HomeMy WebLinkAbout04/06/1999, 5 - REDEVELOPMENT AGENCY FEASIBILITY STUDY council6-
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CITY OF SAN LUIS 0 8 1 S P 0
FROM: Bill Statler,Director of Finance Wns
Ken Hampian,Assistant City) ve Officer
SUBJECT: REDEVELOPMENT AGENCY FEASIBILITY STUDY
CAO RECOMMENDATION
Do not proceed with forming a redevelopment agency.
DISCUSSION
Overview
As set forth in the comprehensive study prepared by Urban Futures, Incorporated(UFI), it is feasible
for the City to form a redevelopment agency: we have areas that qualify as blighted under the State's
stringent requirements (although the downtown does not qualify); the County and San Luis Coastal
Unified School District are open to this process, and there are clear State guidelines for sharing tax
increment revenues with them; and in the very long run,there could be very favorable fiscal benefits.
However, forming a redevelopment agency would be a very time-consuming process requiring
senior staff involvement; and at least initially, there are minimal fiscal benefits. In the first year,
UFI projects net tax increment revenues (after accounting for housing program set asides and what
the City's General Fund would have received anyway) of about $11,500. Within five years, this
might grow to$54,800 annually. However,there are a number of significant ongoing administrative
and accounting responsibilities that go with redevelopment agencies, and these are likely to be equal
to(or greater than)projected revenues,at least in the early years.
As such, given that this effort would significantly detract from achieving other high-priority City
goals, we do not recommend taking further action in forming a redevelopment agency in the
foreseeable future. On the other hand, deferral should not be taken lightly: for a number of reasons,
this is an excellent time to form an agency; and any potential benefits will only decline in future
years. In short,if we ever want to do this,now is probably the time to do so.
Background
As part of the 1997-99 Financial Plan objectives for economic development, the Council approved
evaluating the feasibility of forming a redevelopment agency. On March 5, 1998,the Council held a
study session led by UR on the general characteristics of redevelopment agencies and their potential
benefits, including. their purpose and the kinds of allowable activities that can be fimded through
them;the strict criteria that must be met in forming a redevelopment agency; the process for forming
an agency;and their funding sources and fiscal benefits.
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Council Agenda Report—Redevelopment Agency Feasibility Study
Page 2
Based on the results of this study session, the Council approved a contract with UFI on June 16,
1998 in the amount of $20,000 to prepare a more formal feasibility study addressing eligibility,
revenue potential and likely agency boundaries.
Findings
As detailed in their report,UFT concludes that it is feasible for us to form a redevelopment agency:
• We have areas that clearly qualify as blighted under the State's stringent requirements (although
the downtown does not qualify).
• The County and San Luis Coastal Unified School District are open to this process, and there are
clear State guidelines for sharing tax increment with them.
• In the very long run, there could be very favorable fiscal benefits: after 20 years at a 2% growth
rate per year, UFI projects net annual revenues to the agency of about $190,000; and $318,600
annually after 30 years. Cumulatively at 2% growth per year, UFT projects "net" agency
revenues over the next 45 years of about$12 million. (It is important to note that these are 1998
dollars;if discounted for present value,these would be significantly less.)
However, redevelopment "tax increment" revenues are a "zero-sum" game: no "new revenues" are
generated by forming an agency; only the apportionment of tax revenues--their "incremental"
growth over time is affected. The following is a summary of how tax increment revenues are
derived, using the recommended Survey Area (Figure 2, page 10) and tax increment projections in
Appendix B of the report as an example:
• Base Year (1999-00). The assessed valuation of the survey area is estimated by UFI to be
$128.3 million in the fiscal year immediately prior to forming the redevelopment agency
(assumed to be 1999-00 in the study). Accordingly, this area generates about $1,283,000 in
general purpose revenues (1% of assessed value) for all local agencies combined such as the
County, cities, schools and other special districts. The current apportionment of these "base
year"revenues to these agencies is unaffected by the formation of a redevelopment agency.
• Tax Increment Revenues. If assessed value increases by 2%, "tax increment" revenues will be
$25,700 in the first year, and if assessed value increases by 21/6 in the next year, total tax
increment revenue in the second year will be $51,900. While these "incremental" tax revenues
from the "base yeae' form the basis for redevelopment agency revenues, the agency does not
receive all of the incremen. Under a complex apportionment formula set by the State, the
agency receives a declining share over time, starting at a high of 75% in the fnst ten years, to
401/o at the end of the survey area's life(45 years—the maximum term than an area may generate
redevelopment tax increment).
• Net Revenues. In projecting revenues available to fund agency projects, two adjustments need
to be made in determining "net" revenues: the 20% portion of the increment that must be set
aside for housing programs; and the 18% portion (before ERAF) of the increment that the City
would have received anyway. For this reason, the "net" available to the City in the first year is
only$11,500 summarized as follows:
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Council Agenda Report—Redevelopment Agency Feasibility Study
Page 3
Net Tax Increment-First Year
Total tax increment 25,700
Portion to the City @ 75%" 21,300
Less 20%housing set aside (5,100)
Less increment attributable to the General Fund (4,700)
Net tax increment revenue $11,500
• The effective rate is 83%due to adjustments for the housing set aside
Other BeneJtfls. In addition to tax increment revenues, there are other potential policy benefits to
forming a redevelopment agency, such as the use of property condemnation for economic
development purposes. (Of course, this is also a potential tool that makes many residents and
property owners uncomfortable.)
Impact on Other Agencies
As reflected above, forming a redevelopment agency does not increase property revenues,but rather,
re-allocates to the agency a portion of any incremental tax revenues due to increases in assessed
value. The rationale for this is that"but for"the actions of the agency, this growth would not have
occurred at all.
In our case,over 70%of the tax increment revenue would be redirected from two agencies: San Luis
Coastal Unified School District(about 38%)and the County(about 33%). For most school districts
in California, this change in apportionment would not result in lower overall revenues, because the
State would back-fill the difference. However, due largely to the Diablo Canyon and Morro Bay
power plants, San Luis Coastal is a relatively high-wealth district and is classified as a "basic aid"
district. This means that most of their revenue comes from property taxes, and under State funding.
formulas for basic aid districts, they would not receive any State back-fill for the tax increment
revenues allocated to our agency.
If we could make a compelling case that "but for" forming an agency, there would be no tax
increment revenues,then this revenue transfer could easily be justified. However,there is nothing in
the feasibility study that would support such a conclusion. Accordingly, we are concerned that we
would simply be taking away revenues from two other agencies that provide important services to
our community—something we have strongly criticized the State for doing to us. In short, the
question other agencies will ask is:how much of this growth would have occurred anyway without a
redevelopment agency?
Potential Agency Boundaries
One of the key issues the Council asked LJF1 to evaluate is the boundary of a potential agency. As
shown in the Study Area(Figure 1,page 8 of the report),the Council asked LJFI to study seven areas:
Foothill/Santa Rosa, Downtown, Upper Monterey, Mid-Higuera, Madonna Road, Santa Barbara
Street (railroad area) and South Broad Street. (Note: In forming a redevelopment agency, areas do
not have to be contiguous.) After evaluating the characteristics of these areas relative to the State's
requirements for forming a redevelopment agency,LJF1 arrived at the Survey Area(Figure 2,page 10
of the report). This is much smaller than the Study Area,and does not include the downtown.
5-3
Council Agenda Report—Redevelopment Agency Feasibility Study
Page 4
If we were to proceed with forming a redevelopment agency, UFI recommends (and staff concurs)
that the boundary should be as large as possible. Given the effort we would put forward in creating
and administering the agency, then we should maximize our revenue potential. However, the larger
the area, the more complex the undertalong—and the more opposition we can expect. On the other
hand,a smaller area means smaller fiscal benefits;and at some point,unless the area is large enough,
there will not be sufficient fiscal benefits even in the long run to justify forming an agency.
FISCAL EM[PACT
There are no direct fiscal impacts with not proceeding with the formation of a redevelopment
agency. In the long term,however,there could be substantial revenues that we are foregoing by this
action.
If the Council decides to go forward with the next steps outlined in the study in forming a
redevelopment agency,we estimate consultant service costs of between$30,000 to$50,000 to do so.
Additionally,this would mean a significant commitment of senior staff resources.
ALTERNATIVES
Proceed with Forming a Redevelopment Agency
As set forth in the feasibility study,forming a redevelopment agency is a viable option that may have
significant fiscal benefits in the very long term. However, based on experiences in other
communities, this will be a very time-consuming effort requiring a significant commitment of senior
management resources as well as consultant assistance due to the highly political and technical
nature of this process, and the number of things that can go wrong. Many community members,
property owners and affected goverment agencies will be very interested in this very public
process, and we should not under-estimate how exhausting this process may be. Additionally, once
the agency is formed,there will be significant ongoing administrative and accounting efforts to meet
State compliance and financial reporting requirements.
Lastly,there are perceived(and at times,real)abuses by redevelopment agencies, and this results in
greater scrutiny and ongoing changes by the State in the rules (and related revenues) governing
redevelopment agencies. This means that the fiscal benefits in forming a redevelopment agency may
decline over time. For example,redevelopment agencies were especially hard-frit by the State take-
aways of the early and mid-90's.
Consequences of Not Proceeding Now
However,we should not take deferring action on this lightly. While proceeding now will require a
significant commitment of resources to achieve benefits that may take a long to see, there are
advantages to going forward at this time:
• We have involved the County and the school district in this study process, and they are generally
open to the concept of the City forming a redevelopment agency. While their ultimate support
would depend upon many details yet to be resolved (such as some form of at least partial
mitigation, or assurances that they are not giving-up tax increment revenues that woulVha2e
Council Agenda Report—Redevelopment Agency Feasibility Study
Page 5
happened anyway), their receptivity to this concept in the future can not be guaranteed. And
although their "support" is not legally required, we would hike to avoid the adversarial
relationships that have developed in many other communities over this issue. However, in order
to do this, it is likely that we would have to share (indirectly--the State does not allow changes
in the tax increment allocation formula)at least some of the increment, further eroding the fiscal
net benefit to the City in forming an agency.
• The rules for forming redevelopment agencies are likely to become even more complex and
difficult in the future.
• In a post-Proposition 218 environment,'there are limited revenue enhancement opportunities
available to the Council. While it may take a long time to see the fiscal benefits, this is one of
the few revenue improvements that the Council can initiate. And for many cities in California
(most of which have redevelopment agencies---there were 394 agencies in 1996),their agency is
the primary finding mechanism for their capital improvement programs.
• The longer we wait, the less fiscal benefit there will be. As properties develop in the interim,
there will simply be less increment to capture.
In short, while not an irrevocable decision,we should realize that we are not likely to take this issue
up again for some time; and if this issue arises again in the future, the benefits identified in this
report may be significantly lower or no longer exist.
SUMMARY
The feasibility study concludes that forming a redevelopment agency is a viable option that may
have significant fiscal benefits in the very long team. However, achieving these long-term benefits
will require a major work effort in the short term. The key policy and resource questions before the
Council are:
• Do the very long term benefits of forming a redevelopment agency offset the significant
resources—and distraction from achieving other high-priority goals—that will be required in the
near term?
• Is there a compelling reason for transferring property tax revenues from schools and the County
to the agency9 The question will be posed: would this increment have occurred anyway without
the formation of a redevelopment agency?
Craven limited staff resources, and how this effort would significantly detract from achieving'other
high-priority City goals, we do not recommend proceeding with forming a redevelopment agency in
the foreseeable fine e.
AVAILABLE FOR REVIEW IN THE CITY CLERK'S OFFICE
Redevelopment Feasibility Study Prepared by Urban Futures
H:Redevelopment Agency Concept/Agenda Report.—Apri16,19"
5-5
RECEIVED
MEETING AGENDA
DATE 4-6-q 9 ITEM # APR ' 1 1999
RICHARD SCHMIDT SLO CITY CLERK
112 Broad Street, San Luis Obispo, CA 93405 (805) 544-4247
a-mail:rschmidt@calpoly.edu
April 2, 1999For April Ix
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To the City Council oPENDIR
Iam concerned that staff is urging you to scrap the idea of redevelopment just because
their first pass at it lacked focus and a clear planning purpose.
I�u ge you not to totally scrap the idea of a targeted redevelopment district for San Luis
Obispo.
This city faces a cross-roads: Will it continue to encourage commercial sprawl, which
decentralizes shopping and creates the need for additional open-space destruction and
increased driving, or will it truly take steps to maintain a "compact urban form?"
Your current course —considering yet another unneeded, decentralized shopping
center at Dalidio, for example -- locks us into a future of sprawl, congestion, pollution,
destruction of open space, competition with downtown, and a loss of the character of
our city. This course leads to the destruction of everything that is wonderful about San
Luis Obispo.
On the other hand, carefully conceptualized redevelopment of underutilized districts
within the existing city could halt sprawl, create the sort of future most citizens say they
want, while still providing for more than enough commercial expansion.
The Lower Higuera Area (Marsh to Madonna) is the ideal location for retail commercial
redevelopment leading to an in-town mall-like shopping area, similar to Santa Barbara's
wildly successful Paseo Nuevo. There's hardly a building in the area worth a damn
architecturally, the existing service commercial uses are inappropriate for such prime
real estate, the area is truly a blight-in-everyone's-face and cries out for improvement
On the positive side, infrastructure is already in place, the location is adjacent to
downtown, and there is excellent freeway access to both ends of the district (at Marsh
and Madonna). It is a crime for this area to remain a collection of cruddy, low-density
commercial structures, parking lots and lumber yards. Look atAas an asset — how many
cities are fortunate enough to have such a great commercial fand resource practically in
the center of town? L
I"�
Imagine, for a moment, how this redevelopment might work. There could be parking
structures at either end, each with ready freeway access. Shoppers would be
encouraged to leave the freeway and immediately park, then negotiate the beautifully-
developed pedestrian mall's "streets" on foot as they do in Santa Barbara. (Santa
Barbara's Paseo Nuevo, however, lacks one of the strengths of this site --direct
freeway access. Think about how that can draw in out-of-towners to spend their$$$
here!) Instead of bringing shoppers to the periphery of the city (as would be the case
with a Dalidio mall), where they are isolated from everything but the mall, here they
would be parked practically ja downtown. Stepped up trolley service linking the Lower
Higuera"mall" and downtown would be a convenient way to keep freeway-oriented
shopping traffic out of downtown, while boosting the strength of the downtown shopping
district. Unlike the Madonna Road malls, this mall would reinforce rather than compete
with downtown simply by dint of its location. Given time, the several blocks along
Higuera and Marsh between the Lower Higuera Mall and downtown would fill in with
shopper-friendly uses, and there would be a continuous "downtown shopping area"that
included the new mall, just as in Santa Barbara. (By contrast, that will never happen
with the Madonna Road locations --there's too much commercial junk in between, plus
the freeway is like a Chinese Wall.)
This location would be perfect for the sort of large anchors people here say they want --
perhaps a Macy's or Nordstrom or some other upper scale retailer would fit in just as
they have done in the elegant Paseo Nuevo.
By redeveloping this area, we could create the sort of in-town shopping experience all
our planning efforts say we want, rather than subscribing to the expansion of
speculative SprawlMart shopping opportunities that have always been our second
choice, and whose carcasses now litter Madonna Road -- and litter in even greater
numbers nearly every other California city that has pursued that route.
This sort of civicly-responsible redevelopment will never take place within the "private
sector."There are simply too many ownerships, too many complexities. As a result,
what"redevelopment"we've seen happening along Lower Higuera (the Jiffy Lube
center, for example) is exactly the wrong way to redevelop this area. It locks it into its
nothingness for another generation.
Please consider doing something courageous with redeveloping this area and
show thereby that you really are serious about protecting our city's character and
saving us from a SprawlMart future.
We should intensify the use of this underutilized commercial district before we
contemplate further expansion along Madonna Road.
And this is best done through city-initiated redevelopment.
Sincerely,
Richard Schmidt .
v