Is Redevelopment the Past or Future of Economic Development in California?

By Frederick Steinmann

Typically, local economic development efforts can be sorted into six different but interdependent categories:  1) economic development marketing and attraction strategies, 2) workforce development and job training strategies, 3) tech-transfer and technology-based development strategies, 4) neighborhood and community development strategies, 5) small business and entrepreneurial based development strategies, and 6) real estate and land reuse development strategies.  Those communities who are best able to integrate each of these six different economic development strategies typically have the most success at encouraging long-term, stable, levels of economic activity.  Successful economic development also includes the integration of both property-based approaches and non-property based approaches to economic development.

In California, each of these six interdependent sets of economic development strategies have typically been dispersed among a wide variety of local and regional economic development organizations, agencies, and entities.  For example, local or regional tourism and visitor authorities are often responsible for an area’s overall economic development marketing and attraction efforts.  Local community colleges are very involved in developing an area’s immediate workforce and (typically) university-run tech-transfer programs. Programs such as Stanford’s Office of Technology Licensing (OTL) and USC’s very own Stevens Institute for Innovation are often responsible for successfully developing new technologies that are marketed to the private sector.  Local and regional small business development centers, such as the South Bay Small Business Development Center located in Hawthorne, CA, and other organizations like the Los Angeles SCORE (Service Core of Retired Executives) office, are largely responsible for providing technical assistance, business space assistance, and assistance in accessing capital.

And although local governments, especially cities and counties, provide extensive neighborhood and community development assets such as providing roads, sidewalks, basic infrastructure, affordable housing, among other important neighborhood and community development assets, local governments in California, since about the mid-1970’s, have become increasingly dependent on the use of redevelopment.  Since the end of most federal urban renewal programs in the mid-1970’s, redevelopment has become local government’s dominant institutional arrangement through which they pursue the goals of urban revitalization (i.e. the removal or mitigation of physical and economic blight) and urban economic development (i.e. creating mid to high skill level and paying jobs that offer residents meaningful opportunities for general upward mobility).

But redevelopment in California is almost 50 years old and, despite many amazing accomplishments, it is beginning to show its age.  Redevelopment’s over-reliance on property-based approaches to economic development have crowded out other non-property based approaches leaving many to question whether or not local governments in California need a new, youthful approach to urban revitalization and urban economic development that uses non-property based approaches to economic development alongside more property-based approaches such as demolishing structures that are obsolete, the assembly of land needed to support large-scale new development, and the development of affordable and workforce housing alongside the development of new convention centers, hotels, shopping centers, office parks, and industrial parks.

Redevelopment as a Positive Force in California’s Urban Environment

No other state has as broad and as diverse an experience with redevelopment than California.  Table 1 shows just how big redevelopment is in California.

Table 1

Summary Budgetary Figures – All Local Redevelopment Agencies State-wide in California

FY 2007

Category State-wide Figures
Number of Agencies 398
Number of Local Project Areas 841
Total Base Assessed Value $154,127,965,224
Total Incremental Assessed Value $430,125,471,621
Percentage Increase Over the Base 279.07%
Total Property Tax Incremental Revenue $4,560,734,122
Principal Amount of Debt Authorized $36,491,479,745
Principal Amount Unmatured $26,134,888,193

Source:  State of California, California State Controller’s Office, “Community Redevelopment Agencies Annual Report” FY 2007.

Before the overall collapse in California’s state-wide real estate market in 2008, and the horrible nationwide (and world-wide) financial crisis in the fall of 2008, California’s local redevelopment agencies state-wide represented one of the state’s largest, most influential, and most powerful economic development institutions.  According to the California State Controller’s Office, there were 398 active local redevelopment agencies state-wide responsible for the administration of 841 separate local redevelopment project areas.  In FY 2007 alone, all local redevelopment agencies in California collected a combined estimated $4.6 billion in incremental property tax revenue, carried an unmatured principal amount of debt totaling approximately $26.1 billion, and had authorized upwards of approximately $36.5 billion in debt.

When taken together, local redevelopment agencies in California clearly control vast sums of public resources and have used these resources to complete a wide variety of real estate driven projects.  Many of the urban amenities we take for granted today were either financed or developed by a local redevelopment agency.  Local redevelopment agencies also have an equally impressive net economic impact for the local communities in which they operate and for the state as a whole.  Table 2 summarizes some of the state-wide economic impacts of redevelopment for FY 2007.

Table 2

Summary Economic Impacts – All Local Redevelopment Agencies State-wide in California

FY 2007

Category State-wide Figures
Total State-wide Economic Output $40.79 Billion
State-wide Construction Output $22.1 Billion
State-wide Manufacturing Output $3.1 Billion
State-wide Professional Services Output $2.2 Billion
State-wide Retail Trade Output $2.2 Billion
State-wide Health & Social Services Output $1.6 Billion
Increase in State-wide Personal Income $22.74 Billion
Employment (No. of Jobs) Created 303,946 Individuals
Increase in State-wide State/Local Taxes $2.0 Billion

Source:  Gallo and Koehler (2009), “The Impact of Fiscal 2006-07 Community Redevelopment Agency Activities on the California Economy.”  Time Structures, Inc.

According to Mr. Gallo and Mr. Koehler of Time Structures, Inc., local redevelopment agencies were responsible for a combined total state-wide economic output of approximately $40.79 billion in FY 2007 alone!  Wow.  And the impacts don’t stop there.  Local redevelopment agencies state-wide in FY 2007 generated approximately $2.0 billion in total state and local tax revenues and were responsible for a combined $22.74 billion increase in state-wide personal income, helping employ over 300,000 individuals.  Clearly, redevelopment is a very important institutional arrangement through which local governments in California pursue the goals of urban revitalization and urban economic development in-terms of the resources they control (i.e. incremental property tax revenues, debt, etc.) and in their combined economic impacts (state-wide increase in personal income, number of jobs created, etc.).

But is Redevelopment the Future of Urban Revitalization and Urban Economic Development in California?

Despite the past and present importance of redevelopment in California, some already have begun to question whether or not redevelopment, as an institutional approach to urban revitalization and urban economic development, is enough to help local governments revitalize physically and economically blighted neighborhoods while simultaneously ensuring local and regional long-term, stable, economic growth.

As some of you might already now, I recently graduated from the School of Policy, Planning, and Development at USC with my Doctorate in Policy, Planning, and Development.  For my doctoral thesis, I decided to write about the future of urban revitalization and urban economic development in California (and for those of you interested, in Nevada as well).  I speculated that despite almost 50 years of tremendous success in revitalizing physically and economically blighted neighborhoods, redevelopment has started to show its age.  Specifically, I developed five primary criticisms of local redevelopment.

1. Property-based economic development strategies are insufficient to meet the larger goals of urban revitalization and urban economic development.  To be competitive in the globally interconnected 21st Century, local communities need more than the property-based approaches to economic development that dominate redevelopment.  Tech-transfer and tech-based economic development strategies, economic development marketing and attraction strategies, neighborhood and community development strategies, workforce development and job training strategies, and small business and entrepreneurial based development strategies need to be re-integrated into a single, comprehensive economic development plan championed by local governments.

2. Local redevelopment agencies lack a regional focus.  Without a regional focus, true local economic development is unattainable.  For the life of me I really cannot understand why the cities of Long Beach, Los Angeles, Torrance, Carson, and Culver City continue to have their own, often competing, local redevelopment agencies.  Does a business in Long Beach really care if its customers come from Long Beach or Los Angeles or Carson or even San Diego or Sacramento for that matter?  At the end of the day, businesses are becoming increasingly indifferent to their actual physical location – the local matters less and less when compared to the growing importance of the region.  Yet our local governments are still stuck on local approaches to economic development while economic activity increasingly occurs at the regional level.

3. Redevelopment’s role in the “fiscalizaiton of land use” undermines true local economic development.  Despite the important redevelopment reforms passed by the California Legislature in the early 1990’s (ala California AB 1290 passed in 1993), local city councils and county boards of supervisors have, in a few cases, become increasingly creative in using redevelopment to further fiscalize existing urban land uses – i.e. the use of redevelopment or zoning to maximize locally collected public revenues.  In some cases, redevelopment has been used to facilitate the construction of auto-malls, retail shopping centers, and big box retailers.  These land uses certainly generate a lot of sales tax revenue but don’t necessarily create mid to high skill level jobs that pay mid to high level wages.

4. The use of eminent domain by local redevelopment has limited the ability and the authority of local redevelopment agencies to successfully revitalize neighborhoods.  Eminent domain is a very controversial tool used by local governments on either public health and safety grounds or on the grounds of wider neighborhood revitalization goals (i.e. the removal of blight).  Although eminent domain has been used sparingly by local redevelopment agencies in California, it still remains a very controversial element of redevelopment.

5. Redevelopment is subject to principal-agency corruption, thereby retarding true local urban revitalization efforts.  In short, many researchers and community activists have argued that redevelopment, and local government in general, has been “captured” by corporate interests interested in pursuing profits at the expense of wider public benefits.  I’m not really sure I believe this argument.  I’ve had the pleasure to meet many redevelopment professionals across the state of California and every one of them have expressed their desire to “do good” and “serve the public” to the best of their abilities.  But this seems to be a criticism that has gained some traction over the past few years and doesn’t seem likely to go away any time soon.

California Assembly Bill 2531, Fuentes (Amended August 3, 2010) – Is this the Future of Urban Revitalization and Economic Development?

I’m certainly not the only person to ask whether or not redevelopment will have as prominent a role in the future urban revitalization and urban economic development efforts of local governments in California as it has had over the last 50 or so years.  Back on September 8, in an opinion column published by the Sacramento Bee, reporter Dan Walters argued that, “Properly used, redevelopment can be a valuable tool for community improvement.  Improperly used, it can become a political slush fund.  And that’s why maintaining the tight reform standards is important.”

Walters pointed to a wide variety of recent legislation either passed or narrowly defeated by the California Legislature that would or will have important impacts on how redevelopment functions in California in the foreseeable future.  One such piece of legislation, California AB 2531, which was successfully passed by the State Senate in August 2010, authorizes local redevelopment agencies in California to use a variety of non-property based approaches in addition to existing redevelopment agency approaches and methods.

According to the California Redevelopment Association, AB 2531 will expand the authority of local redevelopment agencies and allow them to directly attract and retain businesses, enhance employment opportunities, improve the energy efficiency of businesses located within existing local redevelopment project areas, and help existing businesses reduce their greenhouse gas emission levels.  For example, under AB 2531, local redevelopment agencies will be allowed to provide direct financial assistance to new or existing industrial and manufacturing facilities located in existing redevelopment project areas, including loans, loan guarantees, or other financial incentives.

AB 2531 is a very important first step toward re-integrating property-based and non-property based approaches to urban revitalization and urban economic development under the authority of a single local economic development organization.  Although it is an important first step, it is still a first step.  The next major important step will be the movement of local urban revitalization and urban economic development efforts from the local level to the regional level.

A Final Thought…

In California, redevelopment is the undisputed king of local urban revitalization and urban economic development.  Although the first state-wide redevelopment statutes in California go as far back as 1945, the vast majority of existing local redevelopment agencies in California were created in the mid-1970’s as federal urban renewal programs began to wind down.  Since then, local governments have relied heavily on redevelopment as the primary way in which they remove or mitigate physical and economic blight while simultaneously stimulating long-term, stable, levels of local economic growth.

But after 50 years, redevelopment is starting to show its age.  An institution that was born in the mid-1970’s, despite some contemporary approaches to modernize redevelopment, might not be up to the 21st Century challenges of globalization.  A new institutional model, built on a healthy integration of property-based and non-property based approaches to urban revitalization and urban economic development that also operates at a regional level is needed today in order to ensure California’s economic future.

Dr. Steinmann’s next article, “Community Colleges, the Unsung Hero of Workforce Training and Job Development Strategies,” will publish on November 22, 2010.

Dr. Frederick Steinmann is currently the Managing Principal of his own firm, EDSolutions, LLC.  Dr. Steinmann began his professional economic development career with the Reno Redevelopment Agency in the City of Reno, Nevada.  Since then, Dr. Steinmann has worked for the Nevada Small Business Development Center, Bureau of Business and Economic Research (NSBDC-BBER), and as an intern for the Carson Economic Development Department in the City of Carson, California.  Frederick has also worked as an independent contractor for David Rosen Associates, one of the elite consulting firms in California specializing in redevelopment and affordable housing development.

Dr. Steinmann recently earned his Doctorate in Policy, Planning and Development from the University of Southern California.  Frederick completed and defended his dissertation, titled “The Twilight of the Local Redevelopment Era:  The Past, Present, and Future of Urban Revitalization and Urban Economic Development in Nevada and California”, in December, 2009.  Frederick is also a current and active member of the International Economic Development Council (IEDC) and the American Planning Association (APA).  Frederick also holds a Bachelors of Science (2002) and Masters of Science (2004) in Economics from the University of Nevada, Reno.

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