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Friday, Mar 29, 2024

Goodbye to Valley Development Funds

With the Valley area’s redevelopment agencies set to shutter, local officials are fearful they’ve lost a tool to kick-start economic development. And they’re howling that redevelopment assets they attempted to shield from the state are no longer secure. After Gov. Jerry Brown announced plans to close redevelopment agencies last year, many city councils — including Los Angeles and Glendale — moved to safeguard millions of dollars in redevelopment assets for future projects through asset transfers and agreements between their redevelopment agencies and cities. Those monies are now in jeopardy. In the latest pitched battle over redevelopment, the California Supreme Court on Dec. 29 upheld a law dissolving the agencies, but rejected the constitutionality of another that would have allowed the agencies to stay open if they shared revenues. Those laws were passed last summer to help close another multi-billion budget gap and shore up state finances in the future. About 400 agencies statewide, which include those in Santa Clarita, Burbank, Los Angeles, San Fernando, Lancaster and Glendale, are set to become extinct Feb. 1. As the agencies wind down, it’s unclear exactly what will happen to projects and billions of dollars in assets, creating a battle between cities, counties and the state over what must go and what can stay. Even some of the assets cities thought they had securely tucked away could be ripped back out. “Every one of these so-called transfers that happened after Jan. 1 (2011), they are subject to a challenge; they are subject to an investigation and they are subject to being recalled,” said Larry Kosmont, chief executive of Kosmont Companies, a Los Angeles firm that advises public agencies on their redevelopment projects. With a goal to spruce up blighted areas, redevelopment agencies glean a portion of property tax revenue — that otherwise would go to special districts, schools, counties, and cities — from certain districts in order to help fund redevelopment projects and lure developers. Although critics have long derided the agencies for what they say are too often handouts to wealthy developers. In the law that the high court upheld, the State Controller must review any transfers of assets between a redevelopment agency and its sponsoring agency — usually a city — that occurred after Jan. 1, 2011, said H.D. Palmer, a spokesman for the state’s Department of Finance. The money must be returned if the controller finds assets are not contractually obligated, he said, and the value will then be distributed to schools, counties, special districts and cities. “The Controller gets the final say whether (these transfers) pass the test,” Palmer said. In March, the Los Angeles City Council voted to commit up to about $1 billion in redevelopment assets to the city for future projects, hoping to safeguard the funds from the governor’s plan to kill redevelopment agencies. “I question whether or not the state can take it and the city would take the position they cannot,” said Councilman Richard Alarcon, who voted in favor of locking in the funds last March. Councilman Tony Cardenas, chair of the council’s Housing, Community, and Economic Development Committee, said the city is currently working through what it is legally required to do, but said he hoped the state legislature lacks the authority to claw back the committed funds. “They don’t have the right to get into our heads and guess why we did things the way we did,” he said. Included in that vote were estimated totals of: $1.6 million for the redevelopment of the 22-acre Valley Plaza shopping center at the intersection of Laurel Canyon and Victory boulevards; $3 million for an affordable housing development in Sylmar; $5 million for loans to industrial businesses in the Northeast Valley; and $10 million to preserve existing affordable housing and build 55 new affordable units in North Hollywood. The bill that shutters redevelopment agencies “includes language that makes it very difficult to know whether the $930 million worth of projects are protected,” said David Bloom, a spokesman for the Los Angeles Community Redevelopment Agency. “It was specifically designed to undercut those kinds of approaches.” T. Brent Hawkins, general counsel for the California Redevelopment Association, said it’s a “mistake” to think all such agreements are the same; some were legitimate, while others were a backhanded way to save funds for barely planned projects, he said. Hawkins said the various agreements will each hold up on their individual merits, resting on whether contractual agreements with developers have been made. “I do expect litigation because there is a lot of money involved,” he said. Also in March, Burbank’s city council voted to transfer about 30 pieces of property held by its redevelopment agency to the city. Glendale also transferred $53 million in redevelopment assets last year. As to whether Burbank’s agreement is solid, Ruth Davidson-Guerra, assistant community development director, said she didn’t know. “No one knows with any level of certainty.” The State Controller’s office, which is now required to review such agreements, is still reviewing the legislation dissolving the agencies and the recent high court decision to decipher exactly what its responsibilities are, said Jacob Roper, a spokesman for the Controller’s office. But while the agencies and their assets are on their way out, their backers haven’t stopped fighting. The California Redevelopment Association and the League of California Cities, which brought the case to the high court, have vowed to work with state lawmakers to reinstate some form of redevelopment. “To fathom (redevelopment) will be taken away from Burbank is devastating,” Davidson-Guerra said. Indeed, Alarcon stressed more lawsuits aren’t the answer and that a legislative fix to retain some form of redevelopment should be crafted. And Cardenas said he hopes the legislature can postpone the Feb. 1 date when the agencies are set to shutter, calling the time frame “ridiculous.” As of now, a successor agency — which in most cases will be a city — is required to be formed and is tasked with disposing of most assets of former redevelopment agencies that are not under contractual obligations. Proceeds will eventually be doled out to the various government agencies that receive property tax revenue such as counties and schools. “It could be a little bit like Russia after the fall of the Soviet Union because they are selling off all this state-owned property,” Bloom said. But for now, about $1.7 billion from the agencies is set to flow to special districts, counties, schools and cities this fiscal year, thus reducing state obligations and helping to stop further cuts, said Palmer, adding more than $1 billion of that is set to fund kindergarten through 12th grade schools. Renata Simril of Jones Lang LaSalle, who advises cities, redevelopment agencies and other government institutions on their real estate holdings, said her advice is for cities to dispose of assets in a way that will mesh with their redevelopment goals, such as selling property to a private developer that would continue a project as planned. Bill Fulton, publisher of the California Planning and Development Report and former mayor of Ventura, said he expects litigation and increased fighting between cities, counties and the state over assets and the funds cities attempted to lock up. “It could get kind of messy,” he said.

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