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Redevelopment

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1. What is redevelopment?

Redevelopment is a tool created by state law to assist local governments in eliminating blight from a designated area, as well as to achieve the goals of development, reconstruction and rehabilitation of residential, commercial, industrial and retail districts.

Examples of redevelopment tools:

Ability to assemble land for development

Ability to utilize tax increment and issue bonds

Ability to invest in infrastructure to "lure" private enterprise

Ability to create affordable housing opportunities

Redevelopment is a locally driven activity that assists local governments in revitalizing their communities. Redevelopment encourages new development, creates jobs and generates tax revenues in declining urbanized areas by developing partnerships between local governments and private entities. Over 400 California cities and counties have adopted local redevelopment plans.

Redevelopment can help your community implement a revitalization effort for your downtown, neighborhood or industrial areas. Redevelopment plans are locally created and adopted so they can respond to your community’s unique needs and vision.

Redevelopment plans have helped communities such as yours to:

Attract new jobs and businesses

Create more affordable housing

Stimulate private reinvestment in local neighborhoods and businesses

Reduce crime

Stimulate development of downtown improvement programs

Stimulate private investment and help rehabilitate homes and businesses

Build or improve roads, utilities and public facilities

Revitalize waterfronts and surplus military bases

Preserve open space

Transform hazardous waste sites (called brownfields) into productive uses

Create, adopt and/or implement specific plans

Initiate and fund comprehensive planning efforts

2. Why is redevelopment important?

Redevelopment is one of the most effective ways to breathe new life into deteriorated areas plagued by social, physical, environmental or economic conditions which act as a barrier to new investment by private enterprise. Through redevelopment, a project area will receive focused attention and financial investment to reverse deteriorating trends, create jobs, revitalize the business climate, rehabilitate and add to the housing stock and gain active participation and investment by citizens which would not otherwise occur.

Redevelopment enables communities to grow inward, not just outward. Redevelopment enhances and expands local businesses, renovates declining housing stock and improves public infrastructure systems and facilities. Redevelopment helps encourage new housing and businesses to locate within already developed areas. It helps reduce crime and long commutes, promotes affordable housing, and preserves the environment.

3. How is redevelopment financed?

Redevelopment is primarily financed by tax increment revenue. Other revenue sources include loans, grants and issuance of tax allocation bonds.

Typically, agencies use tax increment funds to leverage financial assistance from various agencies of the state and federal governments, and private sources.

The most common bond instrument used by redevelopment agencies to finance projects is called a tax allocation bond. These bonds, which are a loan of money to an agency, are not a debt of the community or the general taxpayer. Rather, they are repaid solely from tax increment revenue generated within the project area. In other words, increased tax revenues generated through redevelopment activities are funneled back into the project area to stimulate more development as well as to pay the costs involved.

4. What is a project area?

The area within which actual redevelopment will take place. The project area must first go to public hearing (giving citizens who will be included in the project area a chance to express their views) after which the Redevelopment Agency acts on the adoption of the project area and becomes primarily responsible for future projects.

Before a project area is established, a survey area is designated to determine whether or not a redevelopment project is feasible. Preliminary studies, such as feasibility studies, are conducted to make a determination of the blighting conditions within the area.

A project area is chosen when a local governing body first designates a survey area. Then the redevelopment advisory committee (RAC), made up of members of the community, provides the agency with input on the kinds of changes they would like to see made in the area. The survey area must then be evaluated to determine if it qualifies for redevelopment. Based upon this evaluation, the planning commission selects a project area and indicates how the purpose of the Community Redevelopment Law can be attained by redevelopment of this area. A project area can be reduced in size prior to adoption of the redevelopment plan, but cannot be enlarged without amending the survey area. A project area can also include non-adjacent properties.

5. What is a redevelopment plan?

The plan provides the Agency with powers to take certain actions such as to buy and sell land within the area covered by the plan (project area), improving dilapidated facilities and to use tax increment financing.

A redevelopment plan provides a legal framework for planning and implementing revitalization activities in a redevelopment project area. A redevelopment plan:

Describes the purposes and objectives of eliminating deteriorated conditions.

Sets the basic goals, powers and limitations within which the redevelopment agency must conduct its activities over the life of the project.

Is broad and flexible. The plan should set forth basic powers, limitations and should provide a general statement of redevelopment objectives and techniques that clearly establishes how the agency intends to remove deterioration from the project area.

The redevelopment plan must also be in harmony with the city or county general plan. A redevelopment plan generally contains the following components:

A legal description of the project area in written and graphic form and a description of land uses.

Descriptions of the proposed actions to be taken to carry out redevelopment. These descriptions cover the duties, powers, and authorities of the redevelopment agency and describe the rights of owners and tenants.

Descriptions of the authority and limitations for financing the activities necessary to implement the plan.

Plan for how the agency will implement redevelopment projects to remove the deterioration.

Adoption of a redevelopment plan is normally a lengthy and complicated process involving public participation and preparation of specific reports and documents. This process typically takes between 12 and 18 months. The duration of the redevelopment plan cannot exceed 30 years.

6. What is tax increment?

Tax increment is the primary source of revenue that redevelopment agencies have to undertake redevelopment projects. It is based on the assumption that a revitalized project area will generate more property taxes than were being produced before redevelopment. When a redevelopment project area is adopted, the current assessed values of the property within the project area are designated as the base year value. Tax increment comes from the increased assessed value of property, not from an increase in tax rate. Any increases in property value, as assessed because of change of ownership or new construction, will increase tax revenue generated by the property. This increase in tax revenue is the tax increment that goes to the Agency.

For example, a property owner pays $1,000 (the standard property tax rate of one percent) on land assessed at $100,000 this year, pursuant to Proposition 13. If, as a result of new construction on the property, the property increases in assessed valuation to $500,000, the property owner would pay $5,000 at the same standard tax rate. The $4,000 increase is called “tax increment.” Redevelopment agencies are entitled to collect this increase in property tax revenues, or tax increment, on the acreage they redeveloped to repay the debt involved in the project, and to reinvest these dollars in redevelopment activities within the project area. As well, 20 percent of that tax increment money goes into a housing fund set aside specifically to finance low- to moderate- income housing.