Zones of Controversy : REDEVELOPMENT: OFTEN MISUNDERSTOOD, OFTEN FEARED

Redevelopment is one of the most powerful tools a local government can use to turn around a run-down neighborhood. It is also one of the most feared and misunderstood.

In the jargon of urban planners, the term “redevelopment” has a very specific meaning. It is the process by which local governments exercise a broad range of powers to eliminate blight--whether a failing downtown or a neighborhood of sagging apartments.

Originally, redevelopment meant eradicating the blight of unsafe slums, but cities have stretched the definition of blight to include anything from irregular lot sizes to neighborhoods losing population.

Perhaps the easiest way to think about redevelopment is as a bundle of powers. The two most important: condemning private property for new development and keeping property tax revenue that otherwise would be shared with other government agencies.

Although the intent of redevelopment--reviving declining neighborhoods--is noble, its implementation in neighborhoods across Southern California often has been greeted with suspicion and hostility.

How It Works

* Boundaries: Local government establishes “survey area” to be redeveloped.

* Blight: The redevelopment agency formally finds that the survey area is blighted and in need of repair.

* Mapping: Project area map is drawn up.

* Standards: Development standards are formulated, regulating how new projects will be built.

* Financing: Financing is arranged, generally through bond issues guaranteed by future tax revenues.

* Oversight: Citizens advisory committee formed to oversee implementation.

* Time: Project areas remain in effect for 20 to 35 years. During this time, the redevelopment agency uses its powers of tax-increment financing and eminent domain to arrange private projects for the area.

Eminent Domain

The most feared tool of a redevelopment agency is its power of eminent domain--or its ability to seize property from unwilling sellers. Traditionally, eminent domain is to acquire land for schools, roads and other public projects, but it can also be used to cobble together large parcels of land needed for big projects like supermarkets or shopping malls or car dealerships.

But a redevelopment agency can condemn property even if the final owner of the land will be a private developer. Eminent domain laws require the government to pay property owners fair market value as determined by a jury.

Tax-Increment Financing . . .

Hard to understand, “tax-increment financing” often is one of the most attractive reasons for a local government to create a redevelopment area. It essentially allows the redevelopment agency to finance improvements through future property tax increases.

Bonds are issued early in the project’s life to pay for improvements, such as roads and sewers, that might attract new development. The bonds are paid off with the tax increment. Money from the tax increment can also be used to purchase parcels that are sold to developers for a “write down,” or a considerably lower price than the property is worth. Such incentives often are required to entice developers into risky areas.

. . . Explained

Imagine a building worth $200,000 when a redevelopment area is created. Every year the building generates $2,000 in property tax, which is split several ways. Say that it is sold two years later for $300,000, and that the building then generates $3,000 a year in property tax. The $1,000 difference--or the tax increment--would go only to the redevelopment agency. The other agencies would split just the original $2,000.

This process is repeated every time a building is sold or reassessed. So if this building is sold two years later, this time for $400,000, it would generate $2,000 in tax increment. The other agencies still would split the original $2,000.

Redevelopment History

1940s-1950s

After World War II, the federal government launches massive urban renewal programs to clear slums. Later, California supplements federal programs by adopting the Community Redevelopment Act. Because the act, like the federal initiative, is intended to protect public health, it is made part of the health and safety code.

1950s-1960s

California cities use redevelopment powers to acquire and raze large tracts of land, usually in and around their downtowns. Much of the land acquisition funding for these projects comes from the federal government.

1970s

Redevelopment briefly falls out of favor. Many private developers refuse to take on the problems associated with redevelopment projects, and community organizers and anti-poverty groups complain that such efforts tossed poor people out of their homes. When the tax-cutting Proposition 13 passes in California, redevelopment suddenly becomes more popular among governments. The reason: local governments turn to tax-increment financing because they can no longer raise local taxes easily.

1980s-1990s

The formation of new redevelopment agencies hits a peak between 1981 and 1985, when 117 agencies are created and 204 project areas formed in California. Over the next five years, 50 more agencies are formed and 120 project areas created. During this time, most redevelopment agencies focus on attracting new retail ventures, hoping to cash in on sales tax revenues to bolster rapidly deflating budgets.

SOURCES: “Guide to California Planning,” by William Fulton; “California Real Estate,” by Joseph Newton, Bruce Harwood and Charles J. Jacobus; “Public Needs and Private Dollars,” by William W. Abbott, Marian E. Moe and Marilee Hanson

Researched by AARON CURTISS / Los Angeles Times