The following information is detailed in various documents including the Disposition and Development Agreement, Amendments No. 1 and 2, and other agenda memorandum documents and resolutions from council action.
The project required a consolidation of parcels bounded by New Street, 2nd Street, Downey Ave., and Firestone Blvd. It was necessary for the city to acquire those parcels not already owned by Cardono as not all were willing sellers. Eminent domain was used to force the others to sell and eventually these parcels were resold to Cardono’s development company, Cardono Square, Ltd. The city’s acquisition of these parcels, relocation benefits, demolition expenses and a small amount of offsite work came to $940,000. However these parcels were resold to Cardono Square, Ltd. for $400,665. This difference, roughly a half a million dollars, was the incentive or subsidy to the developer. For the time period when this happened, this amount of writedown on land value was common. These incentive dollars are scheduled to be recaptured through the tax increment process, the new increased property taxes from the development above what they were before.
At the time there was much made of the fact that the improvements were to cost at least $5 million. However, to his credit, Cardono very successfully brought in the building at under $5 million. This distressed some members of the council who wanted the faster recovery which higher taxes would provide, but because of the adverse economic times much of the building was un- leased; therefore, the tenant improvements were not done, also keeping the taxes down below original projections. The 1992 property tax assessment rolls show a land value of $817,816 (double what he paid for it) but the improvement value is still only $4,926,226.
The city estimated that with new tax increment dollars of $38,000 per year, it would take 13.4 years to get back this half million dollars. It would appear that 13 - 15 years is a reasonable estimate and we will have recovered it by the year 2000.
The tax increment payback period on another Redevelopment building downtown is 18 years. With decreased property values these periods may be even longer. When we as a city have to wait 13 to 18 years to get back our money paid out as incentives, it becomes clear what is wrong. The fallacy of Redevelopment is that it is not economically sound.
We should also not forget the value the developer derived from the city’s gift of New Street and 2nd Street which are now used as part of the Cardono Square parking lot. This additional area, more parking spaces, allowed for a larger building to be built but the added value of these former streets in not in any of these representations.
One of the principal justifications for redevelopment projects is to provide an impetus to bring new businesses to the area, a theme that is heard over and over again. This has not worked. What happens in reality is that each new business seems to think they deserve an equal or greater level of incentive or subsidy. Consequently we always seem to be bribing new, bigger, and better businesses to come to downtown Downey.