Redevelopment Proposal a Good Remedy for Earthquake Losses : The arrival of the CRA in affluent Sherman Oaks has stirred up a hornet’s nest of protest. But the resistance is largely a NIMBY reaction against a needed project.

American tradition has it that it’s wise to beware when someone says: “I’m from the government, and I’m here to help you.” And so the negative reaction of Sherman Oaks residents to the news that the city is about to help them with repairing last year’s earthquake damage by declaring their area a redevelopment project is perhaps understandable. But there is more to the story than first meets the eye.

Redevelopment was originally known as “slum clearance.” It emerged as a reaction to the fact that private efforts could not rehabilitate urban slums because of the high cost of buying up the blighted areas. Only the government could do so by using its power of eminent domain, razing the slums and selling the land to redevelopers.

Under the Fifth Amendment, eminent domain can be used only to take private property for “public use,” but this problem was solved in the 1954 U. S. Supreme Court case of Berman v. Parker . Berman owned a department store in a Washington, D.C., redevelopment area, and he challenged the government’s right to take his land. He argued that his property was well-maintained and not a proper candidate for “slum clearance,” and that the government’s plan to resell it to a redeveloper would violate the “public use” requirement.

The Supreme Court disagreed with a vengeance. A sweeping opinion by Justice William O. Douglas held that “public use” meant public benefit. City planners, said the court, can pursue redevelopment on an areawide basis, even if that means taking for “slum clearance” land that is no slum.

Contradicting settled doctrine, the court held that the end justifies the means--once the government decides to pursue a legitimate community end, it can also choose the means. And if its idea of “public use” is to involve private redevelopers to their private profit, that is incidental to the public benefit of eliminating slums. Even more extreme was the ruling that insofar as the government’s right to take private property is concerned the court would abandon its traditional role as guardian of the Constitution and would defer to municipal legislators’ decisions.

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And so an army of government-financed bulldozers rumbled through American cities to carve out sites for private redevelopment projects. Slum dwellers whose plight was supposed to be the motivation behind this process were bulldozed aside to make room for more affluent citizens. “Urban renewal,” or “redevelopment,” as it got to be known, became an inversion of Robin Hood--it took from the poor and gave to the rich. Cities could now take sound properties simply by declaring them “blighted” or just by linking them with the blighted ones. Local governments could now de facto lend their eminent domain powers to private developers. Judicial intervention became a rarity.

The original urban redevelopment projects were built with federal grants, but this was not a viable source of financing in the long run. Without a steady source of locally controlled financing, the redevelopment process could be chancy and maddeningly slow.

Enter so-called incremental tax financing. Under this approach, the redevelopment agency sells tax-free municipal bonds and uses the proceeds to acquire land for redevelopers. Later, new property tax revenues from redevelopment project areas are diverted from the usual taxing authorities to the redevelopment agency, which uses them to pay off the bonds (with tax-free interest prized by wealthy investors), and to fund new redevelopment projects. As of 1987, the last year in which the tax assessor sent such figures to taxpayers, L. A. County had 207 redevelopment projects in 62 cities, diverting some $261,046,711 to redevelopment agencies.

The theory is that but for the redevelopment project the area would not have generated these incremental tax revenues, so they represent “free money” that can pay for redevelopers’ projects rather than police, fire protection and schools.

Whatever the theory’s merits in the case of real slums, it makes little sense when applied to non-slum land suitable for private redevelopment. The diversion of this revenue to redevelopment agencies only funds powerful, unchecked municipal bureaucracies and enriches redevelopers at the expense of local taxing authorities and the community at large.

Also, under eminent domain law, displaced landowners are supposed to receive “just compensation” when their dwellings and businesses are taken. But courts have been hostile to providing full indemnity to the displaced property owners and tenants, so that some of their losses remain non-compensable or undercompensated.

Only 20% of redevelopment funds are used for low- and moderate-income housing, even though redevelopment has become an engine of destruction of low-cost housing in blighted areas. Favored redevelopments are shopping centers and auto malls because retail sales generate sales taxes that are shared with cities.

The attempted justification has been that malls generate local jobs, but there are so many redevelopment projects that their benefits are a zero-sum game--the gain stimulated by a redevelopment-financed shopping center only diverts business from nearby businesses that now suffer a decline resulting from competition by subsidized competitors. The winners tend to be large national chain and department stores, and car dealers in the case of auto malls. Which brings us to Sherman Oaks.

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Last year’s earthquake left behind seriously damaged buildings, some of which need to be razed and replaced. Also, there are damaged condominium units whose owners lack funds to fix them. As it happens, the law provides for emergency use of redevelopment to effect repairs in case of disaster, so this would appear to be a rare case of the law’s working as in theory it should: to rebuild communities whose blighted condition is beyond the private market’s ability to rectify. But guess what? The arrival of the CRA in affluent Sherman Oaks has stirred up a hornet’s nest of protest.

The most often heard reason for opposition to CRA involvement in the rebuilding of Sherman Oaks and parts of Studio City has been the protesters’ professed antipathy to redevelopment’s historical abuses of power. But this time safeguards have been imposed on CRA’s proposed project. It is to provide low-cost rebuilding loans without using eminent domain, except in cases of uninhabited, abandoned buildings or condominium units. That seems reasonable. So why the fierce protests?

Largely, it’s the familiar NIMBY phenomenon. It appears that at least some of the Sherman Oaks protest leaders mean to use their neighbors’ misfortune to transform parts of the area from multiple-residential to single-family uses or no uses at all.

Matt Epstein, who organized a petition drive against the redevelopment project, has been quoted as saying: “We’d love to see more vacant lots in Sherman Oaks. A little green once in a while--what a change.” It seems clear that the protest is motivated by fears that the CRA, whose political base is not dependent on councilmanic voters, will prove less pliable to local homeowners’ demands that development be manipulated to keep others from “their” turf. Significantly, a similar CRA project in less-affluent Pacoima, not afflicted with the Not In My Back Yard syndrome, is being greeted with open arms.

The redevelopment project has been approved by the City Council, but inevitably--this is California, after all--a lawsuit has been filed in an effort to stop it, thus assuring costly, contentious delays. Even if the CRA prevails in court, it will be the usual Southland story of delay and increased cost of whatever rebuilding will eventually take place, all adding to our cost of living and doing business, and this area’s consequent steady decline.