In Defense of Hollywood Revitalization

Criticism of plans to redevelop Hollywood reveals a classic misunderstanding of how the redevelopment process works. Redevelopment is a powerful tool for good when used appropriately but is never a sure thing and not without some negative side effects. The question in Hollywood is whether significantly more good than bad will be accomplished.

In Hollywood, 1,100 acres including the district’s commercial core will be redeveloped over a 30-year period. At the area’s east end, a new home will be created for the many pre- and post-production facilities that now serve the entertainment industry from cramped quarters. Of the almost $1 billion in public funds slated for the renewal effort, $250 million is earmarked for low- and moderate-income housing. One of the first major undertakings--Hollywood Promenade--is a $150-million complex wrapping around the world-famous Chinese Theatre. Planned are a film industry museum, 20-story office tower, an international hotel and retail shops.

The funding mechanism of the Hollywood and other redevelopment projects--tax-increment financing--will divert from the county most new property tax revenues generated by the new buildings and tax re-assessments within the redevelopment perimeters. These funds will pay for the city’s redevelopment activities, including “parcelization”--the purchase of properties to assemble larger, developable parcels, demolition and infrastructure such as street improvements, parking structures, lighting and sewers. The city initially gets funds for these activities from sale of bonds secured by future tax increments. The city is then on the hook if the project does not generate enough taxes to pay off the bonds.

Participating businesses then “bet” their dollars by building commercial structures. It is a gamble because there is no guarantee that the new buildings will lease quickly and show a profit.

The odds are that over a long enough time property values will increase. But being part of a development project does not guarantee success; there is material risk and financial staying power is required.

One of the charges made against the Hollywood project is that current property owners started the process and they will profit. What are the alternatives? Should the potential for earnings only accrue to people who come from outside the area? It is natural that those who have invested in the area should have an interest in bringing Hollywood back to its earlier glory.

When a mayor’s citizens committee on redevelopment examined the Los Angeles Central Business District in 1976, we often heard that it was destined for renewal with or without government assistance. The fact is that blighted areas generally do not redevelop by themselves. Unfortunately, in the redevelopment of downtown, few local businesses shared in either the risks or the eventual benefits. Many of the major property owners looked at what was, remembered what had been and had difficulty seeing what could be. As it happened, a sizable percentage of the property was eventually sold to developers from outside the area; current ownership is approximately 50% in foreign hands.

In Hollywood, ownership of the first two projects is split between local and out-of-state interests. Other Hollywood owners who have recently added to their property holdings have simply increased their exposure to the risk for profit or loss.

While there is potential for unfairness in the redevelopment process, it has to do with those residents and small merchants who are relocated in eminent domain proceedings. While the non-retail business that relocates can usually do so with a minimum of problems, the small retail operator faces a loss of customers. This is the one glaring inequity that the law has been unable to solve. Taken as a whole, however, the process fairly compensates owners and tenants with market-rate purchases and relocation costs.

Some in Hollywood say they would prefer a redevelopment plan that would severely limit growth and ensure preservation of all buildings with a remote claim to historical status. This is not redevelopment but status quo. The only way to generate money for parcelization, infrastructure, parks and the 7,000 new and rehabilitated low- and moderate-income housing units envisioned for Hollywood is through the tax-increment process fueled by private sector investment. Without this investment there will be no significant rise in property tax revenues, thus no tax increment and no redevelopment.

The key to making redevelopment work is to devise plans that benefit the majority of people while limiting and ameliorating the harm that change invariably causes. There will always be people who are negatively impacted by the action of government; their concerns must be listened to and addressed. However, the concerns of the few should not stop progress that will benefit the many. And surely a revitalized Hollywood, commensurate to its image as the world’s film and entertainment capital, is a desirable result.