As cities around the state seek to rebuild their economies amid the recovery, they are doing so without the tool of redevelopment – and all the dollars it once brought. Consider Glendale, one of the cities that best reaped redevelopment’s benefits, building a high-rise office district and retail juggernauts such as the Glendale Galleria and, more recently, Americana at Brand. Now, in its place, the city is trying something else: It will soon incorporate a non-profit economic development corporation, but it’s questionable whether the strategy will be effective. The corporation will lack the largest advantage of redevelopment: condemnation powers and the ability to sell bonds paid back by the higher property tax revenues of revitalized neighborhoods, so-called tax increment financing. Those two powers allowed redevelopment agencies to acquire privately held land and hand it off to developers for new projects, which often enjoyed subsidies. Instead, the new Glendale entity will focus largely on attracting businesses and developers to the city. “The idea behind redevelopment is for the public sector to invest where the private sector can’t or won’t. As we move forward, our role has switched more from subsidy to making facilitation our primary purpose,” said Philip Lanzafame, director of the economic development department for the city. “It’s about facilitating private investment now, and that really is the next step.” Redevelopment ended after the Legislature abolished it in 2011 at the urging of Gov. Jerry Brown, who was searching for ways to help fill a budget deficit that exceeded $25 billion. That decision cut off a huge flow of money to local governments totaling about $1.7 billion in 2011 alone. Over the decades that kind of dollar flow literally rebuilt cities across the state – such as in downtown Los Angeles where massive urban renewal replaced dilapidated Victorians on Bunker Hill with some of the West’s highest skyscrapers. Larry Kosmont, chief executive of L.A. economic development consultancy Kosmont Cos., said cities still have some tools, but the days of juggling multiple massive projects are gone. “Redevelopment was a power tool. Right now we’re using hand tools,” he said. “But you can still build a house with hand tools. You just have to be more strategic.” Camarillo, for example, is struggling to move forward with a mixed-use project along Ventura Boulevard dubbed Cedar-Oak, and perhaps the biggest loser was Irvine, where a 1,300-acre project set to transform an area into a park comparable to New York’s Central Park, lost more than $2 billion in funding. However, there is an initiative trying to make it on the November ballot that would bring back tax increment financing. The Jobs and Economic Development Initiative was filed with the California Attorney General in December and the group behind it is now gathering signatures. (See article below) Next wave Glendale felt the loss of redevelopment particularly hard. For the fiscal year ended June 30, property taxes in Glendale decreased by more than $13 million, or 22 percent, due to the dissolution of the Glendale Redevelopment Agency, according to the city’s annual report. Lanzafame said without the ability to build large projects, the city’s economic development department began serving much more like a concierge service, helping developers navigate through the building permit process. That prompted the Council to create a non-profit dedicated to the task last month. Indeed, the Glendale Economic Development Corp. will function very similarly to a city department. City Council members will serve as the board of directors and city staff, including Lanzafame, will play key roles. The initial budget will be about $1.2 million in the first year, but that includes overhead such as salaries and general expenditures. The budget for marketing, creating potential incentive programs and business attraction will total about $400,000. “We do think the corporation is also a better avenue for seeking grants and other contributions that could come from foundations or other entities,” Lanzafame said. “We will definitely be looking at those types of things. Anything that will help us fill office buildings, retail spaces and attract businesses that light a fire and attract others.” The city’s office market could use the assistance. In the first quarter, the vacancy rate for Class A office space in Glendale was 21.1 percent, the highest in the greater Valley, according to the L.A. office of Colliers International. However, Glendale’s redevelopment agency was mature among its state counterparts, with many of its project goals reached. The city was working on one of its last redevelopment projects when the state ended the program: the $5.2 million Museum of Neon Art along South Brand Boulevard. However, that project is finally expected to open early next year as the 2011 state law allowed redevelopment projects to continue to receive funds if cities had already signed legally binding contracts with developers. But elsewhere in the city, the Laemmle Lofts project, which consists of a movie theater, 6,000 square feet of commercial space and more than 40 residential units, was stopped dead in its tracks with the end of redevelopment. The developer Wilson Maryland Mixed Use Llc of Glendale has been forced to get its own financing. ‘Tentative measure’ Of course, economic development corporations are nothing new. The largest locally is the Los Angeles County Economic Development Corp., which was established in 1981 to attract and retain business countywide. The non-profit has about 40 employees and an annual budget of $7 million. It has several programs geared toward economic development, including the Jobs Defense Council, which works to maintain and expand the aerospace industry, and the e4Mobility Alliance, which promotes growth in alternative transportation, such as electric, natural-gas and fuel-cell vehicles. Carolyn Hull, a vice president at the LAEDC, said programs for job creation and retention can be just as, if not more effective, than a large redevelopment project like Glendale’s Americana. “Business attraction and retention compare very favorably in economic impact to a one-off project,” she said, adding that each new manufacturing job creates other jobs for vendors and suppliers, whereas a retail job is lower paying and has less of a multiplier effect. There are smaller existing economic development corporation throughout the county that play significant roles in their areas. Holly Schroeder is chief executive of the Santa Clarita Economic Development Corp., which was formed in 2009 and has five employees. She said since the end of redevelopment her organization’s importance has grown. The non-profit has a budget of about $750,000 and has several programs in place to lure new business to the Santa Clarita Valley, including economic incentives announced in March. In a partnership with Los Angeles County, the group has arranged for about $200,000 for Industry Cluster Attraction Incentives, which offer up to $40,000 to businesses that begin operations in the area with at least 40 employees. “For us, it’s more general business outreach than development,” she said. “It’s a lot of marketing, meeting with companies, brokers, landlords and trying to see if they’re a good fit for the Santa Clarita Valley.” However, proponents of re-establishing some form of redevelopment argue that economic development corporations have only limited effectiveness. “There is a lack of a reliable funding source that can be used to issue bonds and indebtedness without having to raise taxes,” said William H. Ihrke, a partner in the government and regulatory law practice at Rutan & Tucker LLP, the Costa Mesa law firm that was retained to draft the redevelopment initiative now seeking signatures. Kosmont, the consultant, agrees that the non-profits are limited in ability, and that business attraction doesn’t replace classic redevelopment. However, he said that cities still have economic tools if they are willing to be creative. He points to South Gate, where his firm helped the city put together a $100 million deal to finance construction of the Azalea Shopping Center on 32 vacant acres in a low-income neighborhood. The 370,000-square-foot mall is projected to generate more than $2.5 million in retail sales each year. The catch was the city had to float a $32.8 million bond that was tied to utility revenue. “That’s a game-changer for a city. Cities and counties have to focus in on their best projects. You don’t have as many chips to play so you have to measure your bets,” he said. “These corporations are a very intermittent and tentative measure. Business attraction is important, and it’s a good approach, but the fundamental game-changer for a city is not those activities.”
