RDA 2.0 – A Really Bad Idea!

On Friday morning, August 2nd, the Development Committee met with only one real item on their agenda. “Enhanced Infrastructure Financing Districts (EFIDs) with presentation by Staff and Larry Kosmont, Kosmont Companies. The presentation from Kosmont, centered around “How do you capture vitality and quality of life in a digital economy?” However a good dose of “state mandates fear” formed the foundation upon which the presentation was built.

Let’s get to the heart of the matter.

There appears to be a growing interest in rejuvenating an old idea, redevelopment. This new… call it RDA 2.0… is a rebirth of tax increment financing for local/regional projects.

Managed by Brea’s Public Financing Authority, new redevelopment districts would be created, property taxes frozen and new “redevelopment” bonds issued to finance some sort of infrastructure projects.

No public vote is required to create these new “enhanced infrastructure financing” districts!

The mantra “no new taxes” is repeated over and over as if that will lull us into a false sense of trust and comfort.

Look, when the property values are reassessed and the taxes unfrozen, the properties will be paying at a much higher rate and the difference will be used to retire the bond debt.

What about this suggests no new taxes?

So, where are these new EIFDs?

The report listed: Central Park Village, Brea Place (Hines), Aera Energy Brea 265, 2830 East Orbiter (adjacent property owned by firm of Planning Commissioner James McGrade), Embassy Retail Court, Brea Mall, Brea Plaza, Former Improv, Gaslight Square, Regal Theatres, Mercury Lane Residential, Downtown hotel, Brea Community Center, Brea Library, and Suzuki Motor of America.

To me, 90% of these properties are either doing quite well as is or they’re in various stages of development… not even yet completed. And the United States Bankruptcy Court confirmed American Suzuki’s plan of liquidation (Chapter 11) on February 28, 2013.

The first city/county EIFD tax increment partnership is the Placentia Old Town district. Over 300 acres with taxes frozen at $365 million and anticipated to be unfrozen at $460 million. For what?

Kosmont lists the following: $22M net fiscal impact to City; $15M to County; 1,600+ housing units; 3,900+ construction jobs; $800M+ construction period economic output; 1,150+ permanent jobs; $164M+ in annual ongoing economic output.

Prove it.

Here is what Kosmont proposes to do in Brea: Kosmont to evaluate: Project and land use review; EIFD boundary alternatives; infrastructure improvements required; Tax increment funding capacity / complementary sources; Orange County cooperation; Implementation strategy and roadmap.

Kosmont proposed timing: Feasibility evaluation – 2 to 3 months; District formation activities – 6 to 12 months.

Stop the madness!

Not a whisper about seeking public review or approval.

In December 2011, the California Supreme Court upheld the complete elimination of redevelopment agencies and TIF along with it. The legal wrangling that followed is complicated and not worth going into detail here.

Suffice it to say Redevelopment was terminated for good reasons. Why, just 8 years later, has it suddenly become a good idea again?

Nothing in life is free.

They try and seduce us with parks and community projects. But where’s the money come from? From schools and our pockets!

From the mid-seventies through 2011 Brea built a boatload of RDA projects. Some were on private land and made reasonable use of the tax increment. Many, like the Civic Center, Community Center, Senior Center, Sports Park and Rails-to-Trails were on public land for which no tax increment existed!

District borders were repeatedly expanded, bonds were repeatedly refinanced and cash was created at every opportunity. Hell, they even tricked us into passing the Paramedic’s Tax, almost half of which never paid for a single thing related to emergency medical services.

No one in city hall can give you an accurate price for one single project. The web of financing hijinks was so complicated they’ve lost all comprehension of what they pulled off for over 40 years. Millions upon millions.

You know what really hurts? We still owe $193,871,104 million dollars which we’ll be paying off all the way through June 2036.

Revenue is down, expenses are ever on the increase, we’re hovering on the edge of unbalanced budgets for several years to come.

Now is not the time to start some fiscal boondoggle, proven to be a failure years ago. Especially if it does little more than provide job security to a handful of city planners having a tough time justifying their jobs anymore.

Tax increment financing (TIF) is no way to defray the cost of urban revitalization… assuming that’s what we want to do in the first place.

State College Slopes Need Facelift.

murdock on state collegeAbout the time that Hizonner The Pool Boy was handed the gavel he suggested the City purchase the slopes on State College and give the strip a facelift. The idea was instantly rejected by his peers and staff.

What came next is no surprise to anyone keeping an eye on city hall, our highly paid extremely qualified city staff hired a consultant. Here’s the rest of the story from someone who was there… a witness to the whole affair.

State College Slope Enhancement Meeting Summary.

By Ric Clough, Brea Planning Commissioner 2006-2010

clough on state collegeFor years, State College from Lambert to Brea Boulevard has been in major disrepair. For over 30 plus years, residents in this area have dealt with increased traffic, vehicles racing through the area and major accidents.

This stretch of State College has been ignored by the City.

Approximately 10 years ago, the City spent millions to build the wall and place landscaping along the north side of Lambert, but chose to ignore this bordering stretch of roadway.

Another consultant, another set of plans.

Last year Council directed staff to hire a consultant to review issues in this area. According to City staff, the consultant took $24,000.00 out of the General Fund. The consultant’s review proposed 3 different “design options”. The Council rejected the third option and directed staff to meet with residents to present the two options they approved.

(Editor’s Note: Plan 3, the only plan to actually address all of the issues, was dismissed due to cost, though no creative financing options were explored, and because like Lambert, maintenance became the responsibility of the City. Here are the details of Plan 3:

  • Install new wall like Lambert / 100% uniform streetscape.
  • Tall enough to hide slope issues.
  • Landscaping in front like Lambert.
  • Backfilled behind increasing resident’s usable space.
  • Matches existing streetscape on Lambert.
  • Duplicate 6 foot sitewall on south side for existing fences.
  • Keeps infrastructure off of private property.)

During Monday’s meeting (6/23/14), residents of the area north of State College were presented the remaining two options. Residents south of State College, though easily within the impact area, were not notified of the meeting.

Though the original direction to hold the meeting came from City Council, no Council members were present to hear feedback from the residents.

City tries pushing cost onto homeowners.

Both options presented create either a Landscape Lighting Maintenance District (LLMD) or a Community Facilities District (CFD). Similar to the recent failed effort by the City to convert the already existing Landscape Lighting Maintenance Districts, the choice between options, or to participate at all, would be up to a resident vote.

The LLMD option.

The LLMD option would create a permanent addition to homeowner’s property tax bills to fund the costs of the project and the continued maintenance, freeing the City from any future responsibility. The initial project includes building lower retaining walls and landscaping the hillsides in a uniform way.

Option One (LLMD) would cost approximately $1 million to complete. The forty-four homeowners effected would bear the expense and financing costs by having $1,744.00 added to their current property tax for 30 years. That’s $52,320 per homeowner, a total final payback of $2.3 million on the original $1 million investment. Who benefits from the $1.3 million profit?

The CFD option.

Option Two (CFD) would cost approximately $1.53 million to complete. The payback of these funds would subject the residents to an additional $5,662.00 in their property tax for 30 years. That’s a whopping $169,860.00 per homeowner! For the 44 homes involved, the payback on $1.53 million, over 30 years, would be $7.5 million. Almost $6 million in interest expense and profit generated here.

Additionally, residents would still be perpetually charged maintenance fees of $324.00 per year under the LLMD plan and $480.00 per year under the CFD plan. This perpetual fee could increase over the years as costs to maintain the area increases.

Always read the small print.

During the presentation, City staff stated the funding proposed for the initial projects did not include financing costs. No financing percentage number was provided to justify the reason for the payback amounts. Residents rejected the entire idea of paying such extreme amounts to the City for the projects.

Staff had no response to resident inquiries on other possible of funding mechanisms for the project. Residents discussed Measure M transportation funds, since State College is an arterial roadway and alternate to the 57 freeway commuters using Brea Canyon.

There was also no staff response to questions raised regarding the use of landfill funds (560 fund) that are always so available at City Hall for other projects, like making payments on a solar energy project that was supposed to pay for itself.

Staff did say traffic impact mitigation fees that are paid by developers on projects are not available. $8 million of those funds have already been dedicated to the improvement of the 57/Lambert off ramp project with Cal-Trans and OCTA.

Residents were informed that City staff will be providing the meeting’s results to Council in a summary memorandum, not during a study session or council meeting.

Time for me to wade back in. What are the extended liabilities?

This report from Ric Clough is clear and easily understood. But stop for a moment and consider the larger, unspoken issues lurking just under the surface.

tim_2aI’ll remind you again of Tim O’Donnell’s favorite definition of leadership…

“Leadership is disappointing your constituents in increments they can absorb.”

What does this mean in simple language?

If we can successfully screw forty-four Brea homeowners out of millions of bucks while avoiding any responsibility to spend City money in the future, we can eventually screw the other 39,956 residents as well.

Once the camel’s head is in the tent, his ass is soon to follow. If you’re not interested in having your property tax doubled, or tripled, it’s time to stop the camel in his tracks.

A summary memorandum is grossly insufficient!

This is staff thumbing it’s collective nose at the idea of transparency in government and no one on Council should stand for it. This topic needs to be agendized, not for a study session, but for a regular meeting in Council Chambers.

The other side of the street.

As this stretch of State College is a true corridor and entrance to Brea from the west and the north… Brea Mall, 57 freeway alternative, CSUF, Target center, City Hall, etc., both sides of State College should be simultaneously addressed. A simple, clean design relying on drought tolerant native plants and replacing the melange of mismatched fences is what we need.

Refund the solar project payment(s) and turn to the 560 Fund and Measure M monies to pay for the project. Then, like the Lambert Project, the City can take on the maintenance obligations.

The name’s Bond… RDA Bond.

All across the state, there is turmoil and confusion regarding the dissolution of Redevelopment Agencies. Brea is no exception. Except if you read the lead article in the current issue of BreaLine.

This 8 1/5 x 11 inch piece of real estate has become the number one launching pad for some of the most misleading, braggadocios and self serving “news” coming out of City Hall.

If you buy off on what staff writers pass off as journalism, our “… legacy of positive growth and significant infrastructure improvements is proof that redevelopment worked very well for Brea.”

There Have Been Benefits.

Hey, I’ll be the first to admit that a new high school, two fire stations, our civic and community centers and 750 new workforce housing units certainly benefit the community. I suppose the Brea Mall does as well.

These projects are a partial list and likely do not account for the majority of projects completed since the agency was founded in 1972. Oh, and before you start believing that “Brea was an early adopter” nonsense being spread around, The California Community Redevelopment Act was passed in 1945.

The passing of Prop 13 in 1978 firmly established the adversarial relationship between the state and cities, and it seems pretty clear that neither party is interested in mending fences… even if it could be paid for with future “tax increment.”

So What Is Tax Increment Anyway?

They toss this, and countless other cityspeak terms, around with apparently little or no interest in actually educating the general population. It’s not rocket science and it’s what’s saving our collective assets at the moment.

Simply put, when a redevelopment area is designated it’s property taxes are frozen at the current level. Then comes the fun part of floating bonds (federally insured), dreaming up projects (none of which actually get publicly approved), aggregating land (remember all the eminent domain battles), finding willing developers (eager to take advantage of the windfall) and painting intersections blue, turning abandoned railroad right-of-ways into trails and building a bigger better clubhouse on the old golf course.

Yeah, I’ll bet those projects are in perfect synch with redevelopment guidelines.

Poorly Written Legislation.  Surprise!

Unless there is better clarification in the law, successor agencies may be charged with meeting enforceable obligations entered into by the redevelopment agency as well as performing many other wind down functions. They will operate under Oversight Committees who will determine what will and will not move forward. It’s unclear what the full extent of Brea’s liabilities might ultimately be.

Statewide, for every $1 in revenue collected last year there was $18 of total indebtedness remaining. What’s the story here in Brea? Are our projects going to generate sufficient tax increment to keep us solvent? Anyone besides me interested in getting some answers in language we use every day? The career bureaucrats up in city hall need to remember that us folks out here on the street don’t speak gibberish.

Fast forward to today.

Yup, Brea’s RDA created almost $200 million in outstanding bond debt. Take that death grip off your wallet, it’s not up to you to pay it. Federally insured, remember? Tax increment, remember?

The mechanics for repayment should already be built into the process. Problem is, no one knows for sure. If they say they do, I’ll go out on a limb here, they’re lying.

Bond holders knew the risky nature of those tax free bonds. Real estate values could decline. Oops. Full tax increments may not be realized. Oops. Changes might occur in California law. Oops. Thanks Jerry.

Are The Skies Falling?

I think it’s very possible we may end up with a few orphaned projects. But Brea has always been good at sucking in unsuspecting developers, at holding their feet to the fire to milk projects for all they can get and in exchange maybe expediting a permit here and there or bumping up project density to help make projects pencil out.

I’m not suggesting for a moment that we launch into default panic.

But I do think it’s time for folks to step up and start asking the hard questions and demanding answers we can understand. Keep talkin’ that smack, keep printing that propaganda, and you’ll hear from us loud and clear come November.