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Loss of Redevelopment Set-Aside Could Decimate Affordable Housing

The core of California redevelopment law tells redevelopment agencies what they can fight against – blight – and it enables them to identify project areas in which to do so. Generally, the law does not, however, indicate what blight should be replaced with. As a result, critics have charged that redevelopment often funds vanity projects such as stadiums at the expense of what they consider more socially beneficial developments.

The one major exception to this is affordable housing. A 1976 update to state redevelopment law requires that redevelopment agencies set aside 20% of their tax increment revenue for the provision of affordable housing. The California Redevelopment Association estimates that redevelopment agencies have contributed to the production of 98,000 units of affordable housing since 1993. Set-aside funds totaled $5.6 billion in 2007-08. In short, redevelopment is a common source of funds for affordable housing developed by nonprofits. Redevelopment funds are in almost every affordable housing deal in California and are the second-biggest source of funds in the state, after federal funds.

Advocates of affordable housing fear that Gov. Jerry Brown's proposed elimination of redevelopment will also be a death knell for affordable housing.

"Our program has generated about 1,000 units, and then (with the budget proposal) it just stops," said Philip Lanzafame, Chief Assistant Director of Community Development in Glendale. "Every project that we could conceive of in the future is in jeopardy."

Although the proposed budget would redirect much of redevelopment's tax increment to local agencies and services, it does not provide for ongoing funding of affordable housing. It merely provides that existing housing funds that are already in redevelopment agencies' coffers would be transferred to local housing authorities. Obviously, those funds will be available to complete affordable housing projects already planned. But after that transfer, localities would be on their own.

"About $1 billion per year flows from the tax increment," said Paul Zimmerman, executive director of the Southern California Association of Nonprofit Housing. "None of the proposals on the table replace those programs and that financing."

Although estimates vary, most agree that California faces a grave shortage of both market-rate and affordable housing.

Redevelopment monies are one of the three main funding sources used to make affordable developments viable statewide. The others are state bond funds and federal funds, administered through the Department of Housing and Urban Development. Many cities have their own housing programs, including affordable housing trust funds.

The federal government is threatening to cut back on HUD funding, and Proposition 1C bonds – the largest state housing bond – had, as of December 2009, only $800 million left out of a total of $2.8 billion approved by voters in 2006.

"With the bond proceeds from the Prop 1C and the infrastructure package, just about spent, redevelopment monies for low and moderate income housing are about the only state-mandated program left that addresses the housing prices," said Zimmerman.

By many accounts, redevelopment has not addressed housing all that well. A September 2010 report by the Senate Office of Oversight and Outcomes found that many of the 42 agencies in its sample spent the majority of their housing funds on administration and planning rather than on development of actual housing. The report contends that agencies have little accountability and spend housing monies in questionable ways.

Reports such as this have fueled the notion that redevelopment agencies are ill-equipped to provide for affordable housing, regardless of the social benefit that the housing would provide. Affordable housing advocates say, however, that these failures are not reason to do away with redevelopment agencies.

Julie Spezia, executive director of advocacy group Housing California, said that agencies that are not spending their affordable housing monies may be doing so at the behest of their cities – not because they are averse to developing affordable housing.

"We don't think that the redevelopment agencies are running amok and doing things that the cities aren't actually wanting them to do," said Spezia. In fact, in most cities the city council and redevelopment board are one in the same.

As such, Spezia and Zimmerman both said that redevelopment provides critical funding and that the system should be reformed rather than eliminated.

If they are eliminated, even the fate of the agencies' existing housing funds is uncertain. The budget calls for the funds to be "shifted to local housing authorities." Though this budget language implies that funds would go to public housing authorities that build and run public housing projects—as opposed to nonprofit and market-rate developers that include affordable housing in their portfolios—this intention is far from certain.

Larger cities have municipal housing departments that promote affordable housing in a variety of ways, and it is unclear whether those departments would be eligible (or able) to receive funds—or whether the funds could be directed at the discretion of local officials.

In many places, neither municipal departments nor public housing authorities exist, and the only viable agencies would be county housing authorities, which could receive significant windfalls depending on how many cities are in their jurisdictions and how much funding those cities have amassed.

In the absence of clarification from Sacramento, however, the elimination of redevelopment could be synonymous with the elimination of affordable housing entirely.

"When you get down to a lot of cities that are under 50,000, many of them don't even have housing departments," said Zimmerman. "Their redevelopment agencies are their housing departments."

Larger cities will likely be able to absorb those funds and continue with redevelopment agencies' housing plans.

"We would do whatever we're called upon to do," said Doug Guthrie, general manager of the Los Angeles Housing Department. "We've got good staffing here. Many of the programs we run are very similar to CRA's programs." Guthrie added that CRA is a crucial partner in the department's five-year housing program, contributing $50 million of tax increment investment annually.

Other cities are not so bullish.

"I don't know that Sacramento has thought all of this through," said Glendale's Lanzafame. "It's all pretty vague, and we're all left wondering ‘what if' and what's going to happen."

Contacts:

Doug Guthrie, General Manager, Los Angeles Housing Department http://lahd.lacity.org (866) 557-7368

Philip Lanzafame, Chief Assistant Director of Community Development, City of Glendale, (818) 548-2005

Julie Spezia, Executive Director, Housing California http://www.housingca.org (916) 447.0503

Paul Zimmerman, Executive Director, Southern California Association of Nonprofit Housing http://www.scanph.org (213) 480-1249