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.”
http://citywatchla.com/index.php?option=com_content&task=view&id=3631
Good summary of the crookedness of the system used to steal tax monies that are then used to buy favors and the important campaign donations and those do nothing consulting jobs out of office politicians keep getting after losing an election or being termed out.
To bad pointing out the follies of the cheating liars in Sacramento and their minions in local offices in regards CRA’s abusive, time and again has cost you a spot on the redistricting commission. I was rooting
Cook. Thanks for the kind words.
I used to think Huell Howser was just an annoying buffoon.
For chrissake, you just don’t get it…Howser’s shows aren’t platforms for investigative journalism or political inquiry. What part of that don’t you get?
Anon.
Pay close attention. I will type slowly so that you understand what I am about to share with you.
Huell’s 14 segment series was NOT CA. Gold. It was paid for the by CA RDA to justify redevelopment projects around the state.
Here is the link to the CRA home page where they feature a picture of Huell as they spin their agenda.
http://www.calredevelop.org//AM/Template.cfm?Section=Home
Larry, how about making a video for current TV, the channel Al Gore helps to run?
Or even the Reason foundation.
Matt. Great suggestion.
The Reason Foundation has made a few videos that expose redevelopment abuses. In fact if you look closely you will see me in their National City coverage where the city is taking a boxing gym from local kids. I interviewed the leaders at that time and found out that they also help the kids with their homework as they provide an outlet for their free time to keep them out of local gangs.
I also spoke at that city council meeting after covering a rally in the CYAC gym and at a local park prior to the council meeting.
The Reason 10 minute video entitled “Eminent Domain Gone Wild” features moderator Drew Carey.
Institute for Justice senior attorney Dana Berliner came out for DC to support the kids and the private property that day. Here is that Reason link. http://reason.tv/video/show/56.html
Larry,
You mean Huell’s series had a corporate sponsor? Whoa dude, say it isn’t so!!
Huell’s site has a link directly to the CRA website. It isn’t something he’s hiding.
Again, why would Howser want to do a series on redevelopment that was less than successful? That’s not what his shows are about. He’s producing ENTERTAINMENT!! He’s not doing investigative journalism. Yet you’re asking him to do so…clueless.
You’re missing the point. Howser has made his living promoting unique and peculiar places , people, and businesses in California – exactly the thing that Redevelopment has done its best to eradicate to be replaced with standardized corporate crap subsidized by the taxpayers. That’s pretty hypocritical/cynical of Howser.
And of course PBS may have corporate sponsors, but it’s not supposed to be airing propaganda for them.
anon.
Huell admitted that the CRA was underwriting the series. As such he would not even give us one line stating that all of the projects are not success stories. I repeat his comments to me last year that he is not political. Does he look in the mirror every morning? If can’t see the spin being used by the redevelopment agencies I sadly cannot help you.Perhaps you need to purchase a copy of the documentary Begging for Billionaires where you will see several redevelopment projects and their impact on victims in Kansas City, MO.
To repeat. This series is not California Gold. I would agree that his traditional PBS series is very entertaining and informative. In this case he permitted his good name to be dragged into the fight without appreciating the plight of the victims whose homes and businesses were taken in order to redevelop those neighborhoods. And I am not opposed to “takings” that are necessary for roads, bridges and schools so long as just compensation is agreed to by the seller.
Larry,
Your argument is like saying if Nike advertises during a sporting event, the host/network should say something about Nike’s history with sweatshops during the broadcast. You’re barking up the wrong tree…this isn’t something for Howser to investigate; it’s something for an investigative journalist/news organization to look into.
Maybe it’s something Congress should look into. Public TV is a non-profit venture – not a paid flack for the corporate welfare artists who profit off of Redevelopment.
anon.
It’s truly a waste of time to debate you when you close your eyes.
Larry,
Is it my eyes that are closed, or are yours? I’m not the one who’s into eminent domain issues. Sometimes, our passions blind us.