Working Paper No. HF-019

THE GSEs’ FUNDING OF AFFORDABLE LOANS:

A 2004-05 UPDATE

Working Paper No. EMAD-2014-01

Harold L. Bunce

Redevelopment Agencies in California:

History, Benefits, Excesses, and Closur

December 2012

e

Casey Blount

Wendy Ip

Ikuo Nakano

Office of Policy

Development

Elaine Ng

and Research

Housing

Economic

Finance

Market Analysis

W O R K I N G P A P E R S E R I E S

U.S. Department of Housing and Urban Development January 2014

U.S. Department of Housing and Urban Development | Office of Policy Development and Research Redevelopment Agencies in California: History, Benefits, Excesses, and Closure Redevelopment Agencies in California:

History, Benefits, Excesses, and Closure

Effective February 1, 2012, the State of California ceased oper-later projects. The number and size of project areas were also ating local redevelopment agencies (RDAs), which had operated restricted by the authority of local governments to raise funds since the end of World War II. In recent times, these agencies from other sources. For example, at the time, the Constitution served as an important component of the affordable housing of the State of California allowed local governments to raise development landscape in California. This paper, developed local taxes, both property and otherwise, without local voter by the U.S. Department of Housing and Urban Development’s approval. Cities and counties also had wide authority to impose (HUD’s) Office of Policy Development and Research (PD&R), fees and assessments. These additional revenue sources allowed examines the history of California’s RDAs, describes their suc-local governments, if they desired, to perform redevelopment of cesses and failures, and addresses the anticipated effects of their areas that may have otherwise been deemed RDA-project areas shut down on the future of affordable housing development in without identifying them as such. As of 1966, 27 project areas California. The first section of the paper traces the history and had been identified within the state.

development of RDAs from their inception in 1945 through the legislative fight that dissolved them in 2011. The next section Redevelopment expanded in the number and size of project presents examples of the RDAs successes and failures over the areas in the 1970s and 1980s, in large part because of two years. The third section examines the RDAs closures and the major state policy changes. The first, passage of Chapter 1406, anticipated impact that the closures will have on affordable Statutes 1972 (Senate Bill [SB] 90), created a system of school housing development. The final section of this paper details

“revenue limits” that guaranteed each school district an overall how the closure of RDAs will affect affordable housing produc-level of funding via a combination of local property taxes and tion in the cities of Los Angeles and San Jose.

state resources. In short, the state assumed responsibility for funding local school districts up to the revenue limit if the revenue shortfall resulted from lack of growth in local property-tax RDAs in California: History

income (whether because of redevelopment issues or for other reasons). This revenue limit effectively eliminated the zero-sum The history of RDAs in California dates to the California State game for cities and counties regarding distribution of local Legislature’s passage of the Community Redevelopment Act in property taxes and, in so doing, generated a significant incen-1945. The act provided the mechanism to create RDAs; how-tive for cities and counties to create and expand RDA-project ever, most of the agencies relied on federal funding1 until 1952, areas. By 1976, the number of project areas in the state had when Proposition 18 established “tax-increment financing.”

increased to 229. RDAs received 2 percent of total statewide Under the new financing structure, cities and counties were property taxes in 1977.

given the authority to declare areas as blighted and in need of urban renewal, at which time a city or county was allowed to The second policy change occurred in 1978 when Proposition 13

distribute most of the growth in property tax revenue for the capped the general-purpose property tax rate at 1 percent, while project area to the relevant RDAs as tax-increment revenues.

also constraining local authority over many other local revenue sources. Much like SB 90, which reduced the burden on cities Although Proposition 18 created additional flexibility regarding and counties to provide funding for local schools, Proposition 13

funding RDAs, distribution of property tax revenues remained incentivized use of property-tax income for redevel opment by a zero-sum game for cities and counties, because revenue limiting the options available for local governments to otherwise given to one agency—for example, giving money to a school finance redevelopment projects. In combination, the two policies district—reduced the amount that remained available for other inspired cities (and some small counties) to loosen their defini-agencies. This dynamic resulted in few identified project areas tions of project area. In many cases, the definition of “project during the 1950s and 1960s. Likewise, project areas that were areas” was expanded to encompass hundreds or thousands of identified during the period typically consisted of 10 to 100

acres of land. During the period, at least two cities identified acres, which was a relatively small project compared with all privately owned land as within one project area or another 1 Primarily via programs of the Housing and Home Finance Agency, HUD’s immediate predecessor.

Economic Market Analysis Working Paper Series 1

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure while other jurisdictions placed farmland under the redevelop-over redevelopment and prohibited new state laws requiring ment umbrella. The adoption of Assembly Bill (AB) 322 in 1983

RDAs to shift funds to schools or other agencies. Despite prohibited the previously common practice of defining project substantial efforts by the state to limit and refine the focus of areas that included large amounts of vacant land; however, the redevelopment spending, RDAs received 12 percent of state-number of project areas had still expanded to 594 by 1988, when wide property tax revenue in 2008, with six redevelopment RDAs received 6 percent of total statewide property taxes col-projects that exceeded 20,000 acres in size.

lected that year.

New efforts to reduce the footprint of RDAs began shortly after In response to concerns that redevelopment was expanding at the passage of Proposition 22 because the Governor’s 2011–12

the expense of other local programs as well as increasing the budget (SB 77) called for the dissolution of RDAs and redistri-state’s costs for K–142 education, state lawmakers, with increas-bution of property tax revenue to, among other things, paying ing urgency, attempted to constrain local governments’ use of previously accrued redevelopment debts and offsetting $1.7

redevelopment funds from the 1980s through 2011. During billion of state general funds costs. In March 2011, however, the period, the California State Legislature enacted laws aimed SB 77 fell one vote short of the two-thirds majority required for at, among other things, strengthening regulations regarding approval by the state legislature. Following the failed vote, the the percentage of tax-increment revenues that RDAs used to legislature evaluated modified versions of the Governor’s initial develop housing for low- and moderate-income households.

proposal and, in June 2011, enacted two pieces of legislation.

Passed in 1993, AB 1290 tightened the definition of a “blighted The first, Assembly Bill passed in the first extraordinary session area” to “an area that is predominately urbanized and where (ABX1) 26, imposed an immediate freeze on RDAs’ authority, certain problems are so substantial that they constitute a seri-dissolved RDAs (effective October 1, 2011), and outlined the ous physical and economic burden to a community that cannot process by which RDAs would be wound down. The second, be reversed by private or government actions, absent redevel-ABX1 27, introduced a program by which RDAs could avoid opment.”3 AB 1290 also limited the ability of RDAs to subsidize the dissolution implemented by ABX1 26 by making annual or assist auto dealerships, large volume retailers, and other payments to local school districts, thereby offsetting much of sales tax generators, and it eliminated the authority of RDAs the fiscal impact of redevelopment on the state budget.

to negotiate so-called “pass-through payments,” or payments Consistent with the history of attempts to limit the authority made by RDAs to other local agencies, often to help settle of RDAs, ABX1 26 and ABX1 27 were immediately met with disputes concerning the legality of proposed project areas. After resistance. Less than 3 weeks after the bills were signed, the the enactment of AB 1290, these pass-through payments were California Redevelopment Association (CRA) and the League determined using a formula based on each local agency’s share of California Cities challenged the constitutionality of the of the property tax rate in the project area. Many redevelop-legislation. In addition, in an attempt to avoid repercussions ment projects were not affected by the changes, however, as if the legislation were enacted, many RDAs began issuing the restrictions applied only to new project areas (with existing unprecedented amounts of debt. In fact, despite paying higher projects lasting as long as 50 years). Likewise, despite the more borrowing costs than ever before, RDAs issued more debt in specific language regarding “blight” and “developed land”4 in the form of tax allocation bonds during the first 6 months of AB 1290 (as well as in 2006’s SB 1206), RDAs continued to 2011, approximately $1.5 billion, than they had in all of 2010, establish new large project areas.

$1.3 billion. RDAs also rushed to transfer assets to other local On nine occasions between 1992 and 2011, the state also agencies to suppress the level of funds that could be taken by attempted to require RDAs to shift some of their revenue to the state via ABX1 26.

schools via countywide accounts known as ERAF (Education In December 2011, the Supreme Court of California upheld Revenue Augmentation Funds) or SERAF (Supplemental ABX1 26, supporting the legislature’s authority to dissolve Educational Revenue Augmentation Funds). These attempts entities that it created (in this case, RDAs). The court, however, were severely hampered in 2010, however, when state voters found ABX1 27 to be unconstitutional because it violated approved Proposition 22, which limited the state’s authority 2 For budgetary purposes, “K–14 education” refers to the sum of kindergarten, grades 1 through 12, and public community colleges.

3 Assembly Bill 1290, Community Redevelopment Law Reform Act of 1993, Section 3.b.

4 Assembly Bill 1290, Community Redevelopment Law Reform Act of 1993, Section 7.5.

Economic Market Analysis Working Paper Series 2

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure Proposition 22’s prohibition against the state’s forcing RDAs reduction could prove a boon to state taxpayers, but it raises to share money with other local agencies. In combination, the some questions concerning the future of redevelopment in court’s rulings left all RDAs subject to the process described in the state, particularly regarding affordable housing. The state ABX1 26.

currently has several agencies that are at least partially aimed at providing housing for low- and moderate-income households, Per ABX1 26, RDAs officially lost “all authority to transact busi-including the California Tax Credit Allocation Committee, ness or exercise power”5 on February 1, 2012, with successor which administers low-income housing tax credit (LIHTC) agencies (in most cases the cities and counties in which the programs in the state; the CA HCD, which provides grants RDAs operated) becoming responsible for the winding down of and low-interest loans to developers of affordable housing the dissolved RDAs. The successor agencies were tasked with via state general obligation funds; and the California Housing terminating or renegotiating former RDAs’ contracts, collecting Financing Agency, which assists first-time homebuyers with revenues due to the dissolved RDAs and making payments re -

low-interest mortgages and loans as well as helping to finance quired of those RDAs, and “expeditiously” disposing of former the development of multifamily rental housing through the sale RDAs’ assets “in a manner aimed at maximizing value.”6 Proceeds of tax-exempt mortgage revenue bonds and associated LIHTCs.

accrued by successor agencies that were not needed to meet Likewise, existing laws present local governments some options previous RDA obligations were required to be distributed to for acquiring financing for redevelopment projects, including other local agencies as property tax revenue. In addition, to business improvement districts, infrastructure financing help offset the behavior of many RDAs after the announcement districts (IFDs),7 and property tax overrides. No longer is there of ABX1 26, but before the Supreme Court’s ruling, assets that any requirement that increased property tax revenues be used were transferred after January 1, 2011, were also used to cover for redevelopment, however, much less affordable housing, payment obligations or were distributed as property taxes if which could provide an obstacle for future redevelopment the state controller determined the transfer as not contractually efforts.

committed to a third party. Successor agencies, however, were allowed to retain housing functions and assets previously held by the RDAs, with the exception of each RDA’s Low and Mod-RDAs in California: Benefits

erate Income Housing Fund (LMIHF).

and Excesses

Before the enactment of ABX1 26, the state mandated that each RDA allocate at least 20 percent of its annual tax-increment Some RDAs were able to attract businesses to previously revenues into LMIHF, ostensibly to improve and expand the depressed areas and undertake the cleanup of contaminated availability and supply of affordable housing in the respective areas. For example, the city of Emeryville’s industrial decline RDA; however, many RDAs had simply accrued substantial bal-during the 1980s left the area with acres of contaminated ances in their housing funds. As of fiscal year (FY) 2009–10, in land from a sulfur/insecticide plant, pigment plant, and steam fact, reports submitted to the California Department of Housing drum-cleaning operation. The previous industrial owners were and Community Development (CA HCD) showed that the un-unwilling to proceed with redevelopment plans of the area encumbered portions of RDAs’ housing funds totaled as much because of the significant toxic cleanup costs. The city’s RDA as $2.2 billion. ABX1 26 dictates these funds be distributed to led cleanup efforts in the area now known as Bay Street and schools, counties, and other local agencies.

provided 400,000 square feet of new retail and entertainment space, creating ap proximately 940 new jobs and 375 new Although the dissolution of RDAs will not decrease the level residential units above retail space in mixed-use buildings; 20

of taxes paid by property owners, it will result in additional percent of the residential units are affordable at the very low-property tax revenues being distributed to other local agencies, income level.8

including cities, counties, and schools. In turn, the additional revenue will substantially reduce the amount of state revenue In another example, in the city of Vista’s downtown center, required to finance the K–14 education program. This Vista Village, businesses began to close and the infrastructure deteriorated as the area underwent an economic decline. Former 5 Assembly Bill X1 26, Chapter 2, Section 34172.b (California, 2011).

6 Assembly Bill X1 26, Chapter 4, Section 34181.b (California, 2011).

7 San Francisco County is the only county in California that is allowed to have IFDs overlap former RDAs.

8 CRA (2010).

Economic Market Analysis Working Paper Series 3

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure businesses left behind soil and ground water contamination. The units. In 2000, construction began on 102 single-family homes city’s RDA spent more than $1 million to clean up the areas in the Vista del Rio housing complex in the cities of Bell Gar-during the last half of the 1990s. The redevelopment project dens and Commerce. One-half of the units are affordable for also made improvements to the existing Main Street, which low- to moderate-income families. The city of Riverside’s RDAs included a new park-like, open-space area called Creek walk renovated a 64-unit housing complex located in the University Park. As a result of the project, the area added more than 40

neighborhood that is restricted to low- and moderate-income new businesses and roughly 700 new jobs and encouraged households. Other RDAs across the state have added to the more than $55 million in private investment in the project.9

stock of affordable housing units. According to data from the CA HCD, RDAs in the state created 63,600 new affordable The University Village community in the city of Riverside housing units from FY 2001 through FY 2008. Figure 1 shows provides yet another example. The city’s RDA transformed the the breakdown of housing units by affordability level created high-crime area, which included an abandoned auto dealership by RDAs. During the 8-year period, approximately 44 percent and gas station, into a mixed-use development that attracts of new housing units constructed by RDAs were affordable at University of California-Riverside students and community the very low-income level (at or less than 50 percent of MFI).

residents. The University Village Redevelopment Project generated more than $75 million in private investment, created 600

In response to the Governor’s proposal to dissolve RDAs in jobs, and led to the construction of student housing units and the state, the Legislative Analyst’s Office (LAO) evaluated student parking lots.10

the performance of RDAs and found no evidence that RDAs improved overall economic development in California and that In addition to helping with the cleanup of previously con-the program shifted funds away from necessary services, such taminated areas, RDAs helped fund the construction of new as education.11 The Governor’s Office concluded that the pri-affordable housing units. The city of Sacramento’s RDA helped vate development that occurred in redevelopment project areas transform the crime-ridden Franklin Villa apartments into the would have occurred without RDAs and that redevelopment Phoenix Park Apartments, with 360 units of affordable rental only shifted projects from one area of the state to another.12

Figure 1. Affordable Housing Units Constructed From FY 2001 Through FY 2008

6,000

5,000

4,000

3,000

2,000

1,000

0

FY 2001

FY 2002

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007

FY 2008

Very low ≤ 50% MFI

Low ≤ 80% MFI

Moderate ≤ 120% MFI

Above moderate > 120% MFI

FY = fiscal year. MFI = Median Family Income.

Source: State of California Department of Housing and Community Development 9 CRA (2010).

10 CRA (2010).

11 CA LAO (2011).

12 California Governor’s Office (2011–12).

Economic Market Analysis Working Paper Series 4

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure Although some RDAs succeeded in creating new affordable Not only have some RDAs been unable to produce affordable housing units, from FY 2001 through FY 2008, only 11 percent housing units, others have invested in retail projects that ulti-of the funds set aside in the LMIHFs were used for housing mately failed to produce the sales tax revenues anticipated as a construction, according to data by CA HCD (figure 2). Of more result of retailers leaving the area. The city of Costa Mesa used than 430 RDAs in California, 101 spent at least $100,000 of $62 million of RDA funds and eminent domain to clear out their LMIHF budget but did not build a single unit during the several existing businesses for the construction of the Triangle 8-year period.13 For example, the city of Santa Ana’s RDA spent Square Mall, located in the city’s downtown. The project was $22 million to purchase and demolish homes in the east side of expected to pull in $1 million in sales tax revenues annually, town, displacing low-income residents without replacing any but, in 2004, the city collected only one-fifth of the anticipated units. The city originally planned to build newer apartments revenues, at $200,000. The mall is now largely vacant, because and townhomes in the area, but a plan was never adopted for many of its anchor tenants, including Niketown, Virgin Mega-the site. The area is now filled with abandoned homes and va-store, and Barnes and Noble, left.16 A similar situation occurred cant lots without any new development.14 The city of Irwindale in the city of Indio, which planned to expand the Indio Fashion likewise spent $87 million from FY 2001 through FY 2008 and Mall, which had been losing traffic to the trendier Westfield produced only 42 new homes and 62 rehabilitated units. The Shoppingtown Mall in Palm Desert. After the city demolished RDA spent a portion of the funds to acquire industrial land 80 homes, several stores, and a low-income housing project, next to an old gravel pit and warehouses, which the city now plans for the expansion with the original developer fell concedes was unsuitable for housing.15

through. The mall continues to lose business, with many tenants unable to make even a single sale in a day.17

Figure 2. RDA Spending, FY 2001 Through FY 2008

Planning and administrative, 13.4%

Property acquisition, 20.1%

Rehabilitation and maintenance, 13.6%

Homebuyers assistance, 13.1%

Housing construction, 11.2%

Debt service, 28.6%

Source: State of California Department of Housing and Community Development 13 Christensen, et al. (2010).

14 Castle Coalition (2011).

15 Christensen, et al. (2010).

16 Castle Coalition (2006).

17 Pena (2008).

Economic Market Analysis Working Paper Series 5

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure RDAs in California: Closure

IFDs. By state law, IFDs typically may not overlap any former RDA’s project area. San Francisco has been largely able to modify existing laws because of its county-city distinction. The The Anticipated Impact of Closure on

legal revisions of the IFDs in San Francisco have allowed for Affordable Housing Development

the designation of IFDs on a formerly designated RDA’s project area, with funds allocated, in part, to developing affordable The closure of RDAs across California and the removal of RDA housing through tax increments. In addition, the approval of financing for affordable housing developments are expected Proposition C in San Francisco in November 2012 created a to reduce the number of new affordable housing units in the San Francisco Housing Trust Fund that would set aside rev-foreseeable future if current financing structures and incentives enues, starting in FY 2013, to create, acquire, and rehabilitate for affordable housing development prevail. No approved affordable housing and to promote affordable homeownership measures currently allow for an equivalent statewide set-aside programs in the city through 2043. It also authorized the fund exclusively for providing future affordable housing after devel opment of up to 30,000 affordable rental units in San all existing obligations are met by the successor agencies.18

Francisco.

Several bills have been proposed following ABX1 26 to mitigate While the impact of RDAs’ closures will be mitigated in San the impact of RDA closures, however. AB 1585, approved in Francisco as a result of the approved ballot measure, municipal September 2012, extends the use of monies in the LMIHF by and county officials expect that both agency-specific affordable the successor agency for the purpose of funding administrative housing developments and developments using other sources and planning costs relating to existing enforceable obligations.

of primary funding throughout California will be affected by The amount of existing monies in the LMIHF needs to be the RDAs’ closures. RDAs’ financing and the incentives under expended or encumbered by 2015 because, after 2015, the AB 3674, passed in 1976 by the California State Legislature, uncommitted funds will be transferred to the CA HCD for low-sup ported the development of affordable housing. Under income housing programs.

AB 3674, at least 20 percent of the RDAs’ tax-increment funds Measures that would allow for the creation of districts or needed to be allocated to the LMIHF. During the past 6 years, areas for redevelopment, including the development of af-the minimum 20 percent under AB 3674 translated into ap-fordable housing, and for the collection of funds to support proximately $1.02 billion annually that was set aside for the that development were introduced, but they were either development of affordable housing, according to the California vetoed or failed to pass the Assembly or the Senate. These State Controller’s Office.19

proposed measures include SB 1156, AB 2144, and SB 1151.

Existing RDA housing developments under the RDA dissolu-SB 1156 proposed the creation of Sustainable Community tion process will be funded through the LMIHF. All former Investment Areas and a tax-increment collection to support RDA developments that are currently under construction and project construction. AB 2144 proposed housing development developments that have enforceable agreements, as proposed through a Redevelopment Property Tax Trust Fund. SB 1156

by the successor agencies and as approved by the California and AB 2144 were vetoed during 2012. SB 1151 proposed the Department of Finance, will be funded to completion as an formation of new redevelopment agencies, allowing access to enforceable obligation out of the LMIHF. In all cases, develop-RDA assets with a focus on sustainable communities; however, ments that are enforceable obligations need to have been the bill failed to pass through the Assembly Committees on approved by the RDA by December 31, 2010. Any develop-Housing and Community Development and Local Government ment that was submitted after December 31, 2010, will not toward the end of 2012.

be eligible for funding through the successor agency and the Despite the difficulties for restoring RDA-like functions on a LMIHF.

statewide level, San Francisco has set a precedent in providing RDA financing also served as gap financing for projects that new, affordable housing development through revisions of its had LIHTC and HUD Section 108 Loan Guarantee Program 18 Existing affordable housing obligations will be financed through the Low and Moderate Housing fund; however, after all existing obligations are met, any remaining amount in the fund be transferred back to a general state tax collection.

19 Some RDA areas had set the percentage of their tax increment higher than the minimum 20 percent. For example, the former Anaheim RDA had allocated 30 percent of the tax increment to the Low and Moderate Income Housing Fund.

Economic Market Analysis Working Paper Series 6

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure financing under the Community Development Block Grant How Closure Will Affect Affordable

(CDBG) program.20 The closure of RDAs is expected to impact Housing Production in Two Cities

housing provided through the LIHTC program, because developers of affordable housing frequently used RDA financing to The city of San Francisco was considered as a case study; fill funding gaps in LIHTC or tax-exempt bond developments.

however, the implementation of Proposition C is expected to According to the California Tax Credit Allocation Committee, greatly mitigate the adverse impact on the provision of afford-62 percent of all 9-percent LIHTC awards also had RDA able housing in the area following the RDA closures.

financ ing during the 2011 awards round.21 The closure of the RDAs is expected to reduce the number of projects competing Case 1: City of Los Angeles

for LIHTCs in coming years, but the exact amount is uncertain at present. In addition, according to former RDA jurisdiction Since 2000, the RDA in the city of Los Angeles has constructed personnel, CDBG and HOME funding was often used to approximately 300 units of affordable housing annually, account -

finance the upfront costs associated with an affordable housing ing for nearly 20 percent of total affordable housing delivered in development; however, RDA financing would fill the financial the city. RDA units have helped to house some of the 891,300

gap to ensure the project’s completion.

households who reside in the city and who would qualify for Statewide, RDAs were planning to construct approximately low- to moderate-income housing. Since 2000, however, growth 12,050 units during a 2-year period from January 2012 to in the affordable housing market has not kept pace with growth December 2013, according to data from Housing California in the number of low- to moderate-income households. The and the California Housing Consortium. Housing California number of income-eligible households in the city has increased is a statewide nonprofit organization representing a coalition by an average of 17,050 households, or 2 percent, annually of advocates for affordable housing and homeless issues. The since 2000 compared with an increase in affordable housing California Housing Consortium is a nonpartisan group of devel -

units by an average of approximately 1,650 units annually. Ap -

opers, builders, financial experts, and public sector groups proximately 75 percent of income-eligible households in the united to advance affordable housing and community develop-city are renters, or 672,300 renters. Growth in the number of ment across California. Of the largest RDA areas22 that were income-eligible renter households has accounted for 67 percent surveyed in California, 4,525 units, or approximately 60 percent, of total growth in the number of low- to moderate-income house -

of affordable housing that was proposed to complete construction holds, increasing by an average of 11,500 households annually within the year will not receive funding through the successor since 2000—a trend that is expected to continue during the agency.

foreseeable future.

Taken together, the removal of RDAs as a source of funding According to Housing California and the California Housing for affordable housing development is expected to result in a Consortium, 827 RDA housing units are located in the city of statewide average annual loss of 4,500 to 6,500 new affordable Los Angeles that had been planned for completion over the next units through the foreseeable future after all enforceable obliga-2 years, and which now are expected to not receive funding.

tions have been met.23 This estimated annual loss represents a The shortfall of planned affordable units from the RDA’s clo-total that would likely have been delivered under RDA financ-sure is expected to place pressure on low- to moderate-income ing had the RDAs been allowed to continue and includes both households, because these households will continue to increase agency-specific developments as well as developments that in number but the availability of new affordable housing will relied on RDA gap financing.

decline. Even with RDA assistance, new affordable units have been able to cover only 10 percent of the growth in the number of low- to moderate-income households. The closure of the 20 The LIHTC and CDBG programs represent the largest existing programs in California that support affordable housing development.

21 Awardees with RDA financing would include those RDA projects that have enforceable agreements (Pavão, 2011).

22 RDA cities surveyed were located in the following counties: Alameda, Contra Costa, Imperial, Los Angeles, Marin, Napa, Orange, Riverside, San Bernardino, San Diego, San Francisco, San Mateo, Santa Clara, Solano, Sonoma, and Ventura.

23 The annual estimate is based on cost-per-unit data from the CA HCD and tax-increment dollars from the California State Controller’s Office during the past 3 years.

The range in total number of units depends on variations in the costs of construction and the amount set aside by former RDA jurisdictions.

Economic Market Analysis Working Paper Series 7

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure RDA is expected to reduce the number of new affordable units closure is also expected to place pressure on low- to moderate-to a level that would cover only approximately 8 percent of the income households, because, as with the case for the city of Los anticipated increase in the number of low- to moderate-income Angeles, these households will continue to increase in number households.

while the availability of new affordable housing declines. Even with RDA assistance, new affordable units have covered only 90

Although the ratios are improving, the average gross rent-to-percent of the growth in low- to moderate-income households.

income ratios are still high. The average gross rent currently The closure of the RDA is expected to reduce the number of is as high as 43 percent of the maximum eligible household new affordable units to cover only approximately 80 percent of income and is 70 percent or more of income for households the increase in low- to moderate-income households.

that earn 30 percent of the MFI. By comparison, during 2000, the average gross rent was as high as 46 percent of maximum In addition, the change in the designation of Difficult Devel-eligible household income and was 80 percent or more of in-opment Areas (DDAs) for the purpose of the LIHTC under comes for households that earn 30 percent of MFI. Since 2000, Section 42 of the Internal Revenue Code of 1986 by HUD for one-person, income-eligible households have experienced the 2013 is expected to further adversely affect the provision of highest cost burden, paying at least 40 percent of income in new affordable housing units in San Jose. According to the rent. The current number of one-person, income-eligible house -

city of San Jose Housing Department, as of March 2013, the holds has increased since 2000 by 15 percent, and these house-city had 8 projects in the pipeline, with a combined total of holds currently account for 47 percent of all income-eligible 725 affordable units. None of the projects currently have bond households in the city compared with 37 percent of all eligible financing or tax credits. Of the 8 projects, totaling 177 units, households during 2000. The prominence of one-person, 2 are located in the redesigned Qualified Census Tracts (QCTs) income-eligible households as a proportion of total eligible and are being considered for bond financing. The remaining households is expected to continue in the future.

6 projects, comprising 548 affordable units, or 75 percent of the pipeline, will likely not be constructed as a result of the Case 2: City of San Jose

2013 designation of DDAs, which eliminated the San Jose met-ropolitan area from the list. These 6 projects would need both The RDA in the city of San Jose has constructed approximately bond financing and additional sources of financing to fill the 370 units of affordable housing annually since 2000, accounting gap left by the closure of the RDA. Furthermore, the city of San for 23 percent of total affordable housing delivered in the city.

Jose Housing Department reports that the 2013 QCTs for San These RDA units have helped to house some of the 116,100

Jose provide very few future housing opportunities within the households who reside in the city and who would qualify for identified growth areas outlined in the recently adopted general low- to moderate-income housing. As with the case for the city plan. The identified growth areas in San Jose are located along of Los Angeles, however, growth in affordable housing since major transit corridors, near transit stations, on infill land, in 2000 has not kept pace with growth in the number of low- to the downtown core, and in northern San Jose, the employment moderate-income households. The number of income-eligible center. Transit-oriented developments typically are more costly households in the city has increased by an average of 1,350

than nontransit-connected areas. With the movement to ensure households, or 1.3 percent, annually since 2000 compared with that affordable housing is located near jobs, services, and local an increase in affordable housing units by an average of approx -

transit, the elimination of the DDAs in San Jose places further imately 1,225 units annually. Nearly 60 percent of income-strain on the future availability of affordable housing.

eligible households in the city are renters, or 66,300. Growth in Since 2000, the average apartment rent in the city of San Jose the number of income-eligible renter households has accounted has declined, while the MFI has increased. According to data for 58 percent of total growth in low- to moderate-income house -

from Reis, Inc., the average market rent for apartments during holds, increasing by an average of 780 households annually the third quarter of 2012 decreased by an average annual rate since 2000, a trend that is expected to continue during the of 0.7 percent from 2000, while the MFI in the greater Santa foreseeable future.

Clara County area has increased by an average of 2.0 percent A total of 1,096 RDA units were planned for construction in the annually during the same period. Despite the decline in aver -

city of San Jose during 2013 and 2014, however, most of these age rents and increase in MFI, low-income households remain units are not expected to receive funding, according to data burdened. The average gross rent is currently as high as 38 per-from Housing California and the California Housing Consor-cent of the maximum eligible household income and is at least tium. The shortfall of planned affordable units from the RDA’s 69 percent of income for households that earn 30 percent of Economic Market Analysis Working Paper Series 8

Redevelopment Agencies in California: History, Benefits, Excesses, and Closure MFI. By comparison, during 2000, the average gross rent was California Redevelopment Association (CRA). 2010. Redevelop-as high as 56 percent of maximum eligible household income ment Success Stories. Sacramento, CA: State of California.

and was 87 percent or more of incomes for households that Castle Coalition. 2006. Redevelopment Wrecks: 20 Failed Projects earn 30 percent of MFI. As with the case for the city of Los Involving Eminent Domain Abuse. Arlington, VA: Castle Coalition.

Angeles, since 2000, one-person, income-eligible households have experienced the highest cost burden, paying nearly 40 per -

———. 2011. “Resources on Redevelopment in Califor nia.”

cent of income in rent. Since 2000, the number of one-person, http://www.castlecoalition.org (accessed September 17, 2013).

income-eligible households has increased by 16 percent, and these households have accounted for 57 percent of all income-Christensen, Kim, et al. 2010. “How Is Your Redevelopment eligible households in the city, a trend that is expected to Agency Spending Money?” Los Angeles Times, October 3 . http://

continue in the foreseeable future.

www.latimes.com (accessed September 17, 2013).

Pavão, William J. 2011. California Tax Credit Allocation Com -

References

mittee Presentation. http://www.treasurer.ca.gov (accessed September 25, 2013).

California Governor’s Office. 2011–12. Tax Relief and Local Pena, Xochitl. 2008. “Tough Times at the Indio Fashion Mall,”

Government. Governor’s Budget Summary. Sacramento, CA: The Desert, July 5 . http://www.mydesert.com (accessed Septem-State of California.

ber 25, 2013).

California Legislative Analyst’s Office (CA LAO). 2011. Governor’s Redevelopment Proposal. Sacramento, CA: State of California.

Economic Market Analysis Working Paper Series 9

Document Outline

RDAs in California: History

RDAs in California: Benefitsand Excesses

RDAs in California: Closure

The Anticipated Impact of Closure onAffordable Housing Development

How Closure Will Affect AffordableHousing Production in Two Cities

References