Quake Recovery Plan Draws Praise, Fire : Financing: Blue-collar areas of the San Fernando Valley embrace redevelopment proposals, but affluent neighborhoods threaten to sue.

Insurance settlements and disaster funding to repair earthquake damage in the hard-hit Sherman Oaks/Studio City area will fall up to $120 million short despite a massive infusion of government aid, according to a new study.

So why have 2,100 residents of the affluent area signed a petition and threatened to sue to block Los Angeles’ latest quake recovery effort?

And why, by contrast, is that same recovery plan receiving a warm welcome in the northeast San Fernando Valley working-class communities of Pacoima, North Hills, Sylmar and Sun Valley, which suffered far less damage and face a funding gap of only $20 million?

Development experts, community activists and city lawmakers cite a combination of factors to explain why two chunks of the quake-devastated Valley, recovering from the same disaster, have dramatically divergent assessments of the same recovery effort:

* The nature of the recovery plan: The city proposes using redevelopment powers in six hard-hit areas of the Valley and Hollywood to provide repair funds. Other redevelopment plans in the city have been plagued by controversy and lawsuits.

* Income levels: Sherman Oaks and Studio City residents earn almost twice as much, on average, as residents in the northeast Valley, making it easier for them to qualify for disaster loans and more likely to oppose additional tax-funded programs.

* Trust in elected lawmakers to watch over the plan: Sherman Oaks and Studio City will be without a council member for the first seven months of the project because Councilman Zev Yaroslavsky leaves Dec. 5 to take a seat on the Los Angeles County Board of Supervisors.

The plan for a redevelopment project in Sherman Oaks and Studio City was adopted by the Los Angeles City Council last week over strong community opposition. The plan for the northeast Valley is expected to be adopted today with little opposition.

The city plan envisions the six redevelopment zones generating nearly $160 million in low-interest loans and funds to repair streets, parks and other city facilities, such as libraries and police stations. But because funding is created by diverting a fraction of property taxes over a 30-year period, little if any money will be realized for nearly a year after the projects are adopted.

Despite this drawback, backers of the plan say it provides a last resort source of aid for quake victims who fail to get funding from other disaster agencies.

“If we can make a difference in one person’s life, it’s worth it, because it’s not going to hurt anyone,” said Yaroslavsky, who took fiery criticism from residents for spearheading the redevelopment plan.

Although some business owners in Sherman Oaks and Studio City supported the plan, a vocal group of homeowners opposed it, submitting petitions and threatening to file a lawsuit after the City Council adopted the plan.

Critics cited the controversial history of redevelopment programs in other areas of the city and blasted the work of the city’s Community Redevelopment Agency, which some critics compared to an invading army.

They noted that projects in North Hollywood and in Downtown Los Angeles have sparked lawsuits and charges of overspending, waste and bureaucratic delays.

To hear some Sherman Oaks and Studio City residents tell it, quake-ravaged buildings in that community are quickly being repaired and a new government aid program is not needed.

“If you could take the chance to drive through Sherman Oaks, I think you would see why I personally feel we don’t need” the redevelopment plan, said Sherman Oaks resident Barbara Stumpf. “There is tremendous construction under way.”

But, in fact, 10 months after the quake, the owners of nearly 60% of damaged buildings in Sherman Oaks and Studio City have yet to get permits to begin repairs, according to the city’s Building and Safety Department. The damage repair shortfall citywide is estimated at nearly $1.2 billion, according to a study by Keyser Marston Associates Inc., a Los Angeles-based economic consultant hired by the CRA to assess the need for the redevelopment project.

Damage to Sherman Oaks and Studio City represented nearly 20% of all Northridge earthquake damage in Los Angeles.

In contrast to Sherman Oaks and Studio City, there has been little opposition from Pacoima, North Hills, Sylmar and Sun Valley residents who have attended public hearings on the matter. Many thanked city officials for offering the redevelopment plan, saying they expect it will provide hope and jobs for economically depressed neighborhoods.

“People don’t understand the opportunity the CRA will provide,” said Steven Martinez, a Pacoima activist. “The truth is, we need some help.”

The biggest bugaboo of the redevelopment process has been the power of eminent domain it bestows on the CRA, allowing it to condemn private land within project areas to make way for redevelopment.

But in the earthquake redevelopment zones, the power to condemn will be strictly limited to abandoned properties that become a blight on a neighborhood.

Bobbi Fiedler, a member of the CRA board of commissioners who attended many of the public hearings on the redevelopment plans, said she believes some Sherman Oaks and Studio City residents oppose the redevelopment plan because they fear they will lose some control over local development issues.

In contrast, residents in Pacoima, North Hills, Sylmar and Sun Valley hunger for new development to occupy empty, trash-strewn lots and have opposed few, if any, proposals to build new housing or commercial ventures in those neighborhoods.

“We need affordable housing and centers where people can meet,” said Irene Tovar, head of the nonprofit Latin American Civic Assn. in Pacoima.

William Carlson, executive director of the nonprofit California Redevelopment Assn., said he has seen opposition for redevelopment plans sprout in poor and rich neighborhoods alike throughout the state. But he said support is most likely to come if residents trust their local officials to monitor the program and ensure redevelopment officials do not abuse their power.

“Where there is distrust and residents fear another layer of government without seeing the benefits, they will oppose it,” he said.