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Authority allowing for Redevelopment: The California Community Redevelopment Law, contained in the California Health and Safety Code beginning with Section 33000 et seq., provides the authority and implementation provisions for a redevelopment program. Article XVI, Section 16 of the California Constitution, adopted in 1952 by the voters of the state, provides for tax increment financing, an important mechanism for implementation of the California Community Redevelopment Law. The California Community Redevelopment Law provides that any county or city can establish a Redevelopment Agency by the action of their governing body. Project Areas: The governing body first designates a survey area. The survey area includes properties to be evaluated to determine the existence of blight and the feasibility of redevelopment. Based upon this evaluation, the planning commission selects one or more "project areas" and indicates how the purpose of the Community Redevelopment Law can be attained by redevelopment of the area. A project area which contains blighted conditions is where redevelopment activities may be undertaken. Definition of blighted area within a Project Area: A blighted area is characterized by conditions causing a reduction of proper use of the area to such an extent that it constitutes a serious physical or economic burden on the community which cannot reasonably be expected to be reversed or alleviated by private enterprise acting alone. A project area may include land, building, or improvements which are not detrimental to the public health, safety, or welfare of the community, but whose inclusion is found necessary for the effective redevelopment of the area. These areas may not be included for the sole purpose of obtaining the allocation of tax increment revenues from such areas without other substantial justification for their inclusion. The project area may include contiguous or non-contiguous properties. Non-contiguous areas of a project area must be either blighted or necessary for effective redevelopment. An unblighted non-contiguous area is conclusively deemed necessary for effective redevelopment if the area is being used predominately for the relocation of owners or tenants from other project areas in the community or for low and moderate income housing construction. Redevelopment Plans: A redevelopment plan describes the purposes, goals, and objectives aimed at eliminating existing physical and economic blight. The redevelopment plan must be in harmony with the City or County General Plan. A redevelopment plan generally contains the following components:
Project Area Committees (PAC's) A PAC is required if a redevelopment project area includes a substantial number of residential units for low and moderate income persons or families that might be displaced. The Agency must consult with, and obtain the advice of residents, property owners, business owners, and community organizations in a project area, who are elected to the PAC, on those policy matters which deal with the planning and provision of replacement residential facilities, relocations, and other policy matters which affect the residents of the project area. Power of the Redevelopment Agency: The Agency may:
The Agency shall:
After the Redevelopment Plan is adopted how is the community assured that the Agency will carry out the plan? All substantial activities and actions of the Agency require consideration and approval by elected representatives at a public meeting or public hearing with notice duly given, as appropriate. In addition, activities of the Agency are first approved at a public meeting during the adoption of the annual budget, at which time it also establishes the goals for the coming year and analyzes its achievements toward goals set in the previous year. Additionally, the law requires that the Agency prepare an annual report and have an independent audit prepared of its redevelopment activities which must be submitted to the governing body and to the State Controller. These are available for public inspection and comment. Further, a Redevelopment Agency must adopt or update a plan that provides information about projects that the Agency plans to undertake at least every five years. Who adopts the Redevelopment Plan? A redevelopment plan is adopted by ordinance of the governing body of the community based on the recommendations of the Agency, the Planning Commission, and the Project Area Committee. Citizen input, at the required public hearings, is also considered before plan adoption. Do citizens vote on whether or not to have Redevelopment? There is usually no direct citizen vote to affirm or deny the formation of a redevelopment area. However, citizen participation is an essential ingredient in any successful redevelopment program. Formation of a Project Area Committee to review the proposed plan is encouraged, though not required unless there are a substantial number of low-to moderate-income residential units in the project area. In addition, the Redevelopment Law provides a sixty (60) day period after a redevelopment plan ordinance is adopted during which the creation of a project area can be challenged through litigation and a ninety (90) day period for referendum petitions that could require a vote on the redevelopment plan. Does the public have a voice in Redevelopment? A continuing dialogue with the public is crucial to a successful redevelopment program. Without citizen input, ideas, and support, any redevelopment plan will falter. Citizens have a role to play in creating revitalized areas. The redevelopment plan for a project area is presented at a public hearing and citizens are given an opportunity to review and comment on the plan. Meetings of the Agency and Project Area Committee are open to the public.
What does it mean to be in a project area? If you are in a redevelopment project area, you will have an opportunity to participate actively in improving the quality of life in your neighborhood. A community redevelopment program includes a large amount of reuse and enhancement of existing facilities as well as reinforcement of existing neighborhoods. Property owners, residents, and businesspersons may benefit from redevelopment in the following ways:
If I live in a Redevelopment Area, does it mean I live in an impoverished area? If you live within the boundaries of a redevelopment project area, it does not necessarily mean that your home is blighted. You may very well reside in an area which is surrounded by, or adjacent to, deteriorated areas. You may live in an area which needs public improvements such as better street lighting, curbs, drainage facilities, alley improvements, or parks. You may live in an area which could benefit from rehabilitation and beatification. If I am in a Redevelopment Project Area, does that mean that I will have to leave? Simply living in a Redevelopment Project Area does not mean that you will be forced to move. Redevelopment is not a bulldozer waiting around the corner. There may be some need for relocation, demolition of existing buildings, and recycling of urban land. These activities are part of a carefully thought out redevelopment plan designed to fulfill the needs and desires of the majority or residents, property owners, and business owners for the betterment of the community. Only properties essential for revitalizing a declining area are purchased by an Agency. When will I find out what is going to happen to my home or business? The redevelopment plan will be carried out in a series of stages. Timely notices are sent to residents and businesses which will be directly affected by redevelopment activities. You have an opportunity to help decide what is going to happen to your neighborhood. A public information program will usually keep citizens well informed about redevelopment and a Project Area Committee is often formed to facilitate communication between citizens and the Redevelopment Agency. How will a neighborhood be affected by Redevelopment? Redevelopment is typically a means for improving neighborhoods. The following examples are a partial list of improvements that could be made in neighborhoods.
If property acquisition occurs, what happens then? Whenever it is necessary to acquire property within a project area, the Agency will pay the fair market value for the land and improvements as required by law. Fair market value is determined by independent private appraisers. In addition to getting a fair price for your property, the Agency, under the California Relocation Assistance Act, must offer relocation assistance and allowances to defray certain costs and alleviate the inconvenience of your move. In all cases, negotiated settlements are the goal. A negotiated purchase is one which is acceptable and fair to both the buyer and the seller. If citizens must leave their homes (whether one rents or owns the home), a relocation specialist will help them to find decent, safe, and sanitary replacement homes which are at least comparable to their present home in terms of price, size, and neighborhood conveniences. If they are living in overcrowded conditions, the law requires the Agency to assist in relocation to a home of adequate size. If their homes are in poor condition (such as inadequate plumbing), the law requires that they be relocated to homes that are in satisfactory condition. Relocation housing must be available to persons of all races, religions, and nationalities. It is their choice where they want to relocate, not the Redevelopment Agency's. What about Eminent domain? At times, it may be necessary for the Agency to use eminent domain to acquire property. Eminent domain is the authority for a public Agency to acquire property for a purpose that is in the public interest. It is not used lightly. The public Agency is required by law to hold public hearings on the action, to pay the owner fair market value, and to give the occupant all relocation benefits and allowances to which one is entitled by law. If the fair market value cannot be agreed upon, all of the evidence, including appraisals, is submitted to the court and a judge or jury makes the final determination regarding value. Again, this is a seldom used process by most redevelopment agencies. However, the authority to use eminent domain is needed on occasion when a property owner refuses to sell or when agreement on the fair market value cannot be reached. When are relocation benefits available? If a household or business is displaced due to property acquisition by the Agency, occupants are entitled by law to certain moving assistance benefits. When they meet the legal qualifications, relocation benefits include:
Will I have a voice in what happens in my neighborhood? Each neighborhood has different goals and needs. The people who reside, own property, or have a business in the area should participate in the decisions affecting their families and lifestyles. Without their participation, there can be no plan which will fit their needs and desires. Communities encourage citizen participation in several ways. You may be able to serve on a neighborhood committee, attend a community forum, speak at a public hearing, write a letter to the governing body, sign a petition, or serve on a formal project area committee. Active participation by interested citizens will ensure that:
How long do I have to wait for some of the Redevelopment benefits to reach me? Redevelopment will not occur overnight. It takes hard work and active citizen participation. Many people are impatient to see the first shovel full of dirt turned, the first decaying building cleared, and the first signs of new construction and rehabilitation of buildings take place. However, careful planning and proper phasing of development is critical to a successful plan. Hasty development or approval of the wrong projects can actually delay the full benefits of redevelopment and can hamper future efforts. In redevelopment, as in other facets of life, haste can make waste. It is essential to make the right choices so that the objectives of the redevelopment plan and the community goals can be achieved. The implementation of the redevelopment program is an essential element of the Agency's annual budget process. Therefore, redevelopment projects approved as part of the annual budget will be undertaken during the budget year.
FINANCING THE PROGRAM How are property taxes determined? With the passage of proposition 13 in 1978, a formula for establishing property taxes was approved to be used statewide. This formula provided that property taxes would be based upon a rate of approximately 1 percent of the market valuation of property. In addition, properties may be taxed to repay voter-approved bond indebtedness or special assessments. What is assessed value? Pursuant to Proposition 13, the assessed value of property is based upon its market value. Property is reassessed by the county assessors under the following circumstances:
For example, if your property has an assessed valuation of $100, 000 today, the taxes paid on that property cannot exceed 1 percent ($1000 per year) plus the amount of any voter approved special taxes. Each year, the property can increase in assessed value by no more than 2 percent over the previous year. Therefore, the next year the assessed value cannot exceed $102,000 and taxes at 1 percent would not exceed $1020. Redevelopment has no effect on the assessment or tax levy process. Redevelopment agencies do not levy a property tax. Will Redevelopment increase my taxes? When redevelopment activities are successful, the property values within, as well as around, the redevelopment project areas will increase. The higher taxes resulting from the sale of property or new construction will reflect a rise in property values, not an increase in tax rates. The changed image of blighted areas and improved economic base will increase the marketability of property in the area. Property not readily saleable today because of the deteriorating conditions will become marketable. Redevelopment tends to increase the value of property but does not increase property tax rates. How does the Redevelopment Agency receive tax dollars? When the redevelopment project area is adopted, the current assessed values within the project area only are designated as the "base year." This includes the assessed value of all land and improvements within the boundaries of the project area. After plan adoption, all the taxes paid on this "base year" assessment go, as they always have, to the city, county, school districts, and other taxing agencies. Any increase in assessed value above this base year value within a project area and the taxes resulting from this increased assessed valuation per the standard tax rate becomes the main source of revenue for the Agency. What is tax increment? As the redevelopment plan is implemented, the improvements will result in an increase in property values within the project area. However, these increases in value will not result in increased taxes to individual property owners, unless there is a change in ownership or new construction (in other words, Proposition 13 still applies). The increases in value due to the changes in ownership and new construction will increase the tax revenues generated by the property. This increase in tax revenue is known as "tax increment." For example, if property was assessed at $100,000 this year, the taxes paid by the property owner at the standard tax rate of 1 percent would be $1000 pursuant to Proposition 13. If, as a result of new construction on the property, the property increases in assessed valuation to $500,000, the taxes paid by the property owner at the same standard tax rate would be $5000. The $4000 increase is called "tax increment" and it is these funds which can become the revenue of the Agency. How a redevelopment project is financed without a tax increase Before a redevelopment project area is formed, all property tax revenue goes to the city, county , schools, and special districts. In a blighted area the tax revenue is usually stagnant or lags behind the increases in land values of areas without blight. When the redevelopment project area is formed, all tax agencies continue to receive the tax revenue they received before the Redevelopment Agency was formed. The Redevelopment Agency shares a mandatory amount of the increased tax revenues with the county, school districts, special districts, etc., using a formula in the law. This is intended to offset significant detrimental fiscal impact due to redevelopment. The Redevelopment Agency passes these tax revenues through to the taxing Agency each year. At the end of the redevelopment project (typically 30-45 years), after all Agency debts are paid, the redevelopment project is terminated and all tax revenue from the increased assessed value created by redevelopment of the area goes to all other tax agencies in the project area in proportion to their tax rates. As property is sold and as new construction (private and public) occurs in the redevelopment area, the assessed value of the property goes up. This causes tax revenue to increase even though the tax rate does not change. The increased tax money is known as "tax increment." It is used by the Redevelopment Agency to pay the expenses of improving the area and eliminating blight. Twenty percent of the "tax increment" must be set aside into a special fund for low and moderate income housing programs administered by the Redevelopment Agency. Are there other sources of money to finance Redevelopment activities? The flow of the Agency's share of tax increment revenues and other funds may not be sufficient to finance the full realm of redevelopment activities and projects on a pay-as-you-go basis. Therefore, the Agency may issue tax allocation bonds. The bond funds will then be used to implement the redevelopment plan. In effect, the bonds are a loan of money to the Agency. In addition, the Agency can receive loans, grants, or other financial assistance from a city/county or other agencies including the various agencies of the state and federal governments or from private sources. How are the tax allocation bonds and loans repaid? Tax allocation bonds and loans are solely the obligation of the Agency, not the city or county. The bonds or loans are repaid from the tax increment revenues which are received by the Agency each year. In other words, tax revenues generated through redevelopment activities are funneled back into the project area to stimulate additional development and to pay the costs involved. Do taxing entities serving the project area lose tax revenue they would normally receive? As pointed out previously, taxing entities such as the county, school districts, and special districts that serve the project area continue to receive all tax revenues they were receiving the year the redevelopment project was formed (the base year). In addition, they will receive a gradually increasing amount of the tax increment each year in accordance with a complex formula written into the law. Does the Agency automatically receive the tax increment? The Agency can only receive the annual tax increment if it can show that it has created a debt which is an obligation to the Agency. Debt can be created by the sale of bonds, the receipt of loans or advances of funds, the financial obligation to pay the cost of a project, or other obligations of the law. Debt which has not been paid for by the Agency is considered outstanding indebtedness and is an obligation of the Agency and not any other entity. At the conclusion of the project and after all debt has been repaid, the tax increment flow created by the redevelopment project is returned to the taxing entities. Will Redevelopment raise tax rates? The Redevelopment Agency has no power to set tax rates. Tax rates of agencies such as the county and special districts can only be raised by actions of a governing body (other than the Redevelopment Agency) or by a vote of the people. If this occurs, then all property within that jurisdiction's boundaries, including the project area, will face higher taxes. How will taxing agencies benefit from a redevelopment project? At the end of the redevelopment project life (typically 30-45 years), the taxing agencies will receive property tax revenues based on the new higher value in the redevelopment project area. The tax increment which was flowing to the Agency will then flow to all of the taxing agencies. Thus, the other taxing agencies will reap the revenue benefits of the redeveloped and revitalized project area when the project is completed. What is the initial cost to formulate the Redevelopment Program? The formulation of a redevelopment program, including the creation of the Redevelopment Agency, the development of the preliminary and final redevelopment plans, the preliminary report, survey area and project area studies, and the preparation of reports, resolutions and ordinances will require professional and technical experts who have a background in planning, engineering, redevelopment, economic and financial analysis, and law. A project team consisting of the Agency staff and outside consultant advisors is formed to provide this expertise. The cost of the formulation of the redevelopment program will vary considerably between projects. It will depend upon time required by the project team to complete specific tasks, the size of the project area, and the need for special studies to identify blighting deficiencies and costs to revitalize the project area. Typically, the city or county advances a loan to cover the operating costs during the first few years. Doesn't the law require the Redevelopment Agency to undertake housing projects? Affordable housing is increasingly important to community redevelopment. There are many outstanding examples of redevelopment through new housing construction and rehabilitation of older units. The redevelopment law requires that 20 percent of the tax increment be spent to improve the quality and/or quantity of housing for very low, low, and moderate-income families or persons. Does the law require limitations on the Redevelopment Program? In formulating the redevelopment plan, limitations are established for various aspects of the redevelopment program. These include: (1) the length of time the redevelopment project area and plan will be in existence; (2) the time in which eminent domain may occur; (3) a time limit on the establishment of loans; (4) a limitation on the amount of bonded indebtedness to finance the project; and (5) a limitation (20 percent) on the amount of vacant land that can be included within a project area. Do politics of the community play an important role in the decision to use Redevelopment? Redevelopment has gone through many major changes due to its increased use by communities in differing political climates. When understood, redevelopment is seen as a positive and constructive tool for the community to use. If misunderstood or misrepresented, it can become a controversial issue where timing and politics in the community become a significant element of the entire process. However, in recent years elected officials and citizens have become knowledgeable regarding the redevelopment process and citizen input is generally thoughtful and constructive. |
