Friday, March 16, 2012

“We’ve Had the Funeral, Now It’s Time to Move On” – Part 1

The title is a quote from a March 13 program of the Urban Land Institute (ULI) called “Redevelopment Redefined”. The speaker was Meea Kang, president of California Infill Builders Association and founding partner of Domus Development.

In California, redevelopment was often a key element of new urbanism. It was the program that best allowed urban development to compete in a marketplace that was otherwise was slanted toward suburban development. However, as structured in California, redevelopment was based on tax-increment financing that required “backfill” funds to keep local school districts fully-funded. With the ongoing state budget crisis, the backfill funds became difficult to maintain. As part of the budget process, the state legislature dissolved the current redevelopment process during the summer of 2011. At the same time, they passed companion measures, ABs 26 and 27, which restored redevelopment under different financial arrangements.

The dissolution of redevelopment and its restoration under ABs 26 and 27 were challenged in the courts by redevelopment advocates. In late December 2011, the California Supreme Court issued the worst possible ruling for redevelopment. They ruled that the dissolution was constitutional and they simultaneously overturned the legislative adoption of ABs 26 and 27, leaving California without a redevelopment program.

The Sacramento District of ULI organized the March 13 program to explore what should happen next. In addition to Kang, the speakers were Senator Darrell Steinberg, the President pro tem of the State Senate and the author of several pending bills that would mitigate the loss of redevelopment, John Shirey, the Sacramento City Manager and former Executive Director of California Redevelopment Association, and Bill Fulton, now with Smart Growth America in Washington, D.C., former mayor of Ventura, and author of “Guide to California Planning”. The speakers appeared separately, but presented a coherent and compelling vision. Below, I’ll summarize their comments and offer a few supplement insights.

Steinberg argued that the dissolution of current form of redevelopment was essential. In his opinion, the Jarvis-Gann Act (the 1978 Proposition 13) and the multitude of follow-on measures distorted the California tax base to the point that difficult and often unfortunate decisions, such as the dissolution of redevelopment, were forced on the legislature. He noted the savings resulting from ending redevelopment would be diverted to other essential areas, such as schools.

(The Supreme Court Justice who wrote the December decision, Kathryn Mickle Werdegar, also made the tie to Jarvis-Gann, "Proposition 13 created a kind of shell game among local government agencies for property tax funds.” She went on, quoting from another document, “The only way to obtain more funds was to take them from another agency. Redevelopment proved to be one of the most powerful mechanisms for gaining an advantage in the shell game.")

Earlier, before Steinberg arrived, Shirey put the political decision even more bluntly. He argued that Governor Brown had ultimately been forced to choose between redevelopment and the California Teachers’ Association and that Brown chose the teachers. Shirey also noted that the occasional abuses of the redevelopment process, although greatly overstated, had given fuel to opponents of redevelopment.

Despite the dissolution of the current redevelopment model, the consensus was that redevelopment should be replaced. The speakers presented several arguments in favor of a new form of redevelopment.

One argument was that California development is increasingly urban, a type of development that has relied on redevelopment and redevelopment law. Kang offered polling data collected by Professor Arthur C. Nelson of the University of Utah showing that 56 percent of all Americans, and 60 percent of Californians, prefer mixed-use, mixed-income, walkable neighborhoods to drivable suburban development. On a related question about access to transit options, 71 percent of Californians felt strongly about having good access, compared to only 47 percent of all Americans.

Fulton noted that market for drivable suburban is currently overbuilt, but that the market for walkable urban is still growing. (In a presentation I attended in the spring of 2011, a representative from Calthorpe Associates presented data showing that California in 2040 would require fewer single-family detached homes than exist today. I.e., the development community could halt drivable suburban development, focus solely on walkable urban, and still meet the housing needs of future generations.)

Fulton also noted that planners are looking with more skepticism at the lifecycle costs of suburban development. (Various publications have noted that property taxes from drivable suburban may ultimately be insufficient to sustain existing suburban development. Some authors have gone so far as to describe drivable suburban as a Ponzi scheme, in which newer drivable suburban developments must contribute impact fees to support existing projects.)

Kang further noted the trend toward urban development was further established by the fact that multi-family building permits exceeded single-family in 2011.

Among other reasons to restore a new form of redevelopment, Shirey noted that, at present, only California and Arizona don’t have systems to use tax-increment financing, thereby failing to provide a financing tool that is almost universally available elsewhere. He also noted that the state’s infrastructure is wearing out more quickly than funds are available to restore it and that tax-increment financing could be a key tool.

Kang raised the point of socio-economic equity, suggesting that one role of redevelopment was to bring balanced communities through low-income housing. She noted that mixed-income neighborhoods often can’t be developed in the absence of redevelopment and that low-income renters are already failing to find options. Her firm, Domus Development, is finding that the projects that it will open in 2012 are heavily oversubscribed, typically by factors of 10:1 or more.

Kang also noted that some ongoing projects were based on redevelopment law and are now stuck in place, midway through development, until the legislature provides some clarification.

Despite a broad consensus that a new form of development is required, all of the speakers agreed that the decisions on replacement may take awhile yet. In my next post, I’ll summarize their comments on that ongoing process.

As always, your questions or comments will be appreciated. Please comment below or email me. And thanks for reading. - Dave Alden (

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