Suit Seeks to Block $25 Million in Redevelopment Bonds for Long Beach

Reflecting a growing statewide rebellion to the proliferation of taxpayer-financed redevelopment projects, a group of Long Beach businessmen has filed a lawsuit seeking to block the sale of $25 million in redevelopment agency bonds the city said it needs to keep its economic revitalization moving.

The suit is the latest and one of the largest filed by taxpayers challenging what they say are widespread abuses by the often secretive redevelopment agencies.

Statewide, critics say redevelopment agencies are diverting at least $1.5 billion in property taxes annually into special projects like ones in Long Beach that have been used to build luxury hotels and regional shopping malls.

But homeowners, businesses and others are increasingly moving to stop or at least slow down the flow of money into private development projects.

The Long Beach suit, filed by Claremont attorney C. Robert Ferguson, contends the city is unlawfully diverting money that is supposed to clean up blight, using it to meet the general redevelopment agency payroll and pay for financially shaky projects along the waterfront.

“People think these agencies have too much power. It scares the hell out of people,” Ferguson said of the ability of redevelopment agencies to divert tax funds, condemn property and finance massive development projects with little or no oversight.

Ferguson, a specialist in redevelopment law, is also litigating a number of other suits against redevelopment agencies, including one in North Hollywood and another in Riverside County.

Just what effect the suit will have on the city’s ambitious redevelopment program, largely credited with transforming the downtown area, is uncertain. At a hearing earlier this month, a redevelopment agency official said that unless the bond measure was approved, the city would have to begin the process of laying off agency employees Oct. 1, the start of the new city budget year.

Heather Mahood, the redevelopment specialist for the Long Beach city attorney’s office, said the impact on the city would depend on how long it takes to litigate the suit.

The $25-million bond measure was approved by the City Council on Tuesday, and city officials had hoped to sell the bonds within days.

“We will not take it to market until this lawsuit is resolved,” Mahood said. “We expect to be victorious because we don’t think anything is legally wrong with the bond issue.”

Redevelopment agencies are legal entities created by the state to help cities transform blighted areas. The agencies use a complicated process called tax increment financing to raise money to finance loans and purchase land for developers.

Under tax increment financing, cities are allowed to carve out blighted areas for redevelopment. Property tax revenues, which otherwise would go to support general government programs like public schools, police and fire services, are essentially frozen at the level that existed the day the redevelopment area was created. The city then is allowed to take any increment, or increase in property taxes, and use it to subsidize development.

Critics say the system is creating huge windfalls for private developers, diverting far too many tax dollars from ongoing programs, and being used to support highly questionable projects.

Several of the Long Beach businessmen up in arms over the way local redevelopment funds are being spent are participating in the growing statewide effort to slow down or block the future growth of redevelopment projects.

“We’d much rather be cooperating to redevelop our communities, but that just doesn’t seem possible,” said Kermit Sadler, who owns a light manufacturing business on Long Beach’s westside. He said that since the redevelopment project on the westside began in 1975, most of the $165 million raised has been spent elsewhere in the city. One potentially far-reaching offshoot of the redevelopment fight is Proposition 218, which is aimed at curbing the proliferation of special police, fire, library and other special taxing districts.

Richard Gann, son of the late tax crusader Paul Gann, the co-author of Proposition 13, said the drain of money for redevelopment projects forced other government entities, such as libraries and police departments, to set up special taxing districts to raise money. Proposition 218 would clamp strict controls and require voter approval for creation of these districts.

“Redevelopment is one of the major contributing factors that caused the need for 218,” said the Sacramento-based Gann, the sponsor of the measure.