Redevelopment began in 1945 as a post-war blight removal program that used federal urban-renewal grants to clean up blighted urban areas. These first projects were few in number: 27 projects in 1966. Project size was also limited; prior to 1957, most project areas ranged from 10 to 100 acres.

Today, however, due to the use of tax-increment financing authorized by the voters in 1952 and fiscal restrictions imposed upon local governments by Proposition 13, redevelopment has emerged as a key local financing tool. Redevelopment has grown so tremendously that now there is scarcely a jurisdiction that does not have an agency; there are currently 369 cities, 26 counties, and 5 joint city-county agencies. Many project areas encompass thousands of acres.

Redevelopment offers several unique powers to local officials. First, under redevelopment, jurisdictions can issue bonds without a vote of the people; and second, they can use eminent domain authority to take private property for other private development uses.

Redevelopment agencies accumulate their funds by freezing the property tax base within a project area that has been designated as "blighted." With the property tax base frozen, all the affected taxing entities that receive property tax -- schools, fire departments, police departments, special districts -- continue to receive the same share of property tax that they received in the year when the redevelopment plan took effect. For instance, if a school was receiving $100,000 in property tax in 1990, it continues to receive that amount from the project area throughout the life of the redevelopment plan. Any additional property tax generated above the base year goes to the redevelopment agency. But the agency must share a percentage of this money with the affected taxing entities. A statutory formula requires certain percentages of funds to be passed through to the affected taxing entities. The specific percentages increase through the term of the redevelopment project.

A central interest the state has with redevelopment is its significant fiscal impact on the General Fund. These state costs are the result of the state guaranteeing minimum levels of school funding. Schools currently receive approximately 50 percent of local property tax dollars. When a redevelopment project area is declared and the property tax base within that area is "frozen," a large portion of the increase in the property tax increment generated within the project area flows to the redevelopment agency. Schools -- unlike all the other affected taxing entities that receive property tax within a project area -- are then reimbursed by the state for any amounts that they lose to redevelopment.

These high state costs, the lack of clear public scrutiny, proliferation of agencies, and large project areas make redevelopment controversial. Once agencies are started, they gather momentum and are rarely if ever stopped.

City officials and developers tout redevelopment's benefits and advantages to revive down-trodden urban areas; tax watch-dog groups and adversely-affected business owners view redevelopment agencies as administrative behemoths that gobble up scarce tax dollars and engage in grand-scale development deals of dubious value. The suspicious see redevelopment agencies as engaging in games of fiscal sleights of hand with its true powers only understood by attorneys, consultants, and staff.

In many cases, redevelopment powers have been used prudently and have produced good results. Examples are numerous where a run-down urban area is "redeveloped" and brought back to life again. In other more-controversial cases, these powers have been used to "develop" as opposed to redevelop. This happens when large areas of vacant land are deemed "blighted," and redevelopment agencies issue bonds without a public vote. These funds are then used to build infrastructure to attract development or to engage in bidding wars with surrounding communities to attract auto malls and "big-box" retailers and other sales-tax generators.

The Legislature sought to limit redevelopment abuses by passing laws, such as AB 1290 (Isenberg), Chapter 942, Statutes of 1993, to attempt to keep redevelopment focused on removing true urban blight.

The early 1990's were difficult times for redevelopment agencies. Many members of the Legislature were openly criticizing agencies for adopting large project areas with questionable evidence of blight, engaging in bidding wars with other jurisdictions for new commercial developments, and hoarding millions of dollars in unspent housing set aside funds. The cry for reform was in the air. With little sympathy for the pleas of the defenders of redevelopment, the

Legislature raided these perceived "cash cows" to help balance the state's budget deficit for two years in a row. In response to this negative environment, the California Redevelopment Association sponsored AB 1290 (Isenberg), Chapter 942, Statutes of 1993, which proposed numerous reforms to the existing redevelopment process. The bill focused on issues that had historically caused concerns among redevelopment critics, including the definition of "blight," the length of time a redevelopment plan stayed in effect, and mitigation agreements.

In brief, AB 1290:

o Alters the definition of "blight."

o Specifies term limits for new and previously adopted project areas, i.e., the term of the

redevelopment plan, the term of the available flow of tax increment moneys, and the term

of the agency's redevelopment powers.

o Increases and modifies penalties for the failure to expend tax increment moneys in an

agency's Low and Moderate Income Housing Fund.

o Authorizes the development of affordable housing units outside the project area to count

toward an agency's inclusionary requirements. Under the provisions of the bill, an agency

must produce two units outside the project area for every one unit owed.

o Prohibits the dedication of sales tax to an agency by its legislative body.

o Authorizes the financing of facilities or capital equipment made in conjunction with the

development or rehabilitation of property used for industrial or manufacturing purposes.

o Deletes provisions relating to negotiated mitigation agreements and, instead, provides for a

guaranteed statutory pass-through beginning in the first year of a project area for all affected

taxing entities.

Redevelopment and Military Base Closures

Military Base Redevelopment Law (MRL) was adopted during the same time that AB 1290 was being considered in the Legislature. Requests by communities for special redevelopment legislation to assist them in base closure recovery entered a hostile climate. Proposals for a uniform redevelopment law that included special powers and exemptions for closed military bases were rejected. Members of the Legislature preferred to move cautiously, by examining each base's request individually.

Existing MRL made it into law as an amendment into SB 915 (Johnston), Chapter 944, Statutes of 1993, which contained special redevelopment legislation for the redevelopment of Mather Air Force Base. By the time it was enacted, the general consensus was that MRL was moot; many of its provisions (mandatory school pass-through formulas that require schools to receive 100 percent their share of property tax within 15 years, and requirements for the establishment of a fiscal review committee) are more stringent than existing Community Redevelopment Law (CRL). Since the enactment of MRL, communities with closed bases continue to be faced with two choices: either use standard CRL or seek special legislation.

Communities representing Norton and George, Castle, Mather, Fort Ord, March, and Mare Island closed military facilities, have each come to the Legislature over the past several years seeking amendments to redevelopment law. No two bills have been the same. Some had special definitions of blight; others did not. Some allowed territory outside the base to be included; others did not. Some had special tax allocation provisions and housing set-aside deferrals and waivers; others did not. Yet, even with this special legislation, some of these bases chose not to use their special legislation because -- after careful analysis -- they realized that the special legislation was more restrictive than standard redevelopment law.

One of the most contentious issues faced by the committee this session involved the use of redevelopment agencies' housing funds. By law, a redevelopment agency, with a few exceptions, must set-aside 20% of its revenues in a Low and Moderate Income Housing Fund (L&M Fund). The L&M Fund is used to increase and improve the supply of low- and moderate-income housing within the agency's jurisdiction.

L&M Funds are one of the largest sources of affordable housing money in California. However, some communities been unwilling, due to NIMBYism, or unable, due to high land costs, to spend their L&M Funds. To address this, in 1988 the Legislature created the "use it or lose it" incentive for an agency to spend its L&M funds. Believing this an inadequate incentive, in 1993 the Legislature enacted AB 1290 (Isenberg), which includes the "use it or die" law, prohibiting an agency with an "excess surplus" in its L&M Fund from spending any redevelopment funds for any purpose.

Beside forcing a reluctant agency to build housing within its jurisdiction, existing law also allows an agency to transfer up to 20% of its L&M Fund to another city or county every five years, subject to 23 conditions. No agency has used this transfer authority, largely because the conditions are too stringent, according to the California Redevelopment Association (CRA).

Advocates of low-income housing, such as the Western Center on Law and Poverty, generally oppose the transfer of redevelopment housing funds because they believe it allows an agency to escape its statutory duty to use redevelopment to increase housing in the community. They also believe an agency should not transfer away money that could be used to meet its jurisdiction's share of the region's affordable housing need.

Housing advocates' positions reflect the ongoing debate between the twin goals of fair housing and affordable housing. For 30 years, state policy has required each community to accept its fair share of regional housing needs. This underlying policy is reflected in both redevelopment and housing element law. However, state policy also advocates the production of as much affordable housing as possible as reflected in the current L&M Fund transfer law that allows housing money to be spent in communities where housing construction costs are relatively low.

Sometimes these policies clash. Some local officials resist providing their fair share of affordable housing. In other communities, high prices drive up the cost of building housing. Small communities often cannot generate enough L&M money to produce much housing. These communities all want to send their L&M Funds to other lower-cost communities that are willing, and in some cases eager, to build affordable housing. That approach departs from the goal of fair housing, but embraces the goal of producing as much affordable housing as possible.

Believing that the current transfer law favors fair housing at the expense of affordable housing, legislators introduced three bills this session to revise the L&M Fund transfer law.

AB 941 (Miller) was sponsored by the Department of Housing and Community Development that would have allowed redevelopment agencies in a county and in cities contiguous to that county to pool their L&M Funds under a joint powers authority. The following conditions, among others, would have applied:

1) Participating agencies must meet at least 15% of their share of the regional housing need;

2) The units must remain affordable for up to 30 years; and

3) Agencies with excess surplus would be prohibited from participating.

AB 941 passed the Assembly with the understanding that housing advocates, redevelopment agencies, and the department would work toward resolution of outstanding issues. Ultimately, the bill was amended to deal with natural hazard disclosures and died in the Senate Housing and Land Use Committee (see "Natural Disaster Assistance and Preparedness" section for more information).

SB 71 (Kelley) would have allowed the 10 redevelopment agencies in the Coachella Valley to transfer their L&M funds to other jurisdictions and receive credit for meeting their share of the region's housing need. According to the Coachella Valley Association of Governments, the most affluent cities in the valley have more L&M funds than they need, while the less affluent communities need more affordable housing. Additionally, they said, the cost of land – and therefore housing – was much lower in the less affluent communities, increasing the amount of affordable housing that could be built if the L&M funds were spent in these communities.

Affordable housing advocates, however, saw SB 71 as an attempt by the affluent communities to escape their housing obligations. They also objected to the provisions of the bill allowing agencies to receive credit toward meeting their share of regional housing needs by funding housing in other cities. Advocates viewed this provision as allowing rich communities to buy their way out of providing affordable housing. Agreement could not be reached on the bill's provisions, and it was eventually amended to deal with natural hazard disclosures (see "Natural Disaster Assistance and Preparedness" section for more information).

SB 488 (Lee) would have allowed an agency to transfer up to 50% of its tax increment annually to build four types of very low income housing, if the agency had met 50% of its regional housing need. The bill also deleted six of the 23 conditions in existing law, and increased the allowable distance between the two jurisdictions from 5 to 15 miles.

Unlike SB 71 and AB 941, affordable housing advocates supported SB 488 because they believed it struck an acceptable balance between fair housing and affordable housing; it eased some restrictions, but added a requirement that HCD approve all transfers. This provision, they believed, would help ensure that the transfers did not create or exacerbate racial or economic segregation. Redevelopment agencies, however, opposed the bill as still "too restrictive", and it was eventually amended to revise the annual reporting guidelines and auditing standards for redevelopment agencies (Kopp, Chapter 40, Statutes of 1998).

Other 1997-98 Legislation:

AB 639 (Alby) Chapter 952, Statutes of 1998: Enacts the Defense Conversion, Reuse, and Retention Omnibus Act to provide state assistance to communities with base closure and retention efforts.

AB 699 (Migden) Chapter 898, Statutes of 1997: Allows San Francisco's Board of Supervisors to designate the Treasure Island Development Authority as the redevelopment agency for defined property on both Treasure Island and Yerba Buena Island.

AB 923 (McClintock) Died in the Assembly Committee on Housing and Community Development: Would have repealed the Community Redevelopment Law. Also, would have required that local jurisdictions dissolve their redevelopment agencies, and become the successor to the agency for the purpose of satisfying the existing obligations of the agency.

AB 1342 (Napolitano) Chapter 635, Statutes of 1998: Extends the time limits on redevelopment agency debt and project area plans under specified conditions.

AB 1502 (Campbell) Chapter 53, Statutes of 1997: Allows Orange County to transfer a territory within its redevelopment project area to any city that includes such territory.

AB 1677 (McClintock) Died in the Assembly Committee on Housing and Community Development: Would have required that the creation of a redevelopment agency be approved by a majority of voters in a local jurisdiction, and that the issuing of bonds by a redevelopment agency be approved by a two-thirds vote.

SB 257 (Lee) Chapter 42, Statutes of 1997: Establishes a pilot project under which a home purchased by a police officer with assistance from a redevelopment agency is exempt from the requirement that such a unit remain affordable for "the longest feasible time."

SB 258 (Lee) As introduced: Would have cleaned up and clarified statutes relating to military base redevelopment without changing their substance.

This bill was amended January 6, 1998 (Kopp) to revise redevelopment agencies' annual reporting deadlines and increases penalties for repeated failure to file financial reports, and was signed by the Governor, Chapter 39, Statutes of 1998.

SB 275 (Kopp) Chapter 565, Statutes of 1997: Makes various changes to existing redevelopment law in order to increase the oversight of redevelopment agencies by addressing redevelopment agencies' reporting and notification requirements.

SB 576 (Lee) Vetoed: Would have revised redevelopment agencies' annual reporting deadlines and penalties for failure to file financial reports..

SB 1557 (Johnson) Chapter 989, Statutes of 1998: Allows the City of Tustin to assume the State Historic Preservation Officer's (SHPO) federal regulatory duties for purposes of applying the National Historic Preservation Act at the Tustin Marine Corps Air Station redevelopment project, even if the SHPO has not delegated those duties to the city.

SB 1615 (Lockyer) Chapter 586, Statutes of 1998: Extends by 12 months the time local officials have to certify the environmental impact reports for the Alameda Naval Air Station, Hunter's Point Shipyard, and the San Diego Naval Training Center redevelopment plans.