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HomeMy WebLinkAbout04/06/1999, 5 - REDEVELOPMENT AGENCY FEASIBILITY STUDY council6- j agenda nepout b�.N 5 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. 5-1 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: 5-2 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 OD DIR DFrN DIR PIC33 AO O FJAE CHIEF RN (�yy DIR Re' Redevelopment ERK/0HIt3 o PoucE CHF iMT TEA61 O RED DIR O UTIL DIR 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