CRA Looks for Cash Infusion in Northeast Valley

Now that the owners of the new Staples Arena have gotten a season of profitable operation behind them, they are looking for more ways to increase their downtown holdings and their profits.

The billion-dollar construction of stores, offices, high-density apartments and hotel space they propose for their own backyard seems to be just the way to do it, especially if they can convince the city to pony up the $100 million to get the massive project off the ground.

But the city must ask itself if it is really worthwhile to spend another $100 million to line the pockets of folks who have already extracted $52 million from the City Council, plus $12 million from the city’s Community Redevelopment Agency.

The city has a pretty dismal record of revitalizing anything, although in 1948 it created the Los Angeles CRA for the sole purpose of doing just that. The CRA derives most of its income for this altruistic mission by legally confiscating all the “new” property taxes collected after the date it unilaterally declares an area as “blighted.”

Most of the CRA’s 31 active redevelopment areas are in the downtown area. In fact, the CRA controls and has “revitalized” most of the downtown area east of the Harbor Freeway and south of Sunset Boulevard. That’s a big swath of land, and baffled residents from South-Central to Chinatown are still scratching their heads, wondering exactly how a few new buildings scattered throughout many of these rundown areas provide any direct benefit to them.

The Convention Center is a good case in point. The city built the original downtown Convention Center in 1971. There it sat until 1985 when, in an effort to revitalize the city’s Central Business District, the CRA agreed to contribute $40 million of an estimated $310 million needed to enlarge and upgrade the center. The CRA also shut down 128 businesses and evicted 1,500 people occupying the 35 acres needed for the expansion. The center finally opened at the end of 1993, a massive white elephant with a price tag of more than $516 million, $126 million of which was supplied by the CRA.

The Convention Center has lost money in every one of the eight years since the expansion was completed, and the embarrassed city has quietly given away hundreds of millions of our tax dollars to keep the doors open.

When developers proposed to build the Staples Arena right next to the Convention Center, the CRA again stepped in with a fistful of money. This time it handed over $12 million, prepared and approved the environmental impact report for the developers, shut down 34 businesses and evicted 130 families. Not to be outdone, the City Council threw in another $57.5 million, to be repaid from ticket sales, and the happy owners smiled all the way to the bank.

The proposed billion-dollar construction of hotels, stores, apartments, and offices adjacent to Staples and the Convention Center is not a new idea. The CRA was proposing a 1,781-room hotel in 1985 when the center expansion was first planned, and has negotiated with several prospective builders during the last 15 years. But developers have always said the project does not pencil out and were not interested unless they could get freebies from the city. Since the city wasn’t willing or able, the idea has languished until now, and the CRA is hoping the well-connected arena owners have enough political clout to turn lemons into lemonade.

It doesn’t seem to matter to the CRA if the buildings in a project area have broken windows, are boarded up, or are smeared with graffiti or even if the project pencils out. What seems to matter the most is whether the developers are satisfied with the inducements doled out by this most generous of all government agencies. The city encourages the CRA to woo big developers to downtown streets, and shows its gratitude by turning over a huge portion of its block grants to the CRA either as outright gifts or as non-interest-bearing loans. Currently the CRA owes the city $68 million, mostly in no-interest loans with no due date.

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The CRA does its part by giving sweetheart deals to friendly developers who also know how to play the game. It also provides direct loan guarantees on behalf of its developers, makes “deferred loans” that do not have to be repaid unless the property is sold or refinanced and even makes “residual receipts” loans that do not have to be repaid unless and until the project shows a profit.

Such largess, which some critics have called gross mismanagement, comes with a price. After paying off its bonds and “pass-throughs” to other government agencies as required by law, the CRA has only about $8 million per year in “spendable” income from the $84 million it now collects from Los Angeles property owners. It gets another $8 million from rents and loan paybacks, but since its salaries and administrative costs are $24 million per year, it goes in the hole about $8 million. It has already asked the city to subsidize it to the tune of $12.5 million over the next five years, but what it really needs is a big infusion of cash from projects such as the one it is pushing hard in the northeast San Fernando Valley.

The CRA’s own projections for the proposed Council District 7 project are that a total of $1.1 billion of “new” taxes can be collected from owners of homes and income-producing property in the northeast Valley over the next 45 years. Of that, $390 million must be sent to various government agencies as “pass-throughs,” and $215 million will be placed into a special trust fund to be spent on low-cost housing that can be built anywhere in the city.

This leaves $490 million of “net tax increment revenues” which will be available to pay off about $150 million in 7% bonds that legally can be issued by the CRA without voter approval. Take away 30% that the CRA traditionally grabs for its own salaries and administrative expenses, and now there remains only about $100 million to be spent in the district.

If the $100 million in property taxes is spread evenly over the 45-year payback period, the Northeast Valley theoretically would get the benefit of $2.2 million per year. A great deal of this will be spent for community planning, studies and more studies, and there may actually be some left over for actual improvements.

With that kind of money, who knows? The Valley might even get a Convention Center and Staples Center of its own.