CRA’s Fee Bodes Ill for Healthy Downtown

The greater Los Angeles area has enjoyed extraordinary prosperity over the last 25 years, but we are now paying the price for that prosperity. The phenomenal growth has brought serious problems, including traffic congestion, lack of affordable housing, poor air and water quality, inadequate waste management facilities, homelessness and crime.

Given the demographic projections, it is clear that we cannot stop this growth; the challenge is to effectively manage it. Notwithstanding the significant commitments made by many organizations, the region is making little progress toward resolving its ills, and solutions will not be forthcoming if we depend solely on government, which, to a great extent, has been reactive and ineffective.

Solutions can only be achieved if we change the process in a fundamental way. There needs to be a private-public partnership, driven by a massive commitment of the private sector.

It is critical that the business community guide the long-term planning of downtown, committing the best of its leaders to take a hands-on role in formulating a process that can afford future generations a chance to enjoy the prosperity that we have enjoyed.

Part of the solution to the environmental and transportation problems facing Los Angeles will involve levying fees and exactions on developers of new downtown office buildings.

Developer Assessments

A developer of an office building in the central business district in the 1990s will have to budget for such fees, costs and assessments as:

--The proposed affordable-housing linkage fees, which will range from $2.50 to $7.50 per square foot.

--The public art fee, equal to 1% of total project cost, which on a project of $300 dollars per square foot would equate to $3 dollars per square foot.

--The South Park Open Space assessment, affecting developments south of 8th Street, which could be as much as 20 cents per square foot per year.

--The Metro Rail benefit assessment payments, which could be as much as 40 cents per square foot per year.

--The peripheral parking program, which includes the cost associated with purchasing land and the related costs of developing and operating an off-site parking structure.

I am a strong supporter of the development of affordable housing, the improvement of our transportation systems and the inclusion of open space and public art in downtown development projects. I also feel that the development community should bear some of the cost associated with instituting such programs as contemplated above.

Density Transfer Fees

However, I take strong exception to the structure of a recent proposal by the Los Angeles Community Redevelopment Agency (CRA) to levy a public-benefit payment (PBP) on downtown developers who elect to transfer density rights, also known as floor-area ratio (FAR).

It is important to state that much of the property in the central core of downtown Los Angeles has an “as of right” zoning density, or FAR, of 6 to 1. This means that a 100,000-square-foot parcel of land could be developed with a 600,000-square-foot building.

The TFAR (transfer floor-area ratio) policy provides the mechanism for a developer to transfer density from another parcel within the central core of downtown to his property. This enables a developer to increase the property’s FAR to 10 to 1, allowing for the development of a 1-million-square-foot building on the 100,000-square-foot parcel.

The public-benefit payment is envisioned to become part of the TFAR policy. I would contend that the PBP as proposed by the CRA is ill conceived, illogical and may possibly be illegal.

The CRA proposal, if adopted, would require that a developer transferring FAR to his property pay a public benefit “tax” equal to 44% of the appraised land value of his property.

For example, if a property with a FAR of 6 to 1 is valued at $1,000 per square foot of land, its value converts to about $167 per FAR square foot. The CRA is proposing that the benefit payment be 44% of $167, or about $73 dollars for each FAR square foot transferred.

This public-benefit “tax” is in addition to the fee for actually transferring the FAR, which the CRA has already artificially inflated to a cost of $35 to $40 per FAR square foot.

Developers have often transferred density to reduce the average land cost of a major office development. Private FAR transfer transactions have never exceeded $20 per FAR square foot and typically have been $15 per FAR square foot.

The public-benefit payment bears no relationship to the public benefits and will dramatically increase the possibility that development in downtown Los Angeles will be significantly deterred. I would question whether the mayor, the City Council or the business community would find this acceptable.

I am not against levying fees and exactions on developers for the benefit of the public if, in fact, those benefits are identified and quantified, and their relationship to the development project can be clearly established. In fact, these relationships and quantifications are required under California law.

After reviewing the evolution of the 44% tax, it is my opinion that the CRA has given no consideration to the reasonable relationship between the tax and the cost of the proposed public benefits.

What does this all mean, you may ask.

Combining the public-benefit payment with all of the other development fees and exactions previously noted would have the impact of increasing the total cost of a new downtown office building by as much as 25%.

Assuming a developer would proceed with a project given these burdensome fees, the cost will ultimately be paid by tenants who occupy the office buildings in the central business district.

I can assure you that these businesses will soon conclude that it no longer makes sense to do business in downtown Los Angeles and will decide to relocate to other areas, including those outside of California, where the perception is that the local governments are sensitive to their concerns and are balanced in their thinking.

Driving Away Business

Left to their present course, the potential impact of the actions of bthe CRA will be to drive corporate America away from downtown Los Angeles. This threatens to destroy the heart of this great city, which is and should continue to be of major importance to the world’s economy.

Historically, the CRA has played a significant role in managing the growth and revitalization of downtown Los Angeles.

However, the CRA has outlived its original mission of being responsible for the redevelopment project area of the downtown central business district.

It is my opinion that the CRA has become a bloated and redundant organization. It has evolved into a jobs program whose officers are more concerned about preserving and expanding their payroll than they are about improving the quality of life in downtown Los Angeles. The CRA has so many layers of bureaucracy that it is no longer the effective planning tool that it may once have been.

The CRA has created a slow-growth and possibly even a no-growth climate in downtown Los Angeles. This is apparent when one looks at the results. Not one project involving the transfer of development rights has been approved in downtown since the Ahmanson/Home Savings Tower in June of 1986--almost 3 1/2 years ago.

So what is the solution?

Obviously, one solution would be to eliminate the CRA altogether, but short of taking such a drastic measure, I think the CRA should redefine its goals and objectives and downsize itself to reduce its bureaucratic inefficiency. In this way the CRA could be more responsive to the needs of the community with a clearly defined mission statement.

The private and public sectors also must join together to create a strategic plan for the future of downtown Los Angeles. A similar process was undertaken many years ago, spearheaded by Al Martin of Albert C. Martin & Associates, the prominent architectural firm.

This privately funded effort, conducted in conjunction with the public sector, proved to be instrumental in planning the development of downtown.

It is welcome news to hear that a new downtown strategic plan advisory group has been created, because allowing the CRA to hold the pen of a downtown strategic plan might very well force our major employers to abandon the city to areas that send a clear signal that they want to attract and maintain a vibrant business environment.

This article is adapted from the text of two recent speeches by Cushman.