A second assumption is that follow-on businesses will not have to be subsidized, but will come in at market rates. In practice if it’s in a project area, a developer expects a subsidy whether it’s the first business or the last. Therefore, so much money will have been given away that even with normal appreciation payback to the City will take many, many years—twelve to eighteen is not unusual. In a properly structured deal a project should pay for itself in seven to ten years. If property values go flat or, heaven forbid, decline, the payback will be even longer if ever. This could mean the development would require yet another make over. This happened in West Covina.
Long Beach, which has eight project areas now, is in serious trouble. One area, commonly called the Westside Area is in great shape and produces a profit each year. There the subsidy is basically used for infrastructure improvements such as roads, sewers and water mains. There were not the giveaways of land and rent subsidies typically used to attract new retail businesses to the project as in other parts of the city. The Westside Redevelopment really did what it was supposed to do. It brought new life to an industrial area. Significantly, it has a very active and vigilant PAC that watches over this area.
It is the project areas in the other parts of the city that are in trouble. Long Beach is a city of contrasts, and Redevelopment is no exception. The Downtown Project Area is in the most trouble. With vacancy rates running higher than projected, when one set of towers had to give three years of free rent in order to lease, when the tax assessor reduces the assessed value thereby reducing the tax increment generated, there will not be enough money to service the debt; i.e., bonds. Its bonds have already been downgraded, and while Pine Street may look pretty, there has been a constant churning of small businesses—a subsidy, no profit, closure, repeat.
These types of things impact the bond rating which raises the interest costs. Also, in the robbing Peter to pay Paul category, the project area’s borrowing of the 20 percent low and moderate income housing set-aside funds only compounded the problem.
I am told that with a pending re-evaluation of the remaining bonds for the other Long Beach project areas, an emergency plan was devised whereby, with the exception of the Downtown Area, all other project areas would be combined with the healthy Westside to stave off a general bond downgrade and possible default. The Downtown Area would not be included because the 20 percent set-aside fund would have to be repaid first.
And so goes the excesses of Redevelopment. Every new project supposedly requires a subsidy to get started and every new business has their hand out. So much for belief in free enterprise. Are city councils so impotent that they cannot say NO to developers? Can they not let the marketplace work its wonder of free enterprise which built this country unbridled by government intrusion?
Redevelopment is philosophically bad because it is government taking of private property. And in practice it doesn’t work because it is not economically sound. The taxpayer pays twice—once to the developer and once for the services.
In Los Angeles, the mayor wants to take money from the Airport Commission and put it into the general fund for police and fire protection because so many dollars have been diverted to developers by Redevelopment.
Redevelopment is nothing but a giant Ponzi scheme and we, the citizens, are the losers.