing projects.
Response: City of Capitola PARTIALLY
AGREES
The initial focus of the Capitola RDA was on
the 41st Avenue area, including RDA action to provide for Clares
Street between 41st Avenue and Capitola Road. The City Council disagrees with the
statement that the Capitola RDA has had difficulty identifying suitable
projects. Redevelopment increment has been
used to provide ADA accessibility improvements within the project area, has
been used to develop 31 new units of very low income housing, and has allowed
the Loma Vista Mobilehome Park to become resident-owned. Possible road/bridge improvements to address
traffic congestion along 41st Avenue are currently being
studied. Affordable housing needs
continue to be of major concern to the City Council. It should also be noted that in fiscal year 2001-02 $484,353 of
the capital projects tax increments was used to pay debt service for qualifying
redevelopment projects and activities that have already occurred.
9.
The
Rispin Mansion Project is of particular note. The mansion is a decrepit,
1920’s-era home located on a six-acre parcel in the City of Capitola outside of
the original RDA project area. This run
down structure has been vacant for decades and has, by latest reports, been the
subject of 140 police calls over the last year. The City bought the mansion in 1985 and since 1997 has been in
negotiations with local developers to remodel it into a bed and breakfast.
Recently, the City has proposed selling the property to its RDA for $1.35
million. Ostensibly, this is to
facilitate redevelopment of the property, but it is unclear why these efforts
would require RDA ownership of the property since other projects do not. However, the sale has other advantages. For
example, the city proposal does not require the immediate payment of the
purchase price. Instead it proposes the
RDA pay interest on the debt at 8% providing the city with over $100,000
annually in additional revenue, with the principle to be paid in a lump sum
prior to June of 2017. Presumably,
this debt and the interest payments it generates would be paid for with
increment financing.
Response: City of Capitola PARTIALLY
AGREES
The Rispin Mansion is an important historical
asset to the City of Capitola. The
reason it is necessary to sell the property to the RDA are several: 1) the preservation of this blighted
property is the business of an RDA and should not encumber the limited
resources of the city’s general fund; 2) because the curing of blight is the
proper business of the RDA, the impacts from current blight such as vandalism,
fires, trespass and issues of liability are also the province of an RDA. To accommodate these two goals requires RDA
ownership of the property. The sale has
been approved by the RDA Board and City Council in exchange for a note in the
amount of $1.35 million and at an adjustable interest rate at the current rate
of 5%.
10.
Since
the Rispan property is not located in the current project area, the city will
be required to amend its project area or create a new project area with
sufficient increment to support the project. Presumably, since the Rispin
property is owned by a local government agency, it will generate no property
tax at all, so it is hard to see how it will generate sufficient increment on
its own to support the any desired projects.
Response: City of Capitola PARTIALLY AGREES
The meaning of this finding is unclear, but
the facts are these: a) The Rispin
property is currently in an amended preliminary project area, with the intent
to amend the original project area to include the Rispin property; b) Once the
project is developed the RDA has the option to lease or sell the property. If the property is sold, tax increment will
be generated. If the property is
leased, tax increment will also be generated through the possessory interest
tax process.
Response: City of Watsonville NEITHER
AGREES NOR DISAGREES
The Rispin property is not within the Watsonville City Limits.
11.
Many
RDAs hold property or the rights to income from property such as rents or, in
the case of the Rispin proposal above, the right to collect the transit
occupancy tax generated by the property.
These revenues generally show up as income to the RDA. However, in the case of the City of Santa
Cruz RDA, they appear as a deduction to RDA administrative costs.
Response: Santa Cruz County Board of
Supervisors
This finding concerns the Santa Cruz City and Capitola Redevelopment Agencies. The County has no knowledge of issues related to this finding.
Response: City of Capitola PARTIALLY AGREES
The right to collect transient occupancy tax is solely that of the city
(or county), not the RDA. Such revenues
must by law show up as income to the city (or county). The
City of Capitola has no knowledge of the City of Santa Cruz’s accounting
practices.
Response: City of Santa Cruz DISAGREES
If any rental income is received, it is booked as such and reported that way on the appropriate State forms. As of the Fiscal Year 2001–2002, there was no rental income received by the RDA. The lease agreement on the Del Mar Theatre, which was effective in Fiscal Year 2002–2003, provides for the lease payments to be placed in a reserve fund to be used for building improvements.
Response: City of Scotts Valley AGREES
Response: City of Watsonville NEITHER
AGREES NOR DISAGREES
The Rispin property is not within the Watsonville
City Limits and we can’t comment on another agency’s specific method of
accounting for expenses.
12.
The
City of Watsonville RDA encompasses the central downtown business district and
the west side industrial area of the city. It has been significantly expanded
in recent years to add 1,300 acres to the project area. The RDA concentrates on the revitalization
of the downtown commercial district, which sustained significant damage after
the 1989 Loma Prieta earthquake, and the development of job producing
businesses in the city’s industrial areas. The city also has plans to use RDA
funding to finance its long planned Civic Plaza Project which calls for a
four-story complex on the 200 block of Main Street which includes city offices,
a City Council Chamber, library, and county court space. In fiscal year 2001/2002, the RDA generated
$2,435,276 in increment for capital projects and $801,804 in increment for
affordable housing projects.[4]
Response: City of Watsonville
The Agency partially agrees with this finding.
The
Watsonville Redevelopment Agency’s Annual Financial Report for fiscal year
ending June 30, 2002, states the RDA generated $3,207,042 for non-housing
purposes and $801,804 for low and moderate-income housing projects. Of this, the Agency had to “pass-through”
$771,766 to other taxing entities from the money received that was available
for non-housing purposes together with an additional $668,894 that was required debt service on prior tax allocation
bonds. Accordingly, the Agency only
received $1,800,833 that was available for capital projects.
13.
RDAs
are required by state law to allocate 20% of their available increment to the
development of affordable housing. In
some cases they allocate more. For
example, the City of Santa Cruz allocates and uses 25%, but many RDAs
throughout the state fail to utilize the entire 20%.
Response: Santa Cruz County Board of Supervisors
This finding does not pertain to the Santa Cruz
County Redevelopment Agency.
Response: City of Capitola PARTIALLY AGREES
The City allocates 20% to its low/moderate
income housing fund. The City of
Capitola does not monitor such allocations from any other agency.
Response:
City of Santa Cruz AGREES
Response: City of Scotts Valley AGREES
Most RDAs in the area must collect a significant amount of affordable
housing funds in order to assist in the production of units. While it is apparent that some jurisdictions
have not been able to spend all of the affordable housing monies, Scotts Valley
has made significant progress in meeting our affordable housing goals. A significant investment of over $4 million
was made for a 46 unit very low income apartment project adjacent to City
Hall. We have implemented a successful
silent second program and worked with developers to provide additional
affordable housing units within inclusionary projects than is required. Due to the costs of development and property
values, Scotts Valley has had to collect funds over a period of time in order
to make projects feasible.
Response: City of Watsonville
The City has noted this finding.
14.
It
is unclear how effective these affordable housing programs are. For example, the Santa Cruz County RDA, in
conjunction with South County Housing, a non-profit housing developer, recently
completed the first phase of a 99 unit affordable housing project off Airport
Boulevard next to Corralitos Creek. The
first phase of this development, known as “Corralitos Creek Townhomes”,
contains 23 four-bedroom units priced at $287,100 and 12 three-bedroom units at
$272,100. There were originally over 200 applicants who applied for a lottery
for these homes, but most of the applicants did not meet the financing
requirements to be eligible purchasers.
Therefore, in early April of this year, the RDA notified local
governments of the opportunity for their employees to apply for these
townhomes. South County Housing was to
begin soliciting additional applicants as well, with the homes scheduled to go
on sale at the end of June.
Response: Santa Cruz County Board of
Supervisors PARTIALLY AGREES
The evidence does not support the initial
comment that, “It is unclear how effective these affordable housing programs
are.” With almost 1,000 affordable housing units assisted by the County
Redevelopment Agency since its inception with a substantial leveraging of
outside funds, the County believes that the housing assistance efforts have
been extremely successful.
Response: City of Capitola PARTIALLY AGREES
Without doing thorough research it is
unclear how effective various affordable housing programs are. The City of Capitola has done no research on
the “Corralitos Creek Townhomes” project.
However, we note that the identified sales prices are well below market
prices for new single family homes, and adjustments to marketing efforts will
likely lead to identification of a sufficient number of eligible purchasers.
Response: City of Santa Cruz
The City has no
comment on the above example. However,
for further information with respect to this comment, the City RDA has provided
on the following page a listing of where a substantial amount of redevelopment resources
to the development of affordable housing has been made during the life of the Merged Project Area. These projects have created a mix of 831
low- and very low-income and market-rate household units in both for-sale and
rental housing units as follows:
|
Affordable
Housing Projects - Completed, Rehabilitated |
|
|
Neary
Housing Coop |
95 Low- and Very Low-Income Rental Co-op
Units |
|
Arbor
Cove Seniors Project |
35 Low- and Very Low-Income Units |
|
Sycamore
Street Commons Project |
60 Low- and Very Low-Income Rental Units |
|
Mariners
Cove Project |
12 Moderate-Income 1st Time
Home Buyer Units 72 Market-Rate Buyer Units |
|
155
Chestnut Street |
14 Low- and Moderate-Income Rental Units 82 Market-Rate Rental Units |
|
511
Swift Street Artist Live/Work Project |
9 Moderate-Income Live/Work Units |
|
515
Leibrandt Avenue |
7 Low- and Moderate-Income Rental Units |
|
1010
Pacific Avenue |
43 Very Low- and Moderate-Income Rental
Units 70 Market-Rate Rental Units |
|
1280
Shaffer Road |
83 Low- and Very Low-Income Rental Units 123
Market-Rate Rental Units |
|
136
Leibrandt Avenue |
47 Low- and Very Low-Income Rental Units –
Replacement of Substandard
Non-Affordable Housing Units 1 Moderate-Income Rental Unit |
|
Total |
405
Low- and Very Low-Income Rental Units 47 Replacement Affordable Units 342
Market-Rate Rental & Owner Units |
|
Affordable Housing Projects - Start of
Construction July 2003 |
|
|
211
Gault Street Seniors Housing Project |
37 Low-Income Units |
|
Total |
37 Low-Income Units |
Response: City of Scotts Valley
PARTIALLY AGREES
We are unable to comment on the specific project in Santa Cruz
County. However, it should be noted
that the effectiveness of affordable housing projects varies with each project
and program, and in each jurisdiction.
Scotts Valley has been able to achieve several housing opportunities
both with rental units and with for sale units where families successfully
qualified and have purchased or are renting units. Purchasers are also further assisted in Scotts Valley through our
Silent Second program. We also
encourage potential purchasers to pre qualify for units through a local
mortgage company to ensure that they can purchase a unit. For rental units, we also provide a program
to assist with the first month’s rent and provide a security deposit
guarantee. Both of these programs have
been very successful.
Response: City of Watsonville PARTIALLY
AGREES
The City realizes just how difficult it is to satisfy the myriad of redevelopment requirements that govern the development of affordable housing projects. Redevelopment Law governs, along with other aspects of the sale of a specific low and moderate income housing unit, the sales price, the maximum income of the purchasing family, and the maximum percentage of that family’s income that can be spent on all housing costs. Special legislation that applies solely to Santa Cruz County became effective on January 1, 2002, which recognizes the difficulty Agencies have in qualifying buyers according to all the provisions required under RDA law, especially in high housing cost areas. Even with the provisions of SB 459, it is still difficult to meet all the required standards.
15.
Faced
with a substantial state budget deficit, the Governor has proposed, in current
negotiations, to take unused housing funds away from RDAs who fail to utilize
them.
Response: Santa Cruz County Board of Supervisors PARTIALLY
The Governor did propose such a
transfer, but the proposal was resoundingly defeated in both houses of the
legislature.
Response: City of Capitola DISAGREES
The Governor has approved a budget without
such a provision.
Response: City of Santa Cruz AGREES
The City RDA does not have any unused
housing funds.
Response: City of Scotts Valley AGREES
Response: City of Watsonville
The Governor had originally proposed this, but that proposal died due to extensive opposition from communities, housing advocates and legislators. Subsidized housing projects typically require complex and sophisticated financing from a number of different sources. Projects can take years in the making in order to secure both the required funding and development entitlements. Therefore, just looking at a fund balance does not give a true picture of how an Agency has anticipated using housing funds because anticipated projects are frequently somewhere in the conceptual or development pipeline.
16.
By law, RDA project areas are limited to a
fixed term of existence. In effect,
this means that some RDAs are likely to be closed out in the next two decades
unless new blighted areas are identified. While new project areas can be
formed, changes to state law make new projects less attractive than in the
past.
Response: Santa Cruz County Board of
Supervisors AGREES
Response: City of Capitola AGREES
Response: City of Santa Cruz AGREES
Response: City of Scotts Valley AGREES
Response: City of Watsonville PARTIALLY AGREES
RDA project areas are limited to a fixed term of existence. More recent legislation has tightened the criteria that must be met before a project area can be formed, but “legitimate” redevelopment project areas are likely to continue to be formed.
17.
The
state budget crisis poses a significant threat to the stability of RDA funding
for capital projects. Actual and threatened cuts of funding for RDAs have
caused the cancellation or
postponement of projects and put into question the ability of RDAs to
meet current obligations to repay bonds over the long term. Although RDAs are theoretically independent
agencies responsible for their own debts, it is virtually inconceivable that a local
government would let its RDA go bankrupt except in the direst of circumstances.
Response: Santa Cruz County Board of
Supervisors PARTIALLY AGREES
While it is true
that the state budget crisis could pose a long term threat to RDA funding, it
is not currently clear whether that will in fact become a problem. There will be some limited impacts from the
cuts contained within the current state budget, but there will only be
significant impacts to agencies’ activities in the event that the state continues
to make such cuts in future years. It
is not clear whether the current cut will be a one-year or ongoing transfer of
RDA revenues to the state.
Response: City of Capitola PARTIALLY AGREES
Fortunately the City of Capitola has never
been put into such a position. The
policy tension would be using general fund money to alleviate a credit problem
created by the State of California, or preserving the level of services
provided to the city residents through its general fund. This would not be an easy decision to make
especially if health and safety issues were involved.
Response: City of Santa Cruz AGREES
Response: City of Scotts Valley AGREES
Response: City of Watsonville AGREES
18.
Because
commercial uses also generate sales tax revenue, they are often given more
assistance from local governments and RDAs than less “profitable” but job
generating properties.
Response: Santa Cruz County Board of
Supervisors DISAGREES
To the extent
that the County RDA has provided assistance to proposed commercial projects,
that assistance has been targeted to both sales tax and job generating
projects, the County cannot agree with this finding.
Response: City of Capitola DISAGREES
The City of
Capitola makes every attempt to provide the same level of prompt and helpful
customer service to all who come to the development counter. State law and then local policy governs who
may receive assistance from RDA funds.
The City of Capitola has not withheld assistance because any project was
less profitable.
Response: City of Santa Cruz DISAGREES
The City RDA has given assistance to both sales tax-generating projects and job-producing projects.
Response: City of Scotts Valley
DISAGREES
The City of Scotts Valley provides assistance to all businesses on an
as needed basis. We have a variety of
programs in our Economic Development Plan that assist existing and new
businesses, as well. We do not provide
financial incentives.
Response: City of Watsonville AGREES
The City agrees with this finding in general, although, not in the case of Watsonville.
19.
Some
high dollar volume properties such as car dealerships and “big box” retailers
can be particularly profitable to their local government hosts. For example,
the proposed Home Depot on Green Valley Road in Watsonville is expected to
begin generating $360,000 in sales tax for the city by 2005.
Response: Santa Cruz County Board of Supervisors
AGREES
The County agrees
with the first statement of this finding, but has no knowledge of expected
sales tax income of the Watsonville store.
Response: City of Capitola AGREES
The City of Capitola is not familiar with
the details of the Home Depot project, but retailers with a high dollar volume
can contribute significantly to the city’s general fund revenue.
Response:
City of Santa Cruz AGREES
Response:
City of Scotts Valley AGREES
Response: City of Watsonville PARTIALLY AGREES
However, it must be clearly understood that this was a
private transaction, with no involvement or participation from the Watsonville
RDA.
20.
Consequently,
many local government and redevelopment agencies offer financial incentives to
these businesses to encourage them to locate in their jurisdiction. This practice can result in local
governments bidding against each other to direct the location of particularly
lucrative businesses within their borders with no net gain to the local area as
a whole. This is especially true when
one jurisdiction uses its financial resources to attract local business to
relocate within the local area, sometimes just a few miles in order to cross a
local jurisdiction boundary.[5]
Response: Santa Cruz County Board of
Supervisors
Without more
specific information, the County is not in a position to either agree or
disagree. As is pointed out in the
footnote to this finding, state law strictly limits redevelopment agencies’
ability to provide financial assistance to lure high sales tax generating
projects from surrounding jurisdictions. To our knowledge, while there have
been efforts by some business interests to pit local agencies against each
other for new retailers in the areas, those efforts have not been successful in
Santa Cruz County, largely due to the close working relationships between the
local jurisdictions.
Response: City of Capitola PARTIALLY
AGREES
The City of Capitola is aware that this may
happen, but the City of Capitola has never agreed to any such incentive.
Response: City of Santa Cruz DISAGREES
This finding is no longer
valid inasmuch as the State Legislature has specifically limited the type of
bidding for commercial projects, which are mentioned above with the passage of
AB 178 in 1999 and other legislation which has been considered by the State
Legislature in the current session.
Response: City of Scotts Valley
PARTIALLY AGREES
Scotts Valley does not provide any financial incentives to new
businesses to encourage them to locate in our jurisdiction. We do understand, particularly in other
counties, that local governments may bid against each other to direct the
location of retail businesses. However,
we have not observed that this has occurred in our County.
Response: City of Watsonville PARTIALLY
AGREES
The City
can’t speak to the incentives to businesses offered by other jurisdictions but
agrees that this type of “bidding war” has occurred in the past. There is new legislation which specifically
prohibits redevelopment agencies from providing incentives to “Big Box”
retailers and auto dealers who are relocating from within the same market area. The Watsonville Redevelopment Agency has not
offered incentives to attract local business to relocate within the same market
area.
21.
In the past, the Santa Cruz area has had its
share of competition for retail businesses.
Today, local officials are less willing to use their resources for this
purpose.
Response: Santa Cruz County Board of Supervisors
Without more specific information, the County is not in a position to either agree or disagree. While the meaning of this finding is not completely clear, the implication is that local governments in some past period were open to using their financial resources to encourage retail business to come to the area and that somehow that era has passed. We are not aware of any era where such assistance has been encouraged, with the brief exception of immediately after the 1989 earthquake. In general, local governments in Santa Cruz County have been reticent to provide financial incentives to attract retail businesses and have worked cooperatively on issues associated with the relocation of tax generating businesses.
Response: City of Santa Cruz AGREES
The city of Santa Cruz agrees with this finding as it relates to the City of Santa Cruz. The City cannot comment regarding other agencies.
Conclusions
1.
RDAs
have been critical to the growth of our local economy. Projects for flood control and earthquake
recovery have helped local businesses survive and prosper. Street improvements in commercial districts
and conversions of rundown areas to profitable retail uses have generated
significant sales tax revenue for local governments. These and many other
accomplishments should be recognized when discussing the effectiveness of RDAs.
2.
However,
the use of RDA funds to finance the renovation or construction of public
buildings and facilities such as branch libraries and the Civic Plaza in
Watsonville leaves the impression that local governments are using RDA funds
for projects that would more properly be funded by other sources.
3.
The
use of an RDA by the County of Santa Cruz to fund infrastructure projects in
residential areas serves a useful purpose, but seems to violate the spirit if
not the letter of the law. A greater
emphasis on commercial development would return the RDA to its intended purpose
and provide more benefit to the county in the long run.
4.
The
County of Santa Cruz RDA is currently providing funding for infrastructure
projects in the Live Oak and Soquel residential areas. This is not a permanent solution because the
term of existence of the RDA project area is limited.
5.
The
closing of RDA project areas over the next 20 years constitutes a potentially
significant loss of funds to local government and may require significant wind
up costs and planning.
6.
While
the City of Santa Cruz RDA may realize significant savings through its use of
enterprise fund reserves to finance RDA activities, the practice raises
significant concerns worthy of further examination.
7.
The
existence of city enterprise funds and county service area funds creates
potentially large pools of money that are tempting targets for cash strapped
local governments. However, their main
purpose, the provision of services to their ratepayers, should be controlling.
8.
The
deduction of income generated by properties held by an RDA from RDA
administrative expenses artificially lowers the true percentage of RDA funds
required for this purpose.
9.
The
City of Capitola’s proposal to sell the Rispin mansion to its RDA does not
appear to serve any purpose other than to create a debt for its RDA and a
revenue stream to the city.
Additionally, the rest of the citizens of this county are asked to foot
the bill through increment financing. The Grand Jury is left to wonder if
Capitola will then reassume ownership of the property upon the eventual
termination of the RDA. Following on last year’s proposal to create a similar
debt for supposed administrative services provided by the city to the RDA for a
number of years, the Grand Jury wonders if the City of Capitola’s RDA has
outlived its legitimate usefulness.
10.
The
use of RDA funds for the purpose of competing with other local jurisdictions to
attract lucrative “Big Box “ retailers can be counter productive when those
retailers would locate somewhere in the area without government assistance.
11.
Additionally,
despite recent attempts to level the playing field, RDAs and other
jurisdictions with large revenue sources have an advantage in the competition
to attract new business development when in competition with less prosperous
areas. This would seem to conflict with
the stated purpose of RDAs.
12.
Efforts
by local officials to communicate with each other concerning large development
proposals can help to prevent one jurisdiction from being played off against
one another to encourage greater concession to developers.
13.
Agreements
among local government jurisdictions to equitably share sales tax revenues from
large retailers and standardized redevelopment assistance programs could
prevent unnecessary competition and lead to development based on the actual
business requirements of developers.
Recommendations
1. Each RDA should examine its projects to ensure they are of a type that should legitimately receive RDA funding.
Response: Santa Cruz County Board of
Supervisors
This recommendation
has already been implemented under the requirements of state law. Under State law, redevelopment agencies are
required to adopt implementation plans every five years and update those plans
in year three of the five-year cycle.
The plan is required to show how the proposed projects and programs will
serve to reduce the blight that was identified in the original redevelopment
plan that established the redevelopment project area. As individual expenditures are approved by the agency’s board of
directors, various findings must be made, including that the project or program
is consistent with the adopted five year plan.
This process establishes the legitimacy of individual agency
expenditures and projects.
Response: City of Capitola
This has been implemented.
Response: City of Santa Cruz
This recommendation has been implemented through the adoption of the City of Santa Cruz’ 2000–2004 Implementation Plan.
Response: City of Scotts Valley
This City has implemented
this recommendation.
Response: City of Watsonville AGREES
2. Each city and the county should require its RDA and community development staff to prepare a presentation at a future public meeting that
·
describes
the proposed time table for the wind-up of the RDA project areas currently in
existence
·
outlines
the financial impact to the jurisdiction to be expected on termination of each
project area.
·
provides
a road map for future RDA wind-up planning
·
identifies
the risks to the jurisdiction posed by potential drastic cuts in RDA increment
revenue should the state decide to redirect RDA funding to other priorities
Response: Santa Cruz County Board of
Supervisors
This recommendation
has in part already been implemented, and other aspects will not be implemented
for the reasons described below. In addition to regular
public meetings to review project designs, the County RDA periodically holds
general community meetings to seek feedback from the community on projects
completed to date and future project needs.
As part of these meetings, the time line for completing project
activities is discussed, and when the Agency approaches the end of its activity
(2027), those meetings will focus on an orderly transition to a time where
redevelopment funding will not be available.
For the County RDA that time is many years away and therefore such
discussions in the near future would be premature.
Because the date
for completing redevelopment activities is so far in the future, it is
anticipated that most capital improvement projects will be completed. The elimination of this funding therefore
should have little negative impact on non-housing activities. However, in the case of affordable housing
assistance, the impact will be significant.
Because the need for affordable housing will always exceed the supply,
the Agency provides the majority of local contributions towards affordable
housing projects and programs, and outside funding sources require local
matches, the loss of redevelopment housing funding will be a major issue. As the County approaches the 2027 deadline
for completing redevelopment activity, it will need to explore other options to
provide ongoing funding for affordable
housing efforts.
As far as the impact of
State funding cuts to Redevelopment Agencies, the State has indicated that
required RDA contributions to the ERAF fund are one-time. Proposals in the most
recent legislative session to phase-out redevelopment funding were not
well-received. Therefore, it is likely that agencies will continue to negotiate
with the State annually during
difficult fiscal times. Given that
backdrop, it would be difficult to have focused community discussions of the
impacts of State cuts to RDAs.
Response: City of Capitola
This recommendation will not be implemented
at this time. The City of Capitola
Redevelopment Agency’s current term expires in 2017, and may be extended beyond
that. It is more appropriate to discuss
the wind-up and termination impacts when the expiration date is nearer.
Response: City of Santa Cruz
The recommendation has been implemented as the RDA is required by State
law to adopt a Five-Year Implementation Plan after the conduct of a public
hearing. The City RDA has adopted its
Implementation Plan for the period 2000–2004 in December of 1999 and, pursuant
to State law, has reviewed the plan at a public hearing during the mid-point of
the Implementation Plan’s time period.
This public hearing was held on April 8, 2003. At this public hearing, information was provided which addressed
some of these points. However, since
the City RDA has extended its debt limit deadline for its projects pursuant to
SB 211, it is premature to outline events which now have a horizon of
2030. In addition, State redevelopment
law can change in the intervening years which can affect redevelopment further,
which has been the case in which the State adopts takeaways from RDAs in order
to meet the State budget deficit but allows an RDA to extend the term of its
project.
Response: City of Scotts Valley
PARTIALLY AGREES
The Scotts Valley RDA was established in 1990 and is a 40 year
Plan. Therefore, 30 years are left on
the Plan. To implement the first three
recommendations seems premature at this time.
However, the fourth recommendation regarding the potential drastic cuts
in RDA increment revenue will be reviewed with our City Council once the
outcome of the State Budget is known.
Response: City of Watsonville PARTIALLY
AGREES
Most of this information is included in both the documents used when a redevelopment plan is adopted and in the mandated Five Year Implementation Plan and any Mid-Term Review of the Implementation Plan. The Watsonville RDA and the public have been briefed repeatedly since January of this year about the level of impact that any on-going redirection of RDA funding would have to the City.
3. The City of Santa Cruz should fully disclose to its enterprise fund ratepayers the terms and conditions of its loans to its RDA. Additionally, if city officials wish to continue this practice, guidelines for protecting the interests of the ratepayers should be developed.
Response: City of Santa Cruz
This recommendation has been implemented. The City RDA has one enterprise fund loan in the amount of $45,851 from the Water Fund to the Eastside Project Area. This loan was approved by the City Council in 1997. At current interest rates this loan will be repaid in seven years. The loan pays an interest rate set by the City Investment Portfolio, which is the same rate the monies would earn if they were in the Water Fund. The loan was made to accommodate the Water Fund refinancing of a previously issued Certificate of Participation which was jointly funded by the RDA and Water Fund to finance the purchase and development of the Eastside Parking Lot and various water projects. In 1997, the Water Fund chose to refinance the Certificate of Participation (to gain a lower interest rate) and the amount of funds for the redevelopment project were not included in the Certificate of Participation, but as a loan from the Water Fund to ease their refinancing of the Certificate of Participation for the Water Fund.
In the event that the Water
Fund was in a deficit situation, this loan could be repaid from RDA funds.
4. At a minimum, future proposals to invest enterprise funds in local
government operations should be fully disclosed to ratepayers prior to
approval.
Response: City of Santa Cruz
This recommendation has been implemented as this information is, as previously mentioned, made available to the City Council and RDA when any such loan is made. At this point only one loan is outstanding.
5. To allow for the better evaluation of the performance of the
agency, each RDA should clearly present in its annual financial documents its
administrative costs without deduction for income from properties held.
Response: Santa Cruz County Board of
Supervisors
This recommendation
has already been implemented. The County Redevelopment
Agency in past years did combine general administrative costs with property
income and expenses. As part of the
FY 2003-04 budget, property income and
expenses have been set aside in a separate budget unit in order to provide more
flexibility in the use of revenues.
Response: City of Capitola
This has been implemented. City of Capitola administrative costs to the
RDA is based on city staff time, materials and overhead used by the RDA.
Response: City of Santa Cruz
The recommendation will not be implemented because this comment does not apply to its RDA inasmuch as the RDA does not deduct property income from its administrative costs and is unclear as to the origins of this claim.
Response: City of Scotts Valley
The City has implemented this recommendation.
The City of Scotts Valley does not receive any income from properties.
Response: City of Watsonville NEITHER
AGREES NOR DISAGREES
The Watsonville RDA does not offset administrative costs with income from properties.
6. The City of Capitola’s RDA should not initiate further projects or project areas and the RDA should be terminated as soon as is prudently possible.
Response: City of Capitola
This recommendation will not be
implemented. The City of Capitola
Redevelopment Agency is an excellent tool for the City and offers still
considerable resources, about $40 million, for the construction and implementation
of eligible projects. Such projects
include: 41st Avenue traffic
congestion studies and improvements; affordable housing projects; the Rispin
Mansion project; and other pedestrian and public works projects. Finally, it should be noted that the tax
increment dollars used for these projects do not diminish any revenue from any
other local agency. In fact, the
Capitola RDA increases those revenues.
Response: Santa Cruz County Board of
Supervisors
This recommendation has been partially implemented, and part of the
recommendation cannot be implemented.
State law currently limits the ability of local governments to share sales
tax revenues. Recent legislation
proposed to provide a test of a shared sales tax system in the Sacramento area
was not approved. The local planning and redevelopment directors meet regularly
to discuss regional planning and development issues. City and County
administrators also coordinate responses to specific inter-jurisdictional
financial issues as they arise.
Response: City of Capitola
This recommendation requires further
analysis. With regard to sharing sales
tax, depending upon the source and nature of sales tax, in certain respects
this has already been implemented. The
transit and library districts share in sales tax (transit .50%, and Library
.25% of each eligible retail transaction.) Furthermore, should AB 1412 become
law, which would allow certain cities and counties to increase sales taxes by
vote, there would be more of an incentive for the City to consider sharing
sales taxes with other jurisdictions.
With regard to promoting regional
development planning, CEQA does play a role in requiring a certain amount of
regional input into the development process.
However, it is understood that more cooperation is desired. The difficulty is that each jurisdiction has
its own special vision for its community, and these visions can differ significantly. In some cases it is the differing visions
that created the separate jurisdictions in the first place.
Response: City of Santa Cruz
The recommendation will not be implemented. The City of Santa Cruz believes that there
is legislation in place which addresses this recommendation.
Response: City of Scotts Valley
The sharing of sales tax will not be implemented because it is not
warranted at this time. In the County
of Santa Cruz we feel that reasonable development planning is not driven by
sales tax revenues, but more by land availability and transportation and labor
opportunities. In the County of Santa Cruz there also exists disparities in
property tax distributions, so therefore, prior to any sales tax
re-distribution, the property tax would also need to be studied, which in
itself presents major obstacles.
City planning decisions require financial stability to
engage in the meaningful long-range planning needed to deal with the difficult
issues of urban growth. The current revenue structure for local government has
no stability beyond the next state budget cycle. The redistribution of local
sales tax revenues should not go into effect until measures are placed on the
ballot to provide constitutional protection of local government revenues.
Response: City of Watsonville PARTIALLY
AGREES
The City would be interested
in participating in such discussions.
Responses Required
|
Entity |
Findings |
Recommendations |
Respond
Within |
|
Santa Cruz County RDA |
1-3 4,7,11, 13-21 |
1-2,5,7 |
90 Days (Sept. 30, 2003) |
|
City of Capitola RDA |
1-3, 7-11, 13-20 |
1-2,5-7 |
90 Days (Sept. 30, 2003) |
|
City of Santa Cruz RDA |
1-3, 6-7,11, 13-21 |
1-5,7 |
90 Days (Sept 30, 2003) |
|
City of Scotts Valley RDA |
1-3, 5,7,11, 13-20 |
1,2,5,7 |
90 Days (Sept 30, 2003) |
|
City of Watsonville RDA |
1-3,7, 10-11, 13-20 |
1,2,5,7 |
90 Days (Sept 30, 2003) |
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[1] A good presentation of the case against RDA can be found in Redevelopment: The Unknown Government published by Municipal Officials for Redevelopment Reform, August, 1998.
[2] A further example of the extent to which local governments can micromanage development can be seen in the recent plans proposed for the Skypark town center development in Scotts Valley. This significant portion of the town center is controlled by the city itself. The plan for its development, commissioned by the city, identifies the type of structures to be located on each parcel and even identifies the specific use to which some of the structures are to be put such as a coffee shop, flower shop, and newspaper stand.
[3] The City’s Community Trust was created from funds generated by the sale of the city owned Skypark Airport property in Scotts Valley. City officials commented that an added advantage of this arrangement was that it prevented the city from spending the money thus preserving it for future generations.
[4] The City of Watsonville has also been designated a federal “Enterprise Zone” which provides it with significant advantages in attracting business development.
[5] This topic has been the subject of reform efforts at the state level. Numerous proposals have been made to encourage the sharing of sales tax revenue on a regional or per capita basis. Additionally, SB 214, which has passed the State Senate, proposes that local governments be forbidden from subsidizing relocations by large retail stores within 25 miles and car dealers within 40 miles of their current location.