Valley Perspective; CRA Plan Risks Future Revenues in Northeast Valley

The Los Angeles Times; Los Angeles, Calif.; Apr 2, 2000; by SHIRLEY SVORNY 

Los Angeles Community Redevelopment Agency planners are proposing to add up to 6,835 acres in the northeast San Fernando Valley to the agency's stable of redevelopment properties. Those who favor the proposal argue that blighted areas in the northeast Valley require special redevelopment efforts. If the proposal is approved, it will shift the city's claim to increases in property taxes in that area to the CRA. This proposal raises several issues. Why would members of the City Council support an expansion of the CRA when it will shift property tax revenues away from their direct control? Why must we turn to the financially troubled CRA to promote economic redevelopment? What does this say about the city's ability to meet the needs of the northeast Valley?

One explanation for political support for the CRA proposal is that it offers the City Council and the mayor an option outside of traditional means to raise funds for current use. The CRA can issue debt without going to the voters for permission. When areas are assigned to the CRA, the agency lays claim to up to 40 years of future growth in property taxes in the area.

This is a valuable asset, against which the agency can borrow. The process is called tax increment financing; it effectively allows city officials to spend future tax dollars today. Today's term-limited city politicians may find this form of financing attractive--they can spend now, and the city will pay later. Critics claim that the funds are directed to politically connected developers who will return the favor when city officials seek higher office.

Historically, council support for the CRA could also be explained on the basis that redevelopment shifts property tax revenues from other public agencies to the CRA--a property tax shell game. The county, the schools and other public agencies generally share property taxes. But once a redevelopment area is established, the entire increment may be captured by the redevelopment agency, including the portion that would have gone to these other entities. Some people find the shift of funds away from schools disturbing and oppose community redevelopment for just this reason.

In recent years, however, the county and schools have gone to court to challenge redevelopment agency claims to the entire amount of the increase in property taxes (much of which results from inflation, allowed increases under Proposition 13 and other conditions unrelated to economic redevelopment efforts). The resulting settlements have shifted funds back to the challenging agencies, reducing the ability of a CRA to draw tax revenues from other political jurisdictions to the city.

Mortgaging our future to support redevelopment efforts would not be a problem if the funds were invested wisely. But a troubling aspect of the proposed northeast Valley redevelopment scheme is that it relies on the Los Angeles CRA, which auditors have found to be poorly managed, wavering near bankruptcy in the recent past. The CRA has a poor record in the Valley. A recent study by The Times of CRA efforts in North
Hollywood could not find any evidence that the area has benefited economically from redevelopment spending.

Clearly, the CRA plan is attractive to city officials because they can raise money outside of the normal budget process. There appears to be little to restrain the City Council from carelessly mortgaging future tax revenues to support ineffective redevelopment schemes.

The frustrating part is that there is plenty the city could do to improve conditions in the northeast Valley without taking the risky step of shifting future property tax revenues to the CRA. Residents and business owners in the northeast Valley have complained for years about crime and the lack of basic services. Some streets are dark. The city has not installed street lights and has not maintained the roads and sidewalks. But neighborhood needs and basic services in the northeast Valley don't get the attention of the City Council.

One passionate supporter of the CRA effort told me that Los Angeles is too big to focus on the needs of the northeast Valley. Perhaps it is no coincidence, then, that at the same time we consider this proposal for redevelopment, efforts toward detachment and reorganization toward a new Valley city are moving forward. More people may come to support secession if they realize that members of the City Council are mortgaging future property tax revenues to support poorly managed redevelopment efforts. If setting up a northeast Valley CRA is what city officials have to offer in the way of meeting the needs of the northeast Valley, voters may think that a new Valley city can do better.

Credit: Shirley Svorny is professor of economics at Cal State Northridge