Perhaps Huell Howser should address RDA tax diversion

RDA debt. Another burden on taxpayers

 As covered previously I challenged California Gold’s producer and host Huell Howser to point out redevelopment projects that were not success stories. He declined telling me that the California Redevelopment Agency was paying him to only shine the light on positive stories in his CA Communities Series.

Well, here’s another side of the coin that warrants our critique. Property taxes being diverted from necessary services. 

LA attorney Richard Lee Abrams just published the following story in City Watch
“Meet the Ravenous Beast that Devours City Revenue       

“The City [of L.A.] has many ploys, some of them legal, by which it systematically destroys its own tax base and deteriorates the quality of life for Angelenos.  Foremost among them is the Community Redevelopment Agency (CRA/LA). 

In 1935, the California Supreme Court urged the courts to prevent the innumerable “‘new schemes which the fertility of man’s invention would contrive'” in order to cheat and swindle others. (American Philatelic Soc. v. Claibourne, (1935) 3 Cal.2d 689, 698).  

Recently, Sacramento Judge Lloyd Connelly heeded the High Court’s admonishment and ordered the State’s Community Redevelopment Agencies to pay $2 Billion to their local school districts.  Up and down the state, the developers decried the “raid” on their multi-billion dollar CRA slush funds. 

CRA/LA is a mixture of tomfoolery and corruption.  After decades of doing what they want with taxpayers’ dollars,  multi-million dollar developers like CIM Group came to believe that your dollars are their dollars.  

With CRA’s increasing power has come increasing corruption.  In 1887, Lord Acton advised us that “Power tends to corrupt and absolute power tends to corrupt absolutely.”  Voters need to understand how unbridled power has made CRA/LA an irresponsible devourer of taxpayer dollars. 

The main source of CRA money is “incremental property tax” dollars. These incremental tax dollars are used to pay off the developers’ loans.  

If your home were a CRA project, the County would collect your taxes and then pay them to your mortgage company who would then accept your tax dollars as your mortgage payments.  

If your taxes were not enough to pay your loan, then the City would dig into its own pocket and pay the balance of your mortgage.  I have yet to find the homeowner who has been extended this sweetheart deal. 

Let’s look at CRA’s Bunker Hill project to see how CRA is costing us billions of dollars.    

The average life of the CRA/LA’s 32 projects is 36 years. Bunker Hill, the oldest, was established in 1959 and the effectiveness of its redevelopment plan will expire in 2012.  However, the CRA/LA has the right to receive tax increment until 2022 in order to repay the debt that was incurred prior to 2012.   CRA/LA 2009-20010 Budget, p 8 

That means those tall skyscrapers owned by banks like Citicorp, insurance companies and law firms have not been paying property taxes.  And, they will not start until 2022.  That is a total of 63 years without paying property taxes.  

How much money are we talking about?  According to CRA/LA, in 2010 Bunker Hill incremental property taxes will be $31.6 Million.  Over the next 12 years, that’s $380 Million of unpaid taxes! CRA/LA 2009-20010 Budget, p 22  

Do you think Bunker Hill will start contributing to the general fund in 2022?  It is not likely.  

The CRA will find need to update, renovate, and refresh the old buildings.  Some will be 50 years old.  Millions of dollars of new loans will go to developers and the incremental property tax increase will be diverted to CRA for another 63 years in order to repay the renovation loans. 

If you don’t think this can happen, last year the City loaned CIM Group $30 Million to retrofit the Kodak theater at CRA’s Hollywood-Highland project which cost $650 Million to construct, but was sold to CIM Group for about $201 Million in 2004.  

One would think that buying a CRA project at a 2/3 discount would leave CIM Group with enough cash to retro-fit the Kodak itself, but No.  The City (aka the taxpayer) has to foot the bill. 

How much money does the CRA cost us?  Right now CRA has 32 CRA projects. Last year that came to $245 Million in lost revenue. (CRA had said its property tax income was only $217.8 Million, but in reality it was 17% higher, $245 Million.)   

Meanwhile, The City raises parking meters, parking and traffic tickets fines, and the cost for ambulances goes up while fire protection goes down. However, the City also proposes waiving more than $1 Million in annual Planning Department fees for developers, while increasing planning fees for homeowners. 

Perhaps the most crucial element of the capitalist system is risk.  The CRA destroys risk.   When loaning money, capitalists assess the risk that the borrower will not repay the loan.  This risk causes capitalists to be careful when lending money.  

When the risk is removed, the system collapses.  Thus, any development supported by tax payer money removes the risk.  Goldman Sachs and others will loan money without regard to the wisdom of a project, since the loan is backed by the taxpayers.  

CRA borrows the money from places like Wall Street and then re-loans it to the developers. The complexity of the financial morass causes most citizens to give up trying to decipher the mess. To fail to understand, however, is to wave bye-bye to Prop 13. 

If the developers were ultimately liable on the loans, then Goldman Sachs wouldn’t lend the money.  Wall Street wants the homeowners of LA to guarantee these loans as they see us homeowners as an endless line of patsies.  

This is one reason the CRA writes forgiveness clauses into some contracts up front – so that the lender knows that the taxpayer will pay if the tax income is inadequate.  The City has already forgiven CIM Pico’s loans from 2006 and 2008.  Here’s what the CRA itself said about the CIM Pico project: 

The Project’s return on investment is just under 7%, a rate of return significantly below returns required in similar projects sponsored by the CRA/LA and in the Southern California real estate market. The low rate of return would be unacceptable to most real estate investors in today’s marketplace. 5-20-10 CRA Memo re CIM Pico, p4-5 

Nonetheless, the City gives CIM Pico an additional $21.25 Million.  Because the taxpayer stands behind the loans, the developer has no risk and Wall Street has no risk.  There is no reason for the developer to agonize over making the project financially feasible; no reason for mega-banks to worry the loans won’t be repaid. 

That is the nature of centralized planning – the people at the bottom pay all the bills while the people at the top reap all the rewards.  The centralized bureaucracy builds whatever it wants without regard to whether the project is viable.  

Thus, L.A. is becoming crowded with foolish projects, like the Metro Building on southeast corner of Hollywood and Western, which has been unable to rent more than 50% of its retail space since it opened more than 5 years ago. 

When one works through all the tangled math and the webs of deceit and lies, CRA’s overriding criteria seems to be: How can the developer maximize cash in his pocket?  

A happy developer makes a happy campaign contributor. It’s time the voters kicked this tomfoolery to the curb.”

About Larry Gilbert