Lagging Property Values Put CRA in Financial Pinch

Despite indications that Southern California’s economy is on the rebound, the Los Angeles Community Redevelopment Agency is facing what may be the worst financial crisis in its 49-year history, largely because of stagnant real estate values.

The CRA--the state’s largest and oldest redevelopment agency--has mailed out layoff notices to 23 workers, slashed its budget by 27% over the last three years and put new projects on hold in some of the city’s most depressed neighborhoods.

“Our property taxes have bottomed out,” said John Molloy, the agency’s executive administrator. “We are in the trough.”

The agency’s hard times reflect a historic shift from the heady days of the Mayor Tom Bradley administration, when a robust CRA helped guide the huge Bunker Hill development and the $220-million-plus remodeling project on the Central Library.

The CRA is not alone. Redevelopment agencies statewide--but particularly in Southern California--are feeling the recession’s cold hand.

Although California’s economy is improving, most property values will continue to lag for years at recession-era levels until property is reassessed at a higher level during a change of ownership, redevelopment officials say.

The city of Long Beach last year tried to issue $25 million in redevelopment bonds to help meet its payroll but was blocked by a lawsuit filed by a group of Long Beach businessmen.

“It’s indicative of the California recession,” said Kevin Mukri, a spokesman for the California Redevelopment Assn., a nonprofit group that represents redevelopment agencies statewide. “This caught everyone by surprise, not just the CRAs.”

But the CRA woes in Los Angeles are not all because of the recession. A combination of factors has helped put the agency on the ropes, including the lingering effects of the 1992 riots and the 1994 earthquake, and lawsuits that have blocked the expansion of two of the CRA’s biggest redevelopment projects.

The City Council today will consider a motion to provide the agency some relief by putting off a plan to divert $4.5 million from the agency’s budget to the city general fund.

In addition to cutting staff and putting some programs on hold, Molloy has suggested some unusual cost-cutting ideas, such as reducing the number of community meetings and even closing some field offices.

“We have been scoping and tailoring our programs to suit our financial resources,” he said.

Hardest-hit by the financial problems has been the agency’s “citywide housing program,” which provides money for nonprofit developers to build about 1,000 units a year.

Last year, the program, budgeted at $40 million the previous year, was cut to $12 million because of revenue shortfalls. Agency officials say they will end the program altogether this year, funding only those projects that are still in the pipeline.

Hoping for better economic times, the redevelopment agency is considering six new redevelopment projects. But agency officials say those are modest neighborhood revitalization projects. The days of massive CRA-funded public projects appear to be over.

“There is no one in the city who sees funding urban design efforts as a priority,” said George Lefco, a USC land-use and real estate professor and former city Planning Commission president. “I guess in the midst of a recession it’s considered a luxury.”

The recent revenue shortfall has forced the CRA to slash its programs budget from $133.7 million in 1993 to $97 million this year. During that time, agency staff dropped from 357 to 248. Molloy has issued layoff notices to reduce the staff by an additional 23 workers this year.

Four new recovery districts created after the Northridge quake and three areas drafted in riot-scarred neighborhoods have yet to generate much revenue.

Worried about the agency’s financial problems, Standard & Poor’s and Moody’s Industrials bond rating agencies have recently downgraded the CRA’s bond rating for paying off its Bunker Hill project.

To help weather the storm, Molloy said, his department hopes to rely more on federal grants and on partnerships with private developers.

The agency’s central problem is that it relies primarily on one funding source: a complex process known as tax increment financing.

The way it works is that a redevelopment agency draws boundaries around an area that is determined to be “blighted.” After that designation, the agency is able to divert a portion of any increased property taxes to fund improvement projects in neighborhood, through low-interest loans and civic improvements such as street repaving, benches and landscaping.

But its method of financing the work leaves the CRA vulnerable to economic fluctuations.

“When you don’t have alternative resources you will run into this problem when the economy tanks like this,” said Bill Carlson, executive director of the California Redevelopment Assn.

In Los Angeles, the redevelopment agency’s problems come as good news to Mildred Weller, a North Hollywood businesswoman who is a member of a small but determined group of critics who contend the CRA wastes property taxes on high-salaried bureaucrats and ineffective neighborhood improvement programs.

“Isn’t it a hoot?” she exulted at the CRA problems.

Weller and her fellow activists have added to the agency’s woes by launching a series of legal challenges that have aggravated the CRA’s problems.

Weller and her confederates recently put a massive North Hollywood redevelopment project on hold with a lawsuit that contends the agency failed to give the public an adequate chance to speak when it dramatically expanded the plan last year.

Even more troubling to the agency is the lawsuit by former Councilman Ernani Bernardi to block the CRA from lifting a $750-million spending cap on its downtown redevelopment project.

In a recent series of court victories, Bernardi’s lawyers have convinced state courts to reject CRA requests to lift the cap, which was negotiated nearly 20 years ago to settle another Bernardi lawsuit.

If the cap were lifted, Molloy said, the agency could fund housing projects in the depressed South Park area and stalled historic preservation efforts along Spring Street. Instead, all new projects in the downtown area are on hold.

“The city of Los Angeles is suffering because of it,” Molloy said.

The lawsuits by Bernardi and Weller have compounded the agency’s financial problems by forcing it to spend more than $110,000 on private lawyers to fight the suits.

“The issue is of such significant importance that we need to follow it to the end,” Molloy said of the Bernardi lawsuit.

The agency is also planning to continue fighting Weller in court. A proposal is pending before a City Council panel to spend an additional $75,000 on attorneys to fight her suit.

A court ruling in Weller’s lawsuit temporarily blocks the city from raising the spending cap on the 750-acre project in North Hollywood from $89 million to a maximum of $535 million.

Unless a court reverses the ruling, the CRA will have to hold a new hearing on the expansion to allow the public to testify at length.

But the CRA is not idle while the courtroom battles continue.

Molloy said the agency expects an improving economy to increase property taxes in the next few years. When the financial picture improves, the CRA hopes to fund new redevelopment projects in the Westlake area, East Los Angeles, Pacoima, San Pedro, the Harbor Gateway community and around Alameda Street near downtown Los Angeles.

Most of those projects will focus on revitalizing commercial and industrial corridors.

“I don’t view the CRA story as one of gloom and doom at all,” Molloy said.