Los Angeles officials got their first sobering look Tuesday at the costs of dismantling a multibillion-dollar economic development apparatus that they and cities across California have relied on to revitalize neighborhoods for more than half a century.
A law eliminating redevelopment agencies statewide could leave the cash-strapped city with more than $109 million in new expenses should the City Council retain the employees and finish the work of its Community Redevelopment Agency, high-level analysts warned.
"The funding that the state allows doesn't come close to what the costs are," said City Administrative Officer Miguel Santana, the city's top budget official. Given the city's financial woes, "we can't afford it," he said.
Mayor Antonio Villaraigosa agreed, telling the council in a letter that taking financial responsibility for redevelopment would "create potential liabilities and risk while yielding very little benefit." A committee of the mayor and four council members instructed Santana to begin the process of laying off 192 redevelopment employees.
The state Legislature eliminated California's approximately 400 redevelopment agencies last year. Much of the $5 billion in property tax money they run on will now go to the state, counties and school districts. Los Angeles' agency this year had a budget of about $670 million to support its mission of improving blighted neighborhoods.
Dozens of projects are now in jeopardy, officials said. A proposed "clean tech" business campus near the Los Angeles River could lose out on $3 million. More than $5 million may be cut from affordable housing planned within downtown's proposed Grand Avenue project, along with $10 million for low-cost housing along Washington Boulevard.
"Everything is in chaos right now," said Councilwoman Jan Perry, who is running for mayor. "We're getting calls from developers every day, saying what's going to happen to my project? We need to answer them and quickly."
Under state law, "successor" agencies must be created to handle the job of shutting down redevelopment. Those agencies must sell off assets but can complete economic development projects that are under way.
The move to abandon the city's redevelopment operations infuriated Madeline Janis, one of Villaraigosa's seven appointees on the agency's board, who called it "short-sighted."
"We can't shove aside the hard work of finishing what we started," she said.
Local officials around the state, who sued unsuccessfully to preserve their redevelopment agencies, are now trying to persuade the Legislature to allow cities to continue economic development and hold onto some of the money. But prospects in the Legislature are uncertain.
Cities have the option of becoming successor agencies, and many across California have already embraced that role. But Santana said Los Angeles cannot risk having its general fund budget, which pays for basic services, take on its redevelopment employees, he said.
Santana said redevelopment agency staffers make an average of $109,000 annually, considerably more than the $72,000 average of other city employees. They also would bring higher city pension costs because they do not contribute toward their retirement benefits.
Los Angeles could reconsider taking over its redevelopment agency if the state shielded it from some of the added financial burden, said the report prepared by Santana and Chief Legislative Analyst Gerry Miller. But the analysts concluded that for now, "it is not in the city's interest to become the successor agency."
If the council decides not to take on redevelopment responsibilities, another local government body — such as the county Board of Supervisors — could choose to do so. If no one wants that role, the city's redevelopment agency would be shifted to an oversight authority appointed by Gov. Jerry Brown, who led the push to end redevelopment activities. Brown argued that the state can no longer afford redevelopment in a budget crisis.
Los Angeles is not the only city struggling to shrink its redevelopment workforce. Sacramento's redevelopment agency has eliminated 53 jobs and 35 others are at risk, according to the California Redevelopment Assn. In Santa Cruz, 19 redevelopment employees are in danger of losing their jobs.
State Sen. Alex Padilla (D-Pacoima) is considering a bill to extend the life of redevelopment agencies until April 15. That would allow time for agencies to wind down operations or possibly for the Legislature to create new mechanisms for economic development.
Redevelopment is the single largest source of funds for affordable housing in the state, generating about $1 billion a year. To address that need, Senate President Pro Tem Darrell Steinberg (D-Sacramento) has introduced a bill to allow $2 billion in affordable housing funds controlled by redevelopment agencies to continue to be spent on building housing for the poor.
Los Angeles Times staff writer Patrick McGreevy contributed to this report.