But the red flags are up other places, too. Many cities have a large bond debt-Redevelopment bond debt-fueled by new store openings of eastern companies moving west and by local start-ups. Most new development today is being done on land in Redevelopment areas because the agency can give the "new" tenant incentives, i.e., money. Not directly, you understand, but things like selling the land at the lowest possible price and building "off-sites" such as larger water mains or street work-widening, turn bays, new driveways, signals, etc. This can add up to hundreds of thousands of dollars.
An interesting fact is that cities don't do this for existing businesses, only to attract "new" business to the area. Historically, if an existing business wants to enlarge, they get little if any help with water mains and road work. I believe the basis for this discrimination is that Redevelopment agencies want the existing property owners to sell so that a new, higher, tax basis on the land can be established with more property tax revenue flowing to the Redevelopment coffers to be given as new incentives to lure in more new businesses. This is, in fact, a classic Ponzi scheme. New money coming in is used to pay off the old investors, in this case the bonds that were sold to finance the giveaways. This actually works as long as there are new players, new businesses for more taxes. But when the businesses stop coming or go broke, there is not enough money to pay the bond debt.
This has happened in Long Beach with the revolving door of merchants in the Pine Avenue project. So many businesses have failed and moved out, the Westside Project Area had to be cannibalized to support Pine Avenue bonds. And that was after Long Beach had borrowed all the money it could from the Harbor Commission, money which will never be paid back. Further compounding the problem on Pine Avenue, it is backed up against the Queensway Bay project that was financed by a $40 million HUD loan which will be paid off from a mortgage on the new 605 Towne Center shopping center. Just another shell game.
An indication of the red flags starting to go up on Redevelopment debt is a little-noticed bill wending its way through the state Assembly, AB 774 "Redevelopment," for Pico Rivera which amply portrays what is wrong. Essentially this is what happened. The Northrup facility is located in the Pico Rivera Redevelopment project area. The tax base value was high which enabled the Agency to borrow more money than possibly was prudent with the uncertainty of government contracts. When President Clinton cancelled the B-2 bomber program, the Northrup plant was shuttered. The tax increment was substantially reduced with a "severe negative impact upon outstanding indebtedness." Guess what. They don't have money to service their Redevelopment bonds.
So, they went to the Assembly for special legislation to change the rules so that all the property taxes collected in the Redevelopment area, not just the increase since the start of the Agency (the increment), would go to service the bond debt. One might say, "What's wrong with that?" What's wrong is that base tax amount which would have gone to the General Fund to pay for police, fire and other services will not be there. This could also be called robbing Peter to pay Paul and points to why Redevelopment is a fraud. It steals from one group of taxpayers to give to another. While times are good and the general economy is rising, a Ponzi scheme works. The flaw is that when the money stops coming in, down it goes.
But the connection is that eventually, this stock market is going to have a correction. If it is deep enough to cause businesses to fail, we can expect more bailouts like Pico Rivera, and all of us pay. Even the rich developers who own the subsidized shopping centers will feel some effect of their extortion-and the bureaucrats will again escape accountability.