The Impact of Redevelopment on the Low-Income People By Principal Investigator Dr. Adrian R. Fleissig Department of Economics Institute of Environmental and Economic Studies California State University, Fullerton Fullerton, CA 92834 Phone: (714) 278-3816 E-Mail: afleissig@fullerton.edu Investigator Dr. William F. Gayk, Director Center for Demographic Research California State University, Fullerton Fullerton, CA 92834 Phone: 714-278-3417 E-mail: wgayk@fullerton.edu Research Assistant Stacy Bradshaw October 2002 This report was produced with the help of a 2001-2002 contract from the California State University Faculty Research Fellows Program for the California Governor s Office of Research and Planning. The opinions expressed in this report do not necessarily reflect the opinion of the California Governor s Office of Research and Planning. The Coordinator of the Faculty Research Fellows Program is Professor Jim Cox, Center for California Studies, California State University, Sacramento. For information on the Faculty Research Fellow Program and a list of all previous reports, visit http://www.csus.edu/calst/government_affairs/faculty_fellows_program.html
TABLE OF CONTENTS List of Exhibits... ii List of Case Studies... iii Executive Summary... iv I. Introduction... 1 II. The Impact of Redevelopment on California... 3 III. State Controller s Office Report of RDAs... 11 Summary of State Controller s Report... 15 IV. HCD Report of RDAs Housing Activities... 16 V. Case Studies... 23 Alameda... 24 Anaheim... 28 Banning... 34 Oakland... 37 Port Hueneme... 42 Stanislaus... 45 VI. Policy Recommendations and Conclusions... 50 VII. References and Data Sources... 54 Appendix 1: Redevelopment Bills... 56 Appendix 2: Definitions... 58 i
LIST OF EXHIBITS Boxes Box 1 Examples of Redevelopment Cases... 8 Box 2 Violations of Redevelopment Law... 9 Tables Table 1 Type of RDA Accomplishments Reported... 12 Table 2 Number of Housing Related Accomplishments Reported... 13 Table 3 Types of Housing Accomplishments Reported... 14 Table 4 Specified Target Group... 15 Table 5 Units of New Construction Per Income Level... 17 Table 6 Substantial Housing Rehabilitation by Income Level... 19 Table 7 Non-Substantial Housing Rehabilitation by Income Level... 19 Table 8 Acquisition of Covenants by Income Level... 20 Table 9 All Types of Housing Activity by Income Level... 21 Table 10 Status of Low and Moderate Income Housing Funds... 23 Figures Figure 1 Reported Substantial Housing Rehabilitation... 18 Figure 2 Other Housing Activities of RDAs...21 ii
LIST OF CASE STUDIES 1. Alameda... 24 City of Alameda Case Study 1a... 26 Community Improvement Commission of the City of Alameda Case Study 2a... 28 2. Anaheim... 28 City of Anaheim Case Study 2a... 30 Anaheim Community Development Department Case Study 2b... 33 3. Banning... 34 City of Banning Case Study 3a... 35 Community Redevelopment Agency of the City of Banning Case Study 3b... 37 4. Oakland... 37 City of Oakland Case Study 4a... 39 Redevelopment Agency of the City of Oakland Case Study 4b... 41 5. Port Hueneme... 42 City of Port Hueneme Case Study 5a... 43 Port Hueneme Redevelopment Agency Case Study 5b... 45 6. Stanislaus... 45 County of Stanislaus Case Study 6a... 47 Redevelopment Agency of the County of Stanislaus Case Study 6b... 50 iii
EXECUTIVE SUMMARY Redevelopment can have a significant impact on the stock of affordable housing and the welfare of low-income people in cities and counties across California. A considerable amount of redevelopment is performed by redevelopment agencies (RDAs), which often have significant funds. RDAs are required to set aside at least 20 percent of their property tax increment revenues in the Low and Moderate Income Housing Fund which are designated for housing related programs and services that benefit low- and moderate-income people. These funds are non-discretionary in that they are required to be spent on housing related activities. Redevelopment agencies have provided considerable assistance to low- and moderate-income individuals by providing housing, financing repairs, subsidizing rents, improving infrastructure, and assisting many families to qualify for home ownership. However, there are still many criticisms that have been raised about the practices of redevelopment agencies that include misuse of housing funds, gentrification and the failure to provide affordable housing for low-income people. This study documents the housing accomplishments reported by RDAs and performs six case studies of housing activities of RDAs. Findings The impact that RDAs have on the welfare of low-income people is examined using data reported from the (i) State Controller s Office Annual Report of Redevelopment and (ii) the California Department of Housing and Community Development and we also performed six (iii) Case Studies. A summary of the key results is as follows. i. State Controller s Office Annual Report of Redevelopment Redevelopment agencies are required to provide an annual report of their housing and non-housing related accomplishments to the State Controller s Office. Some main findings using the data from the State Controller s Office Annual Report of Redevelopment over the four most recent fiscal years 1997-1998, 1998-1999, 1999-2000, and 2000-2001 are: The number of reported non-housing accomplishments of RDAs exceeds the number of housing related activities for each fiscal year. The number of housing related accomplishments increased over the four fiscal years. RDAs are involved in a wide range of housing activities with new construction generally over a third of the reported housing activities. Rehabilitation is the next most common activity, now typically around 20% of housing activities. RDAs fail to report a target income group for housing related activity over 50% of the time for each fiscal year. When a target income group is designated, nearly half are for Very Low-Income or Low-Income groups. ii. The California Department of Housing and Community Development iv
RDAs report their housing accomplishments and Low- and Moderate-Income Housing Fund activities to the California Department of Housing and Community Development. Some main findings over the three most recent fiscal years 1998-1999, 1999-2000, and 2000-2001 are: Of the 16,714 units of new construction over the three years, 42.3% were for Very Low-Income households and 36.2% for Low-Income households. Almost half of the number of reported substantial rehabilitation and nonsubstantial rehabilitation funding is for low-income households and almost 40% for very low-income households. This information may be misleading as rehabilitation may actually be repairs and RDAs generally do not report the dollar amounts for rehabilitation. About half of the acquisitions of covenants are for Moderate-Income households and the rest are for Very Low-Income and Low-Income households. Acquisition of covenants assist households by restricting rent to affordable levels and can be included in inclusionary requirements. Redevelopment agencies have assisted over 51,500 households over the last three years. The largest percentage of the number of activities for is households with Very Low-Income (44.2%), Low-Income (37.2%) and Moderate-Income (16.0%). This distribution of the volume of housing accomplishments can be misleading because it does not reveal the RDAs fiscal commitment to these activities. At the end of fiscal year 2000-2001, only 13.98% of the $991,350,786 available in the Low and Moderate Income Housing Fund had actually been spent on housing activities. iii. Case Studies Six RDAs housing activities were examined. These agencies were from cities that have large and small populations, located in urban or more rural areas, and involved in a wide range of housing activities. Some findings include: Sources of funds for affordable housing projects include Low-Mod Funds, RDAs funds, First Time Home Buyers Assistance Programs, non-profit organizations, Rehabilitation programs, Tax credits, federal HOME and CDBG programs. The agencies have been generally successful in providing new affordable housing on property purchased using some Low-Mod Funds. Many agencies are active in providing funds for rehabilitation of affordable housing. Low-Mod Funds are often used for First Time Home Buyers Assistance Programs. Main concerns of RDAs include: The lack of funding for affordable housing. The high cost of purchasing new land. v
While Senate Bill 211 allows RDAs to extend the completion date of a project, and thus raises funds for affordable housing, the required uses of funds may result in a cluster of low-income housing instead of a more desirable mix of housing that includes moderate housing. The requirement of Senate Bill 975 of paying the Prevailing Wage considerably raises the cost of production particularly for rehabbing single-family homes. The large expense of cleaning up contaminated land. POLICY RECOMMENDATIONS AND CONCLUSIONS This study finds that many RDAs have made and continue to make significant contributions to providing affordable housing for low-income people using their Low- Mod Funds. However, some RDAs continue to provide very little or no assistance to low-income families even though they have significant amounts in their Low-Mod Fund. Our main policy recommendations are as follows. 1. Insufficient Low-Mod Funds. The majority of the redevelopment agencies are relatively small and have insufficient Low-Mod Funds to have a significant impact on the stock of affordable housing. One possible solution is to allow smaller redevelopment agencies to pool resources of multiple redevelopment agencies and give them certain powers with respect to a specified joint project area and joint redevelopment plan, such as San Leandro Redevelopment Agency and the Alameda County Redevelopment Agency. 2. Time Limits for Using Low-Mod Funds. The overall size of the Low-Mod Funds continues to grow and in many jurisdictions where there has been little or no housing related activities. Consideration should be given to requiring RDAs to provide a detailed account of why they have failed to use their Low-Mod Funds to either the State Controller s Office or the California Department of Housing and Community Development. 3. Affordable Housing Plans. There seems to be a disjuncture between the Housing Element of the General Plan with its Regional Housing Needs Assessment 1 and redevelopment plans. The Housing Element should incorporate plans for the use of the Low-Mod Fund and jurisdictions should receive credit toward meeting their Regional Housing Needs Assessment through any sanctioned use of the Low-Mod Funds. 4. Oversight of how Redevelopment Agencies Use Low-Mod Funds. A more stringent review of redevelopment agencies revenues and expenditures is required as mentioned in Dardia (1998), California Legislative Analyst s Office (1994) and the California State Auditor (1996). Local independent committees or commissions appointed by citizens of the community may be a good way to provide an overview of the reported housing activities of a RDA and make their findings and recommendations to the CA-HCD or SCO. 1 Jurisdictions are required by State Law to prepare the Regional Housing Needs Assessment (RHNA), which project current and future housing, needs for its citizens and is used to plan for economic growth. vi
5. Increasing Funding for Affordable Housing Related Activities. While Senate Bill 211 increases the amount of funds available for affordable housing by allowing an agency to extend a project area for 10 years to eliminate blight, the requirements on how the funds must be spent may result in a cluster of lowincome housing instead of a more desirable mix of housing that includes moderate-income housing. Clearly the shortage of affordable housing for lowincome families must remain a main priority, but the long-term implications of possibly having clusters of housing occupied only by low-income families should be further examined. 6. Reporting Procedures of Redevelopment Agencies. RDAs provide detailed reports to the SCO and CA-HCD but often fail to report the dollar amounts for each project and if the expenditure is for households with a very low-income, low-income or moderate-income. Specifying both dollar amounts and the income target groups of each housing and non-housing related projects will allow better monitoring of RDAs actions. vii
I. INTRODUCTION Redevelopment agencies in California are required to set aside at least 20 percent of their property tax increment revenues for affordable housing projects, referred to as the Low-Mod Fund by the California Department of Housing and Community Development. The Low-Mod Funds are designated for housing related programs and services that benefit low- and moderateincome people, families, and households. These funds are non-discretionary in that they are required to be spent on housing related activities. Redevelopment agencies have at their disposal a wide range of legitimate uses for these funds. Some of the more common activities of redevelopment agencies include the acquisition of land for housing projects, construction of new housing, rehabilitation of deteriorating housing, and improving deteriorating or inadequate sewer or other municipal infrastructure. Other frequent activities include financial assistance and loans to homebuyers, providing financial aid through renter subsidies or grants and relocating and supplying housing for those affected by demolitions or rehabilitation. Redevelopment agencies have provided considerable assistance to low- and moderateincome individuals by providing housing, financing repairs, subsidizing rents, improving infrastructure, and assisting many families to qualify for home ownership. However, there are still many criticisms that have been raised about the practices of redevelopment agencies. A persistent social issue has been the unintended result, or even sometimes the intended consequence, of gentrification. Improving the quality of the housing stock and the surrounding neighborhood often increases the residential property valuation, which can price the low-income residents out of an area. In addition, rehabilitating deteriorating housing and reducing overcrowding often displaces residents. A more direct form of displacement has come with the demolition of housing units to make room for non-residential uses. The methods of 1
displacement to low income people can include direct actions (eminent domain) and indirect actions (incremental revitalization of parcels adjacent to low income housing). There have also been concerns raised about how some agencies have misused redevelopment and Low-Mod Funds. While inappropriate use of the Low-Mod Funds is not a common practice among the several hundred California Redevelopment Agencies, such incidents have tarnished redevelopment in general. Finally, there is still evidence that many redevelopment agencies continue to limit investment in affordable housing by sitting on the funds despite legislation geared to discourage such activities. The actions of redevelopment agencies are very important because they often limit or reduce the stock of affordable housing. This study seeks to set the groundwork for additional research by focusing on the impact that the Low-Mod Funds have on the stock of affordable housing. The goal of this study is to document and quantify the reported activities that redevelopment agencies engage in using their Low-Mod Funds with data from two sources. The sources are the State Controller s Annual Report of Redevelopment Agencies over four fiscal years 1997-1998 through 2000-2001, and the State Housing and Community Development Department s report on Redevelopment Housing Activities fiscal years 1998-1999 through 2000-2001. The reports provide information on how many redevelopment agencies use their Low- Mod Funds and what redevelopment agencies report they are doing with their Low-Mod Funds. We include six case studies to help identify some of the practices of redevelopment agencies and to identify some of the issues that agencies perceive as important. Finally, we provide some policy recommendations for increasing the stock of affordable housing. While this study focuses on documenting housing accomplishments of redevelopment agencies, there are many other important issues and concerns related to affordable housing that 2
we do not address. There is evidence that the taxpayers funding redevelopment often do not benefit from the projects 1. Some critics have argued that the area would have been redeveloped without tax dollars allowing the tax dollars to be used elsewhere 2. Another important issue not addressed in our work is the affect that redevelopment funded by tax incremental financing has on property values and whether the project can generate enough revenue to cover the expenditure 3. While properties that are environmentally contaminated have lower land values and may thus be targets for affordable housing projects, they require extensive funding to remove the environmental damage 4. These and other important issues are related to our work but beyond the scope of this study. Before discussing our findings, a brief background on redevelopment as it pertains to housing activities of redevelopment agencies will be covered in the next section. II. THE IMPACT OF REDEVELOPMENT ON CALIFORNIA Redevelopment plays a major role in California by providing a source of funds to cities and counties for projects and programs beyond the basic tax revenue stream. Cities, counties, redevelopment agencies, special districts, school districts, and community college districts use redevelopment funds. Over the past 50 years, redevelopment agencies in California have become much more involved in redevelopment projects. Total expenditures and other financing uses by redevelopment agencies for fiscal year 2000-2001 was $4.3 billion, an increase of nearly 1 Man (2001) reviews the literature on how tax incremental financing effects economic development. 2 Some examples of the impact of subsidizing redevelopment can be found in Klacik and Nunn (2001). 3 This is addressed in the study of Elson, Knaap and Singer (2001) for the King Park Neighborhood in Illinois and in Dardia s (1998) study of California. 4 The costs of redeveloping the brown fields in Minnesota are discussed in Zachman and Steinwell (2001). 3
fourteen percent (13.8%) from fiscal year 1999-2000 5. In California there are currently 408 redevelopment agencies of which 379 were actively involved in redevelopment projects. Redevelopment finances a broad array of projects and programs, including economic development, affordable housing, small business, shelter for the homeless, financial assistance to housing of low-income families, flood control, hazardous waste, fire protection, sports complexes and amusement parks. For the fiscal year 2000-2001, there were 775 redevelopment projects, actually 54 fewer than the prior fiscal year. The size, mix, and requirements of redevelopment zones vary across jurisdictions. Redevelopment agencies operate in cities with large populations over 250,000 as well as in smaller cities with populations less than 25,000. Just under half of the project areas cover less than 500 acres, while 91 (11.7%) project areas were relatively large, covering over 2500 acres. For fiscal year 2000-2001, the uses of funds were 26.8 percent for commercial, 23.3 percent for residential, 22.7 percent for public facilities, 18.2 percent for industrial, and 9.0 percent for other uses. Redevelopment has made many positive contributions to California. It has rejuvenated many blighted areas throughout California and has turned depressed commercial areas into economic engines. The process of redeveloping areas creates employment and the State Controller s Office reports that the estimated number of jobs created in 2000-2001 was 33,894 added to the 37,611 created in 1999-2000. Redevelopment agencies have assisted in making over 80,000 affordable housing units available in the last four years. Yet even with the significant economic contributions made by redevelopment, criticism often surrounds the practices of redevelopment agencies. 5 See Redevelopment Agencies Annual Report: Fiscal Year 2001-2002 California State Controller s Office. 4
Redevelopment has occurred in California for over fifty years 6. Public officials began to pay more attention to redevelopment in the mid-1940s as blight and slums had spread over many cities and communities in the United States. In 1945, the California Legislature enacted the Community Redevelopment Act. This allowed cities and counties to establish redevelopment agencies to revitalize deteriorating and blighted areas. The Community Redevelopment Act, which appears in the California Health and Safety Code 33000-34160, was renamed the Redevelopment Law in 1951. A major change that increased funding for redevelopment occurred after the first law was passed in California in 1952 authorizing the use of tax increment financing. Tax increment financing (TIF) allows redevelopment agencies to finance projects using the increase in property tax revenues from the increase in assessed property values that have occurred after a redevelopment project. The amount of tax incremental revenue is determined by the increase in property values compared to the base-year value. In particular, 20 percent of the tax increment funds must be allocated to the Low-Mod Fund to help to provide affordable housing. Redevelopment funded by tax incremental financing, however, is very time intensive process and has high administrative costs 7. A major goal of redevelopment has always been to increase and improve the stock housing. Eliminating slums or replacing blighted housing was one of the earliest goals of redevelopment. With a growing interest in revitalizing central business districts in the 1960s, and with criticism levied against government from large-scale evictions to clear slums, housing activities declined substantially. There was increasing pressure on the State Legislature from housing advocates to mandate that redevelopment agencies actively engage in housing related 6 There are many excellent reviews of the literature on the history of redevelopment such as the Dardia (1998), Lefcoe (2001), Myers, Allyson (2002) and California Redevelopment Association (2002). 7 Johnson and Krtiz (2001) provide a detailed discussion of five steps in the redevelopment process. 5
activities especially with the growing concern over housing affordability in California. Assembly Bill 3674 (Montoya) created the Low and Moderate Income Housing Fund in 1976 requiring all new redevelopment projects to set aside twenty percent of their tax increment revenues for affordable housing. In addition, housing units demolished in a redevelopment project area had to be replaced. These provisions were extended to include all redevelopment project areas even if they had started before Assembly Bill 3674 went into effect. With the passage of Proposition 13 in 1978, local government property tax revenues were severely reduced. Consequently, more local governments began to fund redevelopment using tax incremental financing and over half of the current redevelopment agencies were formed after the passage of Proposition 13. These funds were not part of the property tax revenues that were divvied up according to a formula between counties, cities, school districts, and special districts. Local governments could substantially increase their property tax revenues by forming a redevelopment agency and creating redevelopment projects. Moreover, cities and counties realized that they could increase their sales tax revenue stream by using these funds to develop large commercial and retail projects. Thus, tax increment financing became the major source of funding redevelopment in California. As more redevelopment agencies (RDAs) became involved in projects, more concerns about the practices RDAs began to get the attention of lawmakers. The California Legislature enacted a series of new laws to address some of these problems and issues. Senate Bill 1387 was passed in 1984 and it requires the State Controller s Office of California to compile and publish annual reports of the financial transactions of RDAs. In addition, the state Housing and Community Development Department must compile a report on housing activity funded by the Low-Mod Fund. The Community Redevelopment Law Reform Act of 1993 tightened the 6
definition of blight and established time limits for agencies to complete redevelopment projects. Once a project area has been designated and after a public hearing, an agency must adopt a redevelopment plan that includes a description of blighted conditions and an implementation plan. Every five years since December 31, 1994, all RDAs must adopt an implementation plan for a project area stating goals, objectives, programs, and estimated expenditures for the fiveyear period. Agencies are required to prepare a five-year implementation plan and conduct a public hearing reviewing the plan and progress within the five-year period. Responding to criticisms that agencies such as Counties and School Districts were losing potential revenue because of TIF set aside funds, AB 1290 passed in 1993 requires a portion of the tax increment be passed through to these affected entities. Some of the provisions of AB 1290 were intended to reform redevelopment specifically as it relates to housing. Even though redevelopment agencies had to set aside twenty percent of their tax increment revenues for low- and moderate-income housing, there was no requirement that they had to use the money. There was strong evidence that many agencies were hoarding the money and even avoiding affordable housing projects. Under AB 1290, agencies with excess surplus of over $1 million of Low- Mod Funds would have to spend it on qualifying housing projects within a specific period of time or the funds must be handed over to the county housing authority. In addition for projects adopted after 1993, the twenty percent set aside for the Low-Mod Fund is based on the gross tax increment rather than 20% after the mandatory pass-through funds are deducted. The second provision authorized the development of affordable units outside of the project area, but it is a two-for-one proposition. For each unit owed under the agency s requirements, two units must be produced. 7
While many RDAs have used TIF to increase the supply of affordable housing, there are some well-known examples of redevelopment agencies that violate redevelopment law (Box 1). Box 1 Examples of Redevelopment Cases Mammoth Lake. The 1996 redevelopment project planned to use Tax Incremental Financing to subsidize new tourist facilities that would generate more tax revenue. The appellate court rejected the redevelopment plan and determined that there was no evidence of substantial physical blight and that the plan had incorrectly included parts of a golf course and airport as urban blight. Diamond Bar. A three judge appellate panel rejected the 1997 redevelopment project plan of Diamond Bar because it failed to satisfy the statutory definitions of physical blight. It appears that the redevelopment project area was intended to increase the tax base and included much of the city s commercial and industrial land in an attempt to generate more sales tax revenue and real estate taxes from new housing. Monterey County. There were complaints about the methods and criteria for Low-Income families to participate in Inclusionary Housing. The 1999 Monterey County Civil Grand found irregularities in the reporting of actual expenses of operating inclusionary housing. After examining the Consolidated Affordable Housing Plan in 1999, the 1999 Monterey County Civil Grand Jury recommended that the Board of Supervisors keep current records of funds received, disbursed and lists of prospective purchasers of Low and Moderate Income Inclusionary Housing. City of Adelanto. A State Audit determined that Adelanto Redevelopment Agency had inappropriately spent funds in an attempt to redevelop George Air Force Base, failed to keep the public informed as stated in the Health and Safety Code, and did not increase and preserve the supply of low- and moderateincome housing. With further evidence of inappropriate practices of redevelopment agencies, Senate Bill 497 was passed in 1999 requiring the SCO to identify seven major violations of Redevelopment Law, which are displayed in Box 2 along with other compliance findings. 8
Code Sections 1 Senate Bill 497 Major Violations 33080.1 Failed to file audit report 33490 Implementation plan not adopted 33080.1 Failed to file fiscal statement Box 2 Violations of Redevelopment Law 33334.16 Failed to initiate development, or land not sold 33334.3 Interest not accrued to Low and Moderate Income Housing Fund 33334.3 Separate Low and Moderate Income Housing Fund not established 33333.6 Time limits not established Code Sections 33080.1(f) All Other Compliance Findings Failed to file property report 33080.1(d) Failed to file blight progress report 33080.1(e) Failed to file loan report 53891 2 Inadequate accounting system 33302 No approved housing element letter 33418 No procedure to monitor status of housing 33334.6 Annual deferral finding not made 33334.3(d) Various Lack of findings for administrative expenditures from the Low and Moderate Income Housing Fund Not otherwise classified 1. References are to the Health and Safety Code unless otherwise specified 2. Government Code Source: State Controllers Office Annual Report of Redevelopment Agencies. California remains one of the most active states involved in redevelopment and redevelopment law since 1952. California has some of the most restrictive requirements for redevelopment and is one of a few states that require a statement quantifying the amount of blight, a statement concerning the impact of redevelopment on affordable housing and a neighborhood impact report. In addition, various Senate or Assembly bills are directed at specific redevelopment agencies or a county. Some examples of recent and current bills in California are directed to San Leandro Redevelopment Agency, Alameda County 9
Redevelopment Agency (AB 296), Orange County Redevelopment Agency (AB 661) and Santa Cruz County (SB 459). Additional information about some important historical Senate and Assembly bills are in Appendix 1. The California Redevelopment Association has been actively involved in the recent redevelopment law of Senate Bill 211 (Chaptered in 2001) and Assembly Bill 637 (Chaptered in 2001) that look at some issues from AB 1290 of 1993. 8 Senate Bill 211 allows redevelopment agencies to extend or eliminate the debt incurrence deadline in order to eliminate any serious remaining blight. Additional affordable housing obligations include depositing 30% instead of 20% of the tax increment to the Low-Mod Fund, spending the excess surplus of the Low-Mod Fund and satisfying all replacement housing and inclusionary obligations. An agency may spend up to 15% of the amount deposited into the Low-Mod Fund in a given five-year period for moderate-income housing. In addition, any funds allocated for moderate-income housing must also be part of a project in which at least 49% of the units area occupied by either low-income or very-low income households. Assembly Bill 637 will have a significant impact on the housing production of redevelopment agencies, replacement housing and the requirements for the Low-Mod Fund. Low-Mod funds used for new or substantial rehabilitation, replacement housing and project area housing production have covenants increased to 55 years for rental units and 45 years for owneroccupied units. In addition, an agency can count affordable units produced outside of a project area to satisfy the project area affordable production requirements but it must be two outside units for one inside the project area unit. Also, 50% of the affordable units must be affordable 8 A more in depth analysis of Senate Bill 211 and Assembly Bill 637 is provided by Goldfarb and Lipman (2001) and Meyers, Nave, Riback, Silver and Wilson (2001). 10
and occupied by very low-income households. Now 100%, instead of 75%, of any housing units destroyed or removed must be replaced and made affordable to the same income levels of the displaced people. Agencies must also provide an explanation in their implementation plan about how to meet their Low-Mod Fund expenditure targets (income groups). It has been eight years since AB 1290 was passed. Questions still arise about how the Low-Mod Fund is used to benefit low- and moderate-income people living in California. Many of these questions are quantitative. How many units are produced or rehabilitated for low- and moderate-income households? How many low- and moderate-income households have received subsidies? How much redevelopment funds are available for housing? Are redevelopment agencies with sufficient funds using these for housing projects? Some of these issues are addressed using the data from the State Controller s Report on redevelopment agencies. III. STATE CONTROLLER S OFFICE REPORT OF RDAS The State Controller s Office Annual Report of Redevelopment over the four most recent fiscal years 1997-1998, 1998-1999, 1999-2000, and 2000-2001 are analyzed below. Redevelopment agencies report their housing and non-housing accomplishments to the State Controller s Office. 9 This is useful data to analyze because it provides information about the extent of housing activities within the larger context of other non-housing redevelopment activities. The RDAs accomplishments were used to first tabulate the number of housing related accomplishments that were listed in the reports. Using a content analysis technique, housing 9 It is important to note that the accomplishments included in the Annual Report of Redevelopment are those that are reported to the State Controller s Office. There is the possibility that there are other accomplishments achieved by a redevelopment agency that are not reported. There does not appear to be any reason or advantage for withholding accomplishments. There is an assumption that the State Controller s Office is including all the significant accomplishments in their comments. The State Controller s Office has indicated that they have highlighted those items that were particularly noticeable. 11
related accomplishments were then classified by the (a) type of activity (construction, rehabilitation, etc.), (b) target group of this activity (very low- income, low- income, moderateincome, etc.), (c) number of units, families or households affected, and (d) amount of funds expended on the reported activity. We begin by arranging the accomplishments of RDAs, reported by the SCO, for housing and non-housing activities in Table 1. The number of reported accomplishments that are nonhousing activities far exceeded those that are related to housing during the four fiscal years. However, the number of housing related accomplishments increased during the four fiscal years covered in this study. Twenty-seven redevelopment agencies reported at least one housing related accomplishment in fiscal year 1997-1998, fifty-four in fiscal year 1998-1999, eighty-two in fiscal year 1999-2000, and ninety-two in fiscal year 2000-2001. Over the four-year period, both the reported number of housing related accomplishments as well as the percentage of the total number of reported accomplishments increased. During fiscal year 1997-1998, over twenty-five percent (25.2%) of the reported accomplishments were related to housing, which increased to over forty-five percent (45.8%) for fiscal year 2000-2001. Table 1 Type of RDA Accomplishment Reported Type of 1997-1998 1998-1999 1999-2000 2000-2001 Total 1997-2001 Accomplishment Number Percent Number Percent Number Percent Number Percent Number Percent Housing 27 25.2% 54 37.2% 82 39.2% 92 45.8% 251 38.4% Non-Housing 80 74.8% 91 62.8% 127 60.8% 109 54.2% 403 61.6% Total 107 100.0% 145 100.0% 209 100.0% 201 100.0% 654 100.0% Source: California State Controller's Office Annual Report of Redevelopment Agencies To examine the extent of housing activity by each redevelopment agency, we breakdown the number of housing related accomplishments reported by each RDA (see Table 2). More than 12
half of the RDA s that reported housing related accomplishments, with the exception of fiscal year 1998-1999, reported multiple accomplishments. The number of agencies reporting two housing related accomplishments increased from seven (25.9 percent) in fiscal year 1997-1998 to thirty one (33.7 percent) in fiscal year 2000-2001. Comparing fiscal years 1997-1998 to 2000-2001, the number of agencies reporting three or more housing related accomplishments increased from 8 to 21 but the percentage of agencies reporting three or more housing related accomplishments fell from 29.6 percent to 22.8 percent. Table 2 Number of Housing Related Accomplishments Reported Number of 1997-1998 1998-1999 1999-2000 2000-2001 Accomplishments Number Percent Number Percent Number Percent Number Percent 1 12 44.4% 30 55.6% 38 46.3% 40 43.5% 2 7 25.9% 10 18.5% 25 30.5% 31 33.7% 3 or more 8 29.6% 14 25.9% 19 23.2% 21 22.8% Total 27 100.0% 54 100.0% 82 100.0% 92 100.0% Source: California State Controller's Office Annual Report of Redevelopment Agencies RDA's are involved in a wide range of housing activities and we organize these activities into nine categories (see Table 3). New Construction was the most frequently mentioned housing related activity for each fiscal year as well as the sum over all fiscal years. New construction represented slightly over thirty-two percent (32.2%) of all the housing related accomplishment activity reported. In both fiscal years 1997-1998 and 2000-2001, new construction accounted for over one-third of all the reported activity at 35.7 percent and 36.3 percent respectively. The category of Rehabilitation was the next most commonly reported activity. Rehabilitation also included stated activities such as repairs, improvements and renovations. During the four fiscal years, 20.4 percent of the housing related accomplishment activities were attributed to rehabilitation. It is also important to note that the Rehabilitation category has increased each year, representing 10.7 percent of the housing related activities in 13
fiscal year 1997-1998 and 25.1 percent for fiscal year 2000-2001. Over the four fiscal years, Financial Assistance and First Time Buyers Programs accounted for 15.3 percent and 13.8 percent of the housing related activities respectively. First Time Buyers Programs are a form of financial assistance, but this was separated from financial assistance because it is a very specific type of program whereas financial assistance generally referred to making loans or providing grants for such needs as home repairs, improvements or rehabilitation. Table 3 Types of Housing Accomplishments Reported Housing Activity 1997-1998 1998-1999 1999-2000 2000-2001 Total 1997-2001 Number Percent Number Percent Number Percent Number Percent Number Percent Rehabilitation 6 10.7% 17 16.7% 34 21.0% 43 25.1% 100 20.4% Acquisition 2 3.6% 7 6.9% 4 2.5% 2 1.2% 15 3.1% New Construction 20 35.7% 23 22.5% 53 32.7% 62 36.3% 158 32.2% First Time Buyer 13 23.2% 15 14.7% 17 10.5% 23 13.5% 68 13.8% Renter Subsidy 0 0.0% 1 1.0% 3 1.9% 0 0.0% 4 0.8% Non Specific Assistance 7 12.5% 18 17.6% 16 9.9% 11 6.4% 52 10.6% Financing 4 7.1% 19 18.6% 27 16.7% 25 14.6% 75 15.3% HOME or CDBG 3 5.4% 2 2.0% 8 4.9% 3 1.8% 16 3.3% Relocation 1 1.8% 0 0.0% 0 0.0% 2 1.2% 3 0.6% Total 56 100.0% 102 100.0% 162 100.0% 171 100.0% 491 100.0% Source: California State Controller's Office Annual Report of Redevelopment Agencies The housing accomplishments of RDAs are often designated to specific income groups or seniors (see Table 4). Redevelopment agencies frequently report a housing accomplishment but fail to report a target group. For each of the fiscal years covered in this analysis, the No Target Group Specified category was the largest and it accounts for 53.8 percent of the total accomplishments over the four-year period. This means that no target group was listed or singled out. 10 Unfortunately this makes it difficult to determine all the groups that benefit from RDA housing activities reported to the State Controller s Office. However, the Very Low- 10 It should be noted that in the California Housing and Community Development Department Report on Housing Activities does include specific information on the target groups. The information in the State Controller s Office reports is volunteered and then highlighted in the report. 14
Income and Low-Income groups are cited quite often. Nearly half of the 222 reported target groups were Very Low-Income (31 times or 14%), Low-Income (58 times or 26.1%) and Very Low Low-Income (21 times or 9.5%). We should also note that the frequency of the reporting of the Very Low-Income and Low-Income target groups has increased over the four-year period, suggesting that there is an increasing number of redevelopment projects directed toward these two groups. There has not been a similar reporting trend for the more politically acceptable targets of Moderate-income, Affordable, or Seniors. However, given such a high level of unreported target groups, it is difficult to identify all of the specific benefactors of these programs. Table 4 Specified Target Group Target Group 1997-1998 1998-1999 1999-2000 2000-2001 Total 1997-2001 Number Percent Number Percent Number Percent Number Percent Number Percent No Target Specified 26 47.3% 42 41.2% 95 58.6% 96 59.3% 259 53.8% Very Low-Income 6 10.9% 6 5.9% 8 4.9% 11 6.8% 31 6.4% Low-Income 5 9.1% 14 13.7% 15 9.3% 24 14.8% 58 12.1% Moderate-Income 1 1.8% 1 1.0% 8 4.9% 0 0.0% 10 2.1% Affordable 4 7.3% 6 5.9% 7 4.3% 12 7.4% 29 6.0% Very Low Low-Income 2 3.6% 7 6.9% 6 3.7% 6 3.7% 21 4.4% Very Low Moderate- Income 2 3.6% 0 0.0% 0 0.0% 0 0.0% 2 0.4% Low-Moderate Income 3 5.5% 17 16.7% 13 8.0% 1 0.6% 34 7.1% Seniors 4 7.3% 5 4.9% 9 5.6% 11 6.8% 29 6.0% Other Target 2 3.6% 4 3.9% 1 0.6% 1 0.6% 8 1.7% Total 55 100.0% 102 100.0% 162 100.0% 162 100.0% 481 100.0% Source: California State Controller's Office Annual Report of Redevelopment Agencies, Income groups are based on area median income. Very-Low (<=50%), Low (<=80%), Moderate(<=120%), Above Moderate (>=120%) Summary of State Controller s Report The analysis of the State Controller s Office reports suggests that housing related activity have a lesser role for redevelopment agencies compared to non-housing accomplishments such as commercial and retail construction. However, the data also suggest that housing activity is 15
taking on an increasingly important role for more redevelopment agencies. Information on how the Low-Mod Funds of RDAs impact the poor is difficult to determine because the specific target groups for these projects reported to the State Controller s Office are not always identified. Where the housing related accomplishments did indicate a specific target group, the data suggests that a large share of the projects are directed toward Very Low-Income and Low- Income individuals and households. The information reported in the California Housing and Community Development s report on Redevelopment Housing Activities provides information that can better address the impact on low- and moderate-income people. IV. HCD REPORT OF RDAs HOUSING ACTIVITIES As with the State Controller s Office, redevelopment agencies are required to submit annual reports to the California Department of Housing and Community Development (CA- HCD). The reports contain information on the redevelopment agencies housing activities as well their Low- and Moderate Income Housing Fund. The Department of Housing and Community Development prepares annual reports that discusses trends regarding the amount and use of agency funds and housing activities. 11 While CA-HCD has documented concerns with some incomplete and inaccurate reporting by RDAs, there is considerable information regarding the uses of these funds 12. CA-HCD has a particular obligation to determine whether certain requirements have been met such as inclusionary and replacement housing. The law is also very clear on what Low-Mod Funds can be used for and the analysis of the CA-HCD data will not focus on those requirements and restrictions. The analysis will focus on the cumulative types of 11 Redevelopment Housing Activities: Fiscal Year 1999-2000. State of California Department of Housing and Community Development. 12 The California Department of Housing, for fiscal year 1999-2000, states in the forward on page i, that some inaccuracies and inconsistencies often arise due to an agencies interpretation of redevelopment law, accounting methods for the housing fund and the reporting of housing activities. 16
activities (new construction, rehabilitation, acquisition of covenants and other housing activities), the level of those activities and which income groups (very low to above moderate) benefit from the activities. Over the fiscal years 1998-1999, 1999-2000 and 2000-2001, redevelopment agencies have reported 16,714 units as new construction (see Table 5). Over the three-year period, the largest income target group for new construction was Very Low-Income households (42.3%) and Low-Income households (36.2%). The percentage of new construction designated to Very Low- Income households and Low-Income households was 81.3%, 84.7%, and 72% respectively in each fiscal year. Moderate-income household s share of new housing over the three fiscal years was 15.2% with relatively little variation in the proportion across fiscal years. While the number and proportion of Above Moderate-income units was relatively small in fiscal years 1998-1999 and 1999-2000, there was a big increase during fiscal year 2000-2001 in both the number of units constructed (934) and the proportion of these units (14.2%). Whether the increase in new construction targeted to Above Moderate-income households is a trend or a one-time event cannot be answered at this stage from the current data. Table 5 Units of New Construction Per Income Level Income Level 1998-1999 1999-2000 2000-2001 Total 1998-2001 Number Percent Number Percent Number Percent Number Percent Very Low 2,264 39.6% 2,085 47.3% 2,722 41.3% 7,072 42.3% Low 2,381 41.7% 1,649 37.4% 2,025 30.7% 6,056 36.2% Moderate 998 17.5% 643 14.6% 905 13.7% 2,546 15.2% Above Moderate 73 1.3% 33 0.7% 934 14.2% 1,040 6.2% Total 5,716 100.0% 4,410 100.0% 6,586 100.0% 16,714 100.0% Source: California Department of Housing and Community Development, Income groups are based on area median income. Very-Low (<=50%), Low (<=80%), Moderate(<=120%), Above Moderate (>=120%), Redevelopment agencies are also involved in substantial rehabilitation of housing. Rehabilitation-Pre-1994 refers to inclusionary requirements to all rehabilitation activity within a 17
project area prior to Assembly Bill 1290. Rehabilitation was redefined in AB 1290 to be substantial rehabilitation which results in an increase in value of the project including the land of at least 25%. The three types of substantial rehabilitation reported by CA-HCD are (i) Rehabilitation-Pre-1994, (ii) Rehabilation-Post-1994, and (iii) Substantial Rehabilitation. Only the first two types of rehabilitation meet inclusionary requirements. Over the three fiscal years, most of the rehabilitation labeled Substantial Rehabilitation is a combination of Pre-1994 and Post-1994 rehabilitation (see Figure 1). Figure 1 Reported Substantial Housing Rehabilitation 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 FY 1998-99 FY 1999-00 FY 2000-01 Pre-1994 Post-1994 Not Inclusionary Source: California Department of Housing and Community Development Substantial rehabilitation assisted nearly 10,500 households (see Table 6). Almost half (48.8%) of those assisted were Low-Income households. In each of three fiscal years, Low- Income households were assisted more than the other three income groups. The Very Low- Income group also received considerable assistance averaging approximately 39 percent over the three-year period. Less than 11 percent (10.7%) of the households assisted through substantial 18
rehabilitation were Moderate-income households. The Above Moderate-income households were assisted infrequently, only 1.5% of the substantial rehabilitation. Table 6 Substantial Housing Rehabilitation by Income Level* Income Level 1998-1999 1999-2000 2000-2001 Total 1998-2001 Number Percent Number Percent Number Percent Number Percent Very Low 1,405 42.1% 851 33.9% 1,822 39.4% 4,078 38.9% Low 1,559 46.7% 1,430 57.0% 2,123 45.9% 5,112 48.8% Moderate 299 9.0% 140 5.6% 683 14.8% 1,122 10.7% Above Moderate 72 2.2% 89 3.5% 1 0.0% 162 1.5% Total 3,335 100.0% 2,510 100.0% 4,629 100.0% 10,474 100.0% Source: California Department of Housing and Community Development, Income groups are based on area median income. Very-Low (<=50%), Low (<=80%), Moderate(<=120%), Above Moderate (>=120%) * Includes pre-1994 and post-1994 inclusionary and non-inclusionary substantial rehabilitation. The second largest single activity after new construction, in terms of volume, was nonsubstantial rehabilitation. The distribution of non-substantial rehabilitation assistance by income level is very similar to that of new construction and substantial rehabilitation (see Table 7). Table 7 Non-Substantial Housing Rehabilitation by Income Level Income Level 1998-1999 1999-2000 2000-2001 1998-2001 Number Percent Number Percent Number Percent Number Percent Very Low 820 49.9% 625 34.8% 1,666 50.8% 3,112 46.3% Low 585 35.6% 885 49.2% 1,264 38.6% 2,735 40.7% Moderate 239 14.5% 284 15.8% 330 10.1% 853 12.7% Above Moderate 0 0.0% 0 0.0% 18 0.5% 18 0.3% Total 1,644 100.0% 1,797 99.8% 3,278 100.0% 6,719 100.0% Source: California Department of Housing and Community Development, Income groups are based on area median income. Very-Low (<=50%), Low (<=80%), Moderate(<=120%), Above Moderate (>=120%) Very Low-Income and Low-Income households received most of the assistance followed by Moderate-Income households. Some critics of redevelopment point out that what often is labeled as rehabilitation is actually repairs. This concern is important because one of the problems with RDA reporting is that there is no real dollar value tied to the specific activities 19