The end of redevelopment

The end of redevelopment

Michele Ellson
Building 500 at Alameda Point.

October 5, 2011 was to be a watershed moment in the city’s long struggle to revitalize the defunct Naval Air Station Alameda. That night city leaders signed a new deal with the Navy that would put most of the former base into the city’s hands by the end of 2012, free of the $108.5 million price tag the Navy had demanded in prior years.

“This agreement represents an essential first step to move Alameda Point out of federal ownership and onto the private tax rolls,” City Manager John Russo trumpeted from a city-issued press release issued a week before elected officials agreed to the new deal. Developing the Point could bring upwards of 9,000 permanent jobs and an untold number of temporary construction gigs, along with millions of dollars in local and state tax revenues, the release declared.

Those tax revenues – up to $780 million in property taxes to be generated by development at the base – were expected to help power Alameda Point’s rebirth. But shortly after Christmas, the state’s Supreme Court stunned civic leaders across California by stripping them of the power to channel property tax dollars into efforts to redevelop old military bases, run-down commercial corridors and residential slums.

“This was an act of economic vandalism,” Russo told City Council members at a January 4 meeting.

City officials said they have relied on their redevelopment powers to give major swaths of the city a facelift. They fear the loss of those tax-diverting powers, which they used to rejuvenate the Alameda Theatre, build the Bridgeside Shopping Center and erect Marina Village on the site of a former shipyard, could leave the city with the physical and economic scars imposed by dilapidated industrial sites and the former Naval base for a whole lot longer.

Every major development project now being contemplated by the city or currently underway relies on future property tax dollars it will generate – called tax increment – to pay its way. And city leaders are hoping they’ll earn dispensation to use those dollars to pay some of the cost of building the Alameda Landing and Boatworks developments and hundreds of homes for the poor, and the Point. Without that money, they said they are unsure how they will rebuild the Point, or replace thousands of jobs Alameda lost when it closed in 1997.

But some are saying good riddance to redevelopment programs. The state’s teacher and firefighter unions, who were among those who pushed for the end of redevelopment, told the high court that program abuses gave private developers tax dollars that should have paid for the increased need for schools, public safety and other city services created by the developments they built. Locally, some have questioned the program’s purported economic benefits, while others question the city’s commitment to affordable housing, regardless of whether redevelopment money is available to fund it.

But the purported benefits bestowed by the elimination of redevelopment are being questioned, too. Governor Jerry Brown has said that the dissolution of California’s 425 redevelopment agencies will direct $3 billion that had been held by those agencies back to schools and local services, though local school district officials are saying the state will balance those post-redevelopment revenues – and the state’s budget – with corresponding cuts.

“The state is doing it so they can basically solve their own problems,” said Robert Shemwell, Alameda Unified’s chief business officer.

Redevelopment in Alameda: A history

Alameda’s first foray into the redevelopment arena came in 1983, as city leaders sought to transform a former shipyard into an “urban waterfront village” that would come to include town homes, a shopping center, offices and a 990-berth marina. A year later the city sold bonds to build roads, sewer pipes and other infrastructure for what’s now known as Marina Village that are being repaid using property taxes generated by the development there, which is now valued at more than a half billion dollars, bond documents show.

Eight years later city leaders – under the guise of a legally separate redevelopment arm, the Community Improvement Commission – created a second redevelopment area that included its downtown business districts and Northern waterfront area. And in 1998 the city created a joint powers authority to manage revitalization efforts at Alameda Point.

All told, city leaders have declared about 40 percent of the Island blighted in order to use tax dollars to fund improvements, using a list of conditions that includes high vacancy rates, unsafe or deteriorating buildings, stagnant property values, high crime and insufficient utilities, sewers and streets. And they used the power they had to divert tax dollars to fund the restoration of the Alameda Theatre & Cineplex and build a downtown parking structure, fund streetscape projects on Park and Webster streets and also help pay for construction of Bridgeside Shopping Center.

In 2011, $12.5 million of the nearly $45 million in property tax revenue Alameda retained fueled the city’s redevelopment machine, according to bond documents and city staff (an additional $2.2 million in new property taxes were passed through to the schools, special districts and the county). So far, Alameda has directed $175 million in taxes to redevelopment, according to city staff.

The pros and cons of redevelopment

The city’s former base reuse manager, Debbie Potter, credits the city’s redevelopment powers with helping to replace a blighted former military site with the Bayport housing development, which includes a school and park. She called the Alameda Theatre an “important anchor” for the Park Street business district and said a Target to be built as part of the planned Alameda Landing development is expected to generate $350,000 in annual sales tax revenue for the city.

Potter said the city’s redevelopment powers offered critical tools for making these projects happen, including money for roads, utility lines and other infrastructure she said can be too costly for a developer to pay for up front and the power to take and assemble land whose owners won’t sell.

“Without the benefit of redevelopment, these projects would not have been built (or may have been built with fewer amenities, during a later economic cycle, etc.),” said Potter, who now manages housing development and programs for the Alameda Housing Authority.

She said money from the city’s redevelopment efforts – the state’s redevelopment law was amended in the 1970s to require redevelopment projects to include homes for the poor who were being pushed out of their neighborhoods as the projects swept through – helped build 580 homes for lower-income residents, including the 186-unit Independence Plaza, 149 homes and rental units for lower-income families in the Bayport development and 62 new units to be built in the former Islander motel.

Potter also said the city’s redevelopment program also created thousands of jobs. City officials said the Marina Village project created 2,500 jobs, though they acknowledge that many of those jobs have disappeared as the recession has cleared many of its offices out. Potter said she didn’t have specific job numbers beyond those for Marina Village.

But a longtime critic of state and local redevelopment efforts called the city’s arguments a “cliché,” and said that if the projects were economically viable, they would be funded privately, without the aid of public tax dollars. The critic, David Howard, also pointed to similar projects in other places that were built without redevelopment money.

“Redevelopment proponents conveniently ignore projects that get built with private funding,” said Howard, an Alameda resident, pointing to the Alameda South Shore Center as an example. “THOSE projects, if built, and successful, will contribute to the property tax base immediately.”

Most of the additional property tax dollars generated by Alameda’s redevelopment projects have been used to pay off those efforts, Potter confirmed, though a certain percentage is passed through to schools, special districts, the county and the city. Sales tax collection reports consistently show Alameda earning less per resident than neighboring cities, even as redevelopment occurs.

The shopping center in Marina Village, for example, earned the city $38,057 in sales tax revenue for the third quarter of 2011, a recent report shows, and the business park showed a $39,009 loss due to prior-year adjustments. Harbor Bay Landing shopping center, which was built without redevelopment money, earned $39,381, while the Harbor Bay Business Park earned the city $44,945 in sales tax revenue for the same quarter.

Laura Thomas of Renewed Hope, which sued the city to ensure affordable housing is built at Alameda Point, said she believes the city can build the housing without redevelopment funds. Thomas, who questioned the city’s commitment to building homes for the poor, pointed out that the city’s costs to develop the Point dropped significantly when the Navy agreed to stop asking for $108.5 million for the property.

“So that’s taken away a huge expense,” she said.

Potter said the tax incentive and the agency’s powers help draw developers to areas like contaminated former military property they might otherwise dismiss as too risky. She also said that the city’s redevelopment projects have created other benefits for local residents.

“Park Street, compared to when I first started here 10 years ago – it’s hugely different,” she said. “It may not be a dollar-for-dollar (benefit) on sales tax kind of thing – but in terms of what it’s done to establish Alameda as a happening place, as a place people want to be – that’s all good for people’s property values.”

What gets paid?

City officials have said they’ve got $566 million in redevelopment costs to pay off over the next several decades, though that amount includes a number of bills that may be taken off the list as it heads to a newly created oversight board and two state agencies for approval. (An earlier payment schedule listed the city’s obligations at $1.4 billion, though Potter said that number shrank when affordable housing obligations and pass-through payments to schools and other taxing entities were removed.)

Potter said the city has $17 million in redevelopment bills due this year, which they plan to pay using $5 million in reserves and property taxes generated by existing redevelopment areas. She said that leaves a half million dollars for schools and other services, though the amount hinges on a number of factors, including what bills they get approval to pay and whether any new legislation to set aside affordable housing or other funds is approved before the checks get cut. And Potter and others said that whatever money schools in particular get will be balanced by corresponding state cuts.

Bond debt the city incurred to pay for the projects won’t be fully paid off until 2041 under existing payment schedules, though Potter said the local oversight board now being created to oversee such payments could find ways to erase those debts more quickly.

The city’s list includes nearly $300 million to cover the future cost of roads, utilities, water and sewer lines and housing for the poor that was to be built at Alameda Point and in the city’s other redevelopment areas that Potter and Alameda Point Chief Operating Officer Jennifer Ott acknowledged will not be approved by the state but said were included on the list in case the rules change.

It also includes a $3.2 million loan, including interest, from the city’s sewer fund to help pay for the Wilver “Willie” Stargell extension and another $3.9 million city leaders took out of Alameda’s general fund – which pays for public safety, libraries and other services – to fund Alameda Point predevelopment costs. That’s money they said likely won’t be repaid.

The future of other items on the list is less clear. City officials believe their contract with Alameda Landing developer Catellus requires them to pay up to $35.5 million toward the projects, though Potter acknowledged she expects the state may question that and said the city can no longer bond against tax revenues even if they don’t. The city’s payment schedule also lists $37.5 million to cover a 1990 legal settlement requiring Alameda to build 325 homes for the poor; city officials estimated they have 300 left to build.

“The state’s motivation is to wind down redevelopment agencies. Our motivation is to see projects through,” Potter said.

While some obligations – chiefly existing project debt – are clear, cities will need to prove they have specific contractual obligations to cover others, said state finance officials, who expect to hash out the details over the next few months.

“A lot of it is going to come down to, ‘What does the paperwork say?’” state Department of Finance spokesman H.D. Palmer said.

City faces uncertainties

Alameda Landing developer Catellus is expected to immediately begin construction on a Target store, redevelopment money or no, according to a staff report for Monday’s Planning Board meeting, where the project faced design review. A representative for the developer, which has spent $18 million on the Landing project so far, did not return a call seeking comment for this story.

But Potter and Ott said they face additional uncertainties, like what the city would do to pay for any increased costs associated with a development effort already underway.

“If you come back and discover something about the property – (it needs more) cleanup, the design costs go up – you can’t put any new redevelopment money into the project,” Potter said. “You’re at the mercy of other funding sources.”

Even project payments blessed by the county and state could face future scrutiny. The law that ended redevelopment also extends the deadline for challenges to redevelopment spending from 60-90 days to two years.

But Ott said the city is pressing on with efforts to get the Point redeveloped. “We’re looking at ways, both legislatively and other, to find an equivalent or comparable source of funding for that,” she said.

Ott asked the City Council on February 7 to consider bonds secured by future lease revenues to fund predevelopment efforts for Alameda Point. She told a reporter she’s hoping state leaders will carve out an exception allowing future property tax dollars to pay for base reuse efforts or create new financing sources to build infrastructure at the Point.

“We’re pursuing every path we can to help create a financing mechanism based on property tax increment,” Ott said. “We need every public subsidy dollar we can find to pay for the extraordinary costs of the project.”

BY THE NUMBERS

Percentage of Alameda in a redevelopment area: 40 percent
City's total redevelopment obligation (per to-be-approved list): $566 million
Amount owed this year: $17 million
Maximum redevelopement property tax take in Alameda: $1.4 billion
Property taxes paid into redevelopment program to date: $175 million

WHAT ALAMEDA OWES

Payments city leaders say they owe are subject to local oversight board and state agency approval. Their list includes:

Tax allocation bonds and associated costs: $138.2 million
Wilver “Willie” Stargell loan: $3.2 million
Alameda Landing development agreement: $35.5 million
Bridgeside development agreement: $946,853
Independence Plaza agreement: $20.8 million
Boatworks settlement agreement: $4.5 million
Guyton (affordable housing) settlement agreement: $37.5 million
Alameda Point public improvements and affordable housing: $230.7 million
Public improvements and affordable housing, remainder of redevelopment areas: $64.6 million