City to Maximize Borrowing Ahead of Redevelopment Closure –
This week the city council is hearing an item in which city staff is recommending that the city confirm a list of priority programs and projects for Redevelopment Agency for both housing and capital and operating programs.
They continue, “The recommended bond issuance from the housing set-aside would add about $1 million to the current debt service obligation of $600 thousand. The housing fund would retain almost $500 thousand in annual proceeds after debt service payments. Annual revenues could be used for administration or for additional housing projects and programs.”
There was an interesting debate in the Davis Enterprise this week over the future of redevelopment locally.
On Sunday, local resident Brian Sway argued, “Davis should think twice before joining the statewide stampede to max out its redevelopment agency’s bonding indebtedness.” This is exactly where the city council is headed.
“The recent Enterprise article, ‘Redevelopment Gets High Priority,’ reports that our city is accelerating the process to borrow all the money it can for redevelopment purposes before Gov. Jerry Brown ends state support for such projects,” he continues. “The justification for this rush is two-fold. First, the city needs to act before this source of money dries up. Second, redevelopment projects bring economic benefit to the city or desirable affordable housing.”
On the other hand, Mr. Sway pointed out that our track record for spending money on redevelopment is less than impressive as he cited, “a million dollars to lure a new auto dealership to town; a new coffee house on city property; renovation of the Varsity Theatre for a for-profit venture; and, leasing of the city-owned Varsity and old City Hall to private interests at very low rental rates.”
He continues, “Similarly, the recent track record for managing affordable housing (i.e., cooperative housing) and developer funds (i.e., Zipcar) don’t bode well for expanding a city housing effort at the present.”
“The bond financing that redevelopment agencies use to pay for projects are repaid by diversion of a portion of the property tax revenue in the redevelopment area. This, in turn, reduces the tax revenue that schools, counties and special districts otherwise would receive from the property in the redevelopment area,” Mr. Sway writes.
“The reduced revenue must be made up by taxes outside of the redevelopment area, special fees or by cutting back on services. Until now the state has spared school districts from revenue losses by backfilling revenue from the state’s general fund (i.e., state income tax revenues). Counties and special districts have to charge fees, cut or eliminate services,” he continues.
“This is no small program. According to the state legislative analyst, redevelopment currently receives about 12 percent of statewide property tax revenues compared to 4 percent in 1983-84,” he further argues before concluding, “In my opinion, the basic services that our schools, county government and special districts now struggle to fund are more vital to our community than the redevelopment projects being discussed by the City of Davis.”
Michael Bisch, who is currently co-President of the Downtown Business Association, argued that Mr. Sway’s commentary does a disservice to the community by spreading misinformation.
Specifically he cited, “Sway’s claim that the city-owned Varsity Theatre and Historic City Hall are at ‘very low rental rates’ is absurd. The rent schedules for both properties are at market rates. We know this to be true because they are a matter of public record. Furthermore, he argues that the Davis RDA’s ‘track record isn’t very impressive’ by citing a very truncated list of RDA accomplishments. An entirely different story would emerge were he to cite a comprehensive list of Davis RDA accomplishments.”
He continued, “Sway lists only the public/private RDA projects so that he can besmirch the Davis RDA and private businesses with the claim that these projects were ‘… certainly good deals for the successful applicants …’ Again, why doesn’t he list all the public infrastructure projects that the RDA has funded?”
While he acknowledged, “I am in no position to know if these were good deals for the successful applicants. I find it hard to imagine that Sway is in a better position. But I do know this, I hope the projects cited by Sway were good deals for the applicants because they have been good deals for the community.”
“I’ll conclude my diatribe with a final observation. I have followed the local media quite closely in my three short years in the Davis community. I do not recall in this brief time ever reading about a boondoggle in which a developer or business person fleeced the Davis RDA. I have not heard of such a case having happened prior to my arrival,” he concludes.
The problem, I think, is that Mr. Sway’s strongest argument comes back to the one I have made, which is the prioritization of services. I understand the strengths and the weaknesses of the current RDA. I think there are legitimate concerns that it is too heavily focused on the downtown while taking money heavily out of South Davis.
However, even with a perfectly-run system it is difficult to justify taking RDA money and spending it on Davis Downtown Projects rather than allowing it to go back to school districts and counties to provide basic services.
The best explanation of the Governor’s proposal and the need for it occurs in an op-ed by Doug Kaplan in the San Francisco Chronicle. He argues that redevelopment subsidies must end but that does not mean we need to end redevelopment.
In his analogy, he compares redevelopment to farms in a wide valley. “Imagine a wide valley covered by some 400 farms. Each of these farms draws its water from the same aquifer that was once abundant but now is about to run dry. The authorities have three choices: shut down the farms; regulate the amount of free water they draw; or start charging farmers for the water they use, under the assumption that farmers will waste less water if they have to pay for it,” he writes.
He then explains, “The farms in this analogy are California’s 390 local redevelopment agencies. The once-abundant, now depleted, aquifer is the state’s general fund from which redevelopment agencies ultimately draw their “free water.””
The state has three options now on what to do.
He writes, “The first choice – shutting down the state’s redevelopment program altogether – is a nonstarter. Even though redevelopment agencies have squandered billions of dollars over the decades subsidizing Walmarts, Home Depots, shopping centers and similar projects throughout California, many agencies have spent money on a number of worthwhile projects, such as building low-cost housing and rebuilding public infrastructure. Closure is not an option.”
He also dismisses the the second choice which is “regulating the amount of money redevelopment agencies take – makes sense, and has been done in recent years, but unfortunately is no longer possible following the passage of Proposition 22 last November.”
That leaves the third choice as the best available option, “making redevelopment agencies “pay for the water they use” – which is what Gov. Brown has proposed. Under the governor’s plan, local agencies could continue to do everything that redevelopment agencies have done in the past, but with their own money.”
Thus, “if they wanted to borrow more than the $20 billion that redevelopment agencies currently owe, they could, but, like school districts that want to pass bonds to build schools, they’d first have to ask voters for approval.”
This would cut into the deficit by about $1.7 billion and because of the way state funding formulas work, schools would also receive a multi-billion-dollar benefit over time.
That would seem to be the win-win scenario, except of course for developers. Writes Mr. Kaplan, himself a former school board trustee in Santa Cruz county, “Everybody wins, except, of course, the developers who receive redevelopment subsidies to build shopping centers, investment bankers who earn fees for issuing more than $1 billion of redevelopment bonds every year, land-use attorneys who help orchestrate the seizure of homes and businesses that stand in the way of redevelopment projects, and others who profit from the status quo. These interests are wealthy and well-connected, and they are fighting hard to keep their free water flowing.”
He concludes, “The governor’s proposal is sustainable; the status quo is not. It’s that simple.”
In the meantime, cities like Davis will attempt to maximize the amount of money they can borrow before the Governor ends the state’s subsidization of such projects through redevelopment.
The bottom line for me is that while, yes, it is nice to have a pot of money out there and to be able to legally bribe the county not to develop on our borders, this is something that the state can no longer afford and we have to prioritize our money. As I have stated many times, for me that priority is education and county-level services.
—David M. Greenwald reporting
Our downtown will face challenges as retail declines. Borders is the largest retail store downtown and according to today’s WSJ:
[quote]Borders Group Inc. is in the final stages of preparing a bankruptcy filing, clinching a long fall for a company with humble beginnings that helped change the way Americans buy books but failed to keep pace with the digital transformation rocking every corner of the media landscape.[/quote]
The article goes on to quote a consultant:
[quote]”I think that there will be a 50% reduction in bricks-and-mortar shelf space for books within five years, and 90% within 10 years,” says Mike Shatzkin, chief executive of Idea Logical Co., a New York consulting firm. “Book stores are going away.”[/quote]
I know some people on this blog (many of whom said Borders would not go bankrupt) say the store can be reconfigured–yes probably–but its an anchor store for the downtown. Our Borders is unlikely to close immediately and the fact that the City of Davis limited the square footage of the store (smaller than most Borders) helps.
Still consider Blockbuster will eventually go away (already in Ch 11); Borders will go away. The Save Mart in town is losing money–they want to reconfigure that store with fewer items and lower union contract. Many other stores are hurting. The Nugget chain is hurting and Davis store(s) keep the chain afloat.
If we are going to keep RDA money can we have a serious conversation about retail in the City with some people who know what they are talking about? I don’t want our downtown to be just restaurants and coffee shops.
In previous posts, there have been long discussions about the RDA issue. It is not clear to me exactly what Brown is proposing, and what the ramifications of his proposals are. I don’t think even Brown himself has really thought this through. I do think, at a bare minimum, RDAs have to be overhauled to some extent, w some true checks and balances in place to make sure they are operating as they are supposed to.
But I would point out that the purpose of RDAs is to increase economic development, which should in turn raise property values. If property values truly rise as a result of RDAs (as they have in Davis), then more property tax revenue is generated. More property tax revenue generated should mean more money to pay for our schools. But has that increase in property tax revenue gone to better funding of our schools, or has it gone to pay for the exorbitant salaries/benefits of our state and local gov’t employees instead?
If RDAs were eliminated, would the state actually do a better job of funding our schools? Or would the money just end up being swallowed up to pay for the salaries/benefits of state/local gov’t employees? We are talking about huge fundamental changes, w/o really looking at how it will work, and whether the changes will be better or worse in the long run. I just think we need to tread very carefully here, Brown’s positive spin notwithstanding…
“But I would point out that the purpose of RDAs is to increase economic development”
Actually, the stated purpose of RDA’s is to combat blight. You can find the many ways that blight is defined. Davis has no blight, by any of the official definitions — even really stretching it — within the areas of the redevelopment agency (South Davis and downtown). Davis does have blight in other parts of town, but that cannot be addressed by the current RDA.
I have no problem with the projects that have been funded by the Davis RDA. It is just that with a shrinking pie, it is no longer fair for a disproportionate share of property tax funds to go to the exclusive benefit of downtown Davis. Other than the auto dealership loan, there are hardly any funded projects in South Davis, where much of the RDA funding comes from.
The current structure and use of the RDA in Davis is simply unfair to other parts of town. There are no funds available for brick facades, theater projects, pedestrian bulb-outs, ‘visioning’ workshops, pedestrian malls, or any other amenities in East or West Davis at this time. So it’s time for the funding to be equalized and for the councilmembers to re-prioritize the use of funds. RDA’s lock funds into special projects available only to certain parts of town.
David, good job of framing most aspects of the debate. That being said, history has shown us that Kaplan’s conclusion is rather unrealistic, perhaps even naive. Kaplan writes “…if they wanted to borrow more than the $20 billion that redevelopment agencies currently owe, they could, but, like school districts that want to pass bonds to build schools, they’d first have to ask voters for approval.” My observation is that the voters have had little interest in reinvesting in their downtowns prior to the advent of the RDAs. Many, many downtowns had disintegrated into a state of functional and economic obsolescence until RDAs began their redevelopment efforts. My research indicates that this observation holds true for Davis as well. The voters value reinvestment in their downtowns AFTER the redevelopment is well underway. There are numerous thriving downtowns throughout the state, once economic basket cases, proving this to be true. So why would the post RDA condition be any different than the pre RDA condition?
I’d also like to point out that it is not only the Davis RDA’s pass through mechanism preventing development on the perihery. Infill development in the core and elsewhere in the community reduces economic pressure to develop on the periphery. I’d argue that we would have a far more compact, sustainable, livable, walkable, bikable, innovative, architecturally compelling, vibrant community, with yet more open space, had the Davis RDA been more aggressive in pursuing redevelopment. And before any blog participants go ballistic, I am using the term “infill development” in a much broader sense than merely housing. I am referring to developing and evolving as a community economically, artistically, holistically, sustainably in the truest sense of the term.
Excuse me a moment while I change my tie-dye shirt and make myself a cup of Yogi tea.
Don, you continue to raise a number of very valid concerns regarding economic development in other parts of town. A number of proposals are currently being prepared to address them. Stay tuned, some of them entail the use of RDA funds.
DS: “The current structure and use of the RDA in Davis is simply unfair to other parts of town. There are no funds available for brick facades, theater projects, pedestrian bulb-outs, ‘visioning’ workshops, pedestrian malls, or any other amenities in East or West Davis at this time. So it’s time for the funding to be equalized and for the councilmembers to re-prioritize the use of funds. RDA’s lock funds into special projects available only to certain parts of town.”
That is a fair criticism. But that begs the question of whether we should do away w RDAs altogether as Brown has suggested…
[i]”… the purpose of RDAs is to increase economic development, which should in turn raise property values.”[/i]
Or perhaps that just means raising property values in one place and reducing it in another so you have no net gain. Here is what the non-partisan LAO says ([url]http://www.lao.ca.gov/analysis/2011/realignment/redevelopment_020911.pdf[/url]) about this: [quote]While redevelopment leads to economic development within project areas, there is no reliable evidence that it attracts businesses to the state or increases overall regional economic development. Instead, the limited academic literature on this topic finds that—viewed from the perspective of an entire city or region—[b]the effect of this program on property values is minimal[/b]. That is, redevelopment may cause some geographic shifts in economic development, but does not increase the overall amount of economic activity in a region.[/quote]
Rich, so what? I fail to see how that is a winning argument. Communities, states, and countries have many policies and programs SPECIFICALLY designed to direct economic development to designated areas, zoning ordinances are but one of them. Furthermore, I call your attention to a particular phrase in the LAO statement that you cite, “limited academic literature on this topic”. Are you prepared to abolish our Davis RDA on such a flimsy LAO argument?
Since the RDA arrangement is a state law Rich has it right this time. While local jurisdictions benefit, they are often robbing Peter to pay Paul.
What our downtown will need are vital businesses–and I think a mix of local and chain stores would be the most successful. I am quite concerned and Border bankruptcy does not help even if the Davis store stays open for a while.
ELAINE: [i]”‘… [b]the purpose[/b] of RDAs is to increase economic development, which should in turn [b]raise property values[/b].'[/i]
LAO: [i]RDAs don’t do what Elaine claims is their purpose.[/i]
DTBM: [i]So what?[/i]
RICH: So don’t claim that RDAs are economically beneficial. They merely move economic activity from one place to another.
DTBM: [i]Are you prepared to abolish our Davis RDA on such a flimsy LAO argument? [/i]
I never said we should abolish the Davis RDA. You might think twice, though, about calling the argument (or even the evidence) “flimsy.”
In another respect–building municipal sports stadiums–this issue has been studied thoroughly and it shows the same thing: they don’t improve the economy ([url]http://www.cato.org/pubs/regulation/regv23n2/coates.pdf[/url]). They merely shift money from one area to another. All RDA projects–save low-income housing–follow that same pattern. (It’s much the same as the nonsense Obama pushed with his wasteful stimulus package: It merely steals from the future for limited present benefit. It fails to really improve the economy.)
If the state doesn’t eliminate RDAs altogether, I do, think that one reform should be made to the Davis RDA specifically and another reform should be made statewide:
1) The Davis RDA should be re-mapped, so that it includes the entire city, if not the city plus our outlying areas. That would allow the RDA to attack “blight” where blight actually exists. To do this, of course, the funding mechanism for the DRDA would have to change; and
2) Statewide, RDAs need to get out of the business of subsidizing low-income housing projects. These things are all rip-offs, anyway, designed to enrich the usual shysters. If you want to help poor people as a class–I for one want to do just that–then give poor people the money you are now giving developers and consultants and property managers and housing bureaucrats.
Don Shore:
As I touched in upon previous discussion, the RDA’s were initially created to fight urban blight, and there has definitely been mission creep. But rather than abolishing RDA’s, I think this mission creep should be acknowledged and supported in a comprehensive RDA reform.
As proposition 13 eroded city revenue available for infrastructure and economic development, the RDA’s picked up this burden. The State continued to require that cities grow, but did not provide funding for the needed infrastructure. Furthermore, the State does not allow cities to charge developers for the full cost of the infrastructure improvements that the growth requires.
For example, if new development puts us over the edge in requiring a new wastewater treatment plant or overburdens an intersection or a road downstream from the new development, we are only allowed to charge the developer for the portion (usually tiny) of the new infrastructure, even though we would not need the infrastructure at all if the state hadn’t required the new development.
This is one of the main areas where Redevelopment Agencies have partially filled the gap, and the RDA regulations should be adjusted to reflect this fact and to support this function. Much of the infrastructure that connects the development in South Davis to the rest of the City required redevelopment dollars.
If we don’t have the carrot and stick of the RDA, ALL of our revenue will soon go to the unsustainable benefits which are largely public safety union related. We will have NOTHING for public infrastructure or economic development. This is why the firefighter’s union supports abolishing the RDA. Yet the unfunded mandate to grow will not disappear.
Sure, not every RDA penny is optimally spent, and we should continue to work on improving our priorities. The State, as well, could put additional perimeters and restrictions on the expenditures. But if you fairly compare our RDA expenditures to other government expenditures or to private sector expenditures (think CEO salaries and bonuses), I think you will see that the projects have given very good value for the dollar.
When my husband interviewed for his job at UCD in 1987, we were taken to Woodland for dinner because the recruiters felt that Woodland gave a classier impression than downtown Davis. Fifteen years ago, downtown was dead on weekends, holidays and summer break. And when I say dead, I mean dead — as in deserted. There wasn’t a car parked on the streets. In l987, citizens of South Davis felt isolated and felt that they had second class citizenship, because they could not freely access shopping, schools and services in the rest of the city.
I do not believe that we would have seen the transformation to downtown that we have seen without the RDA, nor the integration of South Davis into the city.
The RDA is our only real mechanism to assure that we invest in our community, rather than merely tread water spending on operations and maintenance.
P.S. Don, I agree with you that the RDA boundaries should be adjusted to include the North side of 5th street between downtown and L Street, if it doesn’t now (it doesn’t appear to on the map.) That is a good point.
I think RDAs are economically beneficial. I have yet to read a persuasive argument to the contrary. It was the LAO that claimed RDAs only shift activity from one location to another, not I. I think the LAO is incorrect, the LAO claim is entirely speculative, and even if the LAO claim were correct, so what?
Many, many governments around the globe invest in infrastructure to spur private investment. Harbors, airports, other transportation hubs, and parking structures are but a few of the many examples. Very little of these investments would occur were one to heed the LAO.
I not support public financing for professional sports franchise stadiums.
[quote]On the other hand, Mr. Sway pointed out that our track record for spending money on redevelopment is less than impressive as he cited, “a million dollars to lure a new auto dealership to town; a new coffee house on city property; renovation of the Varsity Theatre for a for-profit venture; and, leasing of the city-owned Varsity and old City Hall to private interests at very low rental rates.”[/quote]This statement by Mr. Sway is inaccurate. The coffee shop, Varsity Theater and old City Hall turned fiscal liabilities (we were spending a huge amount on maintenance, and they were unused and/or underused properties), and turned them into significant money-making assets. The operators are now picking up the substantial maintenance costs that we used to provide, we are collecting rent, and we will one day own, outright, all of the improvements and be able to collect even more rent.
Plain and simple, these were good business deals for the city that are significant fiscal net benefits.
The auto dealership loan is a complex issue. First, I should clarify that we will get more net revenue than if the dealership was’t there, so it is benefit for the city.
That said, I agree that the business of city’s giving any subsidies at all the attract or retain auto dealerships with RDA funds should probably be disallowed at the State level by the type of RDA reform that I mentioned. If no cities were allowed to use RDA funds to help attract and retain auto dealerships, we would not feel obligated to compete.
Darn that auto-correct; make “perimeter” “parameter”.
Does any of this matter?
How do we improve downtown?
Should I move back to the Bay area because this city doesn’t have a clue?
Wu, we will not be able to improve the Downtown at all without the RDA. It is extremely challenging even with the RDA.
Excellent discussion…