It is troubling enough that redevelopment agencies divert property taxes from real public needs. But that is only part of the story.
By law, for a redevelopment agency to begin receiving property taxes, it must first incur debt. In fact, property tax revenues may only be used to pay off outstanding debt. Pay-as-you-go is not part of redevelopment law or philosophy.
Debt is not just a temptation. It is a requirement.
That is why redevelopment hearings inevitably feature three groups of outside "experts": the blight consultants, the lawyers, and the bond brokers who help the agency incur debt so it can start receiving the tax increment.
The bond brokers and debt consultants are easily located. They are listed in the California Redevelopment Association Directory. From city to city they phone, fax, travel and make presentations to sell additional debt. Naturally, redevelopment staffs are supportive. More debt means job security and larger payrolls.
Currently, total redevelopment indebtedness in California tops $41 billion, a figure that is doubling every five years (Table II).
Debt levels vary widely among agencies, but all must have debt to receive the tax increment. Table III shows those cities with the highest total redevelopment indebtedness. Debt levels have no relation with actual blight, as many affluent suburban towns have higher indebtedness than older urban-core cities.
Table IV shows outstanding indebtedness per-capita.
This is the amount of per-capita property taxes that must be paid to cover the principal and interest of existing debt. This amount must be diverted from the cities, counties and school districts before these redevelopment agencies can shut down and restore the property taxes to those entities.
One would expect that if redevelopment agencies had been successful in eliminating "blight," they would now be scaling back their activities and reducing debt. In fact, redevelopment indebtedness is growing rapidly, draining investment money that could have gone to buy other government bonds or into the private sector.
There are two reasons redevelopment debt is so attractive: First, redevelopment agencies may sell bonded debt without voter approval. Unlike the state, counties and school districts, the debts need not be justified to, or approved by, the taxpayers. A quick majority vote by the agency is all that is needed.
Second, bond brokers love to sell redevelopment debt. The commissions are high and the buyers plentiful. Since the debt is secured against future property tax revenue, they are seen as secure and lucrative. If an agency over-extends, then surely the city's general fund will cover the debts.
Most agencies project that ever-rising property tax increments will cover future debt service. During the 1990s, however, much of California's commercial and residential real estate declined in value. Property owners sought and received lower assessments, creating a crisis for those agencies banking on ever-rising property taxes. Some cities raided their general funds to service redevelopment debt.
Legally, it is unclear whether the state or individual cities are liable to bail out actually bankrupt agencies, but the expanding bubble of redevelopment debt must be a concern to all.
Redevelopment agencies typically issue new bonds to pay off existing ones, thus rolling over and compounding interest payments. This cannot go on indefinitely. Eventually, all existing debt must be paid with real tax dollars. Every dollar that must pay for this debt is a dollar that will not be spent on police, education and other pressing public needs.
The only way to avoid these ballooning interest payments is to stop issuing new debt and pay off existing principal as soon as possible. Chapter 11 explains exactly how this could be done.
| TABLE III | ||
|---|---|---|
| Top 10 Cities by Total Redevelopment Indebtedness | ||
| (Includes principal and interest of all outstanding debt) | ||
| 1 | San Jose | $2,205,140,180. |
| 2 | Los Angeles | $2,010,052,149. |
| 3 | Fontana | $1,509,941,789. |
| 4 | Lancaster | $1,176,635,953. |
| 5 | Industry | $952,810,685. |
| 6 | West Covina | $805,019,621. |
| 7 | Chico | $795,797,760. |
| 8 | Burbank | $749,356,165. |
| 9 | Brea | $661,976,870. |
| 10 | Huntington Park | $653,090,326. |
TABLE IV |
||||
|---|---|---|---|---|
| Top 10 Per-Capita Redevelopment Indebtedness by City | ||||
| (Includes outstanding principal and interest) | ||||
| Per-Capita Redevelopment Indebtedness |
City/Agency | Population | TOTAL Redevelopment Indebtedness |
|
| $1,401,192. | Industry | 680 | $952,810,685. | |
| 303,632. | Irwindale | 1,080 | 328,144,953. | |
| 47,384. | Brisbane | 3,130 | 146,889.850. | |
| 37,382. | Indian Wells | 3,100 | 115,886,139. | |
| 19,132. | Brea | 34,600 | 661,976,870. | |
| 16,412. | Chico | 48,450 | 795,797,760. | |
| 16,085. | Emeryville | 6,500 | 104,552,578. | |
| 15,688. | Commerce | 12,000 | 188,263,953. | |
| 14,589. | Fontana | 103,500 | 1,509,941,789. | |
| 14,368. | Sand City | 200 | 2,873,567. | |
| SOURCE:California State Controller's Office; Fiscal Year 1993-94 | ||||
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