A LOOK AHEAD / The agency created to rebuild slums has budget woes and a tough workload. With a proposal that the City Council serve as its board, the . . . : Struggling CRA Could Become a Takeover Target

With the abrupt retirement last week of administrator John Molloy, the Los Angeles Community Redevelopment Agency is at a crossroads, with every path a difficult one, agency officials and City Council members say.

The agency’s current budget and management crisis once again has City Council members eyeing a possible takeover, while Mayor Richard Riordan and the CRA board he appointed are hoping to preserve their rule and the agency by calling for tough medicine to restore it to financial health.

“These are critical times,” Councilman Mark Ridley-Thomas told his colleagues last week. “From North Hollywood to San Pedro, the same issue is in play--these projects are at risk.”

The agency created 51 years ago to revitalize slum neighborhoods is facing growing demands for services even as it is forced to slash its staff to levels that Molloy and others warn are too low to sustain the workload.

“I think we may have overextended ourselves,” said Councilwoman Jackie Goldberg. “You can’t overburden the agency so that it can’t survive. You are killing the goose that laid the golden egg.”

Molloy was one of 16 people to take a voluntary retirement buyout on Tuesday, which was provided to trim the staff to balance the budget, but which has reduced the agency staff to worrisome levels for some.

Five years ago, the agency had 350 employees who oversaw 17 redevelopment project areas. Today, with the latest round of staff cuts, the agency has 194 employees who must maintain 31 project areas, with three more in the works. Pending projects include one proposed in the northeast San Fernando Valley.

“I don’t know how you can humanly handle that workload without killing the staff,” Ridley-Thomas said. “It causes redevelopment and revitalization to be stalled in the very areas that most need it.”

The cuts in staff and growing workload have morale suffering at the agency, said David Cochran, a representative of the American Federation of State, County and Municipal Employees, District 36.

“We have very deep concern over the commitment of the agency board to complete the work of the projects,” Cochran said.

But others say the City Council is partly responsible for the massive expansion of the workload and the inability of the agency to maintain its payroll. The agency that helped create Los Angeles’ impressive skyline has become increasingly popular with council members looking to address blight in their districts.

Councilman Ridley-Thomas alone has seven project areas in his district--the most of any council member--with many created in the last few years.

“I think there was a huge mistake made, predominantly by the council, in adopting all of the project areas and earthquake recovery areas they did,” said J. Eugene Grigsby, director of the UCLA Advanced Policy Institute.

Grigsby, a professor of urban planning, last year co-wrote a report that found the CRA had made progress in reducing blight and revitalizing slum neighborhoods since it was founded in 1948.

But a combination of factors have put the agency in dire financial straights in the last year.

The agency was already reeling financially from the economic recession of 1990-95, which caused an erosion of property values. The CRA receives much of its revenue from the property tax on the growth of property values, and the drop in values caused that money source to dry up.

Property values are rising again, but it may be two or three years before the CRA sees a restoration of the flow of tax money at pre-recession levels, Grigsby said.

In addition, a court decision upheld a cap on new revenue from Bunker Hill, where skyscrapers built with the CRA’s help created a tax windfall for the agency.

Against that backdrop, it did not make sense to open many new earthquake recovery and project areas, especially given that it takes up to 10 years for a new project to begin paying for itself by generating sufficient tax money to cover costs, Grigsby said.

“It [CRA] committed to support project areas which cannot in the short term generate tax increment to be financially self-sufficient,” Grigsby said. “That has exacerbated the agency’s existing budget problems.”

The drop in revenue created an $8-million shortfall in the budget, which Molloy proposed to close in part by issuing bonds and increasing agency debt--already at a burdensome $630 million.

The agency board refused, on a 4-3 vote last month, to approve a budget that the majority objected to because it relies too much on debt financing of administrative costs.

In particular, board President Peggy Moore and board member Keith Richman objected to Molloy’s plan for $1 million in bonds to pay for administrative staff costs.

Richman said incurring more debt to pay for staff costs is mortgaging the agency’s ability to do redevelopment projects.

“We do not feel a bond offering should be undertaken to support existing administrative costs,” Richman said. “It is not a wise idea.”

But just before he quit, Molloy objected strenuously, saying that cutting the bond revenue would force him to trim the staff to an untenable 189 positions.

“His unwillingness to decimate the agency as he was being requested to do . . . eventually led to his departure,” said Councilman Rudy Svorinich Jr., who chairs the council’s Housing and Community Redevelopment Committee.

Svorinich said the board chased Molloy out by refusing to give him an answer on whether it would renew his contract, set to expire Sept. 30.

“You can only run up against a brick wall so many times,” Svorinich said.

Svorinich said the exodus last week of 16 CRA managers, including the deputy administrator for projects in South Los Angeles, raises serious questions about whether the so-called cure will kill the patient.

Council members Mike Hernandez, Nate Holden and Ridley-Thomas joined Svorinich in getting council approval of a motion to ask the mayor to explain what he plans for the agency.

Riordan has signaled his position.

He has backed board members in their calls for a reorganization that may farm out many functions to other departments and reclassify jobs so workers can handle broader responsibilities.

The board also is proposing to cut the use of debt financing and to prioritize project areas with the idea that some may have to be scaled back or shut down.

The budget, Riordan wrote to the council last month, “must recognize the agency’s significant decrease in tax increment revenue in the last five years, as well as the need to prioritize projects.”

Moore and Richman say the agency can recover once it reorganizes around a clearer, more realistic work plan.

“The agency will continue to move forward to bring projects to communities,” Richman said. “But we have to prioritize.”

Talk of prioritizing or closing projects is partly what has panicked council members.

As a result, council members were talking last week with new enthusiasm about taking over the agency and making the City Council the CRA governing board.

The takeover has been discussed for years as part of a proposal to consolidate the CRA’s functions with other city departments into a new, super Economic Development Department.

Opposition from Riordan and business interests stalled the takeover plan when it came up before the council earlier in the year.

The council agreed at the time to form a task force with business leaders to work out concerns they have about the council running the agency.

Ridley-Thomas told his colleagues last week that the agency’s crisis gives new urgency to the idea of a council takeover.