Close Enough for Government Work?

One of the asserted accomplishments in revitalizing Eastern cities has been Hoboken, New Jersey. It is located on a bluff overlooking the Hudson River, and being directly across from Manhattan, it enjoys spectacular views of New York City. Historically, Hoboken was a downscale New Jersey community, but that ended in the 1990s when developers discovered those spectacular views and built accordingly. So did the local government entities.

Alas, a news item in today’s New York Times (Richard Perez-Pena, As Hoboken’s Reverfront Crumbles, the Cost for Repairs Soars, N.Y. Times, Feb. 8, 2011, at p. A19) brings the sad dispatch that much of that government construction is deteriorating.

“In Hoboken’s evolution from blue-collar port to upscale pocket of bistros and condominiums, the waterfront saw the most profound transformation. Factories and docks gave way to promenades and parks with drop-dead views of Manhattan, drawing crowds that fed the nearby hotels and shops along the much promoted Gold Coast.

“So it is of real concern that much of that lovely, popular waterfront is falling apart.”

“Several pieces of walkway, park and road along the Hudson River have collapsed, and engineers have discovered that a heavily used park needs major renovations to avoid the same fate.”

Who done it? The Times minces no words:

“Sinatra Field was built by the City of Hoboken, Pier A was restored by the Port Authority of New York and New Jersey, [Frank Sinatra] drive was built by the county, other towns handled their own waterfront projects and the State Department of Environmental Protection reviewed and approved them all.”

We could go on, but by now we are sure you get the idea. The current difficulty is that repairing all these problems will cost money which Hoboken ain’t got. Last year, the city approved a $12 million bond sale to pay for its share of waterfront rehabilitation, but last month the engineers estimated the price would be more like $20 million.

Is it only Hoboken? No. “There have been similar problems in other towns along the Hudson River Waterfront Walkway, conceived as an unbroken strip from the Bayonne Bridge to the George Washington Bridge.”

Your tax money at work.

Shut Down California Redevelopment Agencies!

If you want to see what is wrong with public discourse on the subject of urban redevelopment, take a look at an on-line piece entitled California’s Redevelopment Wars, By Richard Frank, former California Deputy Attorney General, and now a faculty member at the UC Boalt Hall School of Law. In taking on the subject of the controversy that is raging in California over our new governor’s proposal that redevelopment agencies in the Golden State be abolished to save the public over $3 billion, Mr. Frank purports to tell us how redevelopment operates. Ready?

 “[T[he goal is to revitalize urban areas that have become blighted or otherwise run down. The fiscal means of doing so is known as tax increment financing. When an area is deemed blighted, its property tax base is frozen. Once it is redeveloped and property values (hopefully) rise as a result, local governments and schools continue to receive only the level of property tax revenues that they did before the area was declared blighted and redeveloped. The excess property tax revenues go to the local redevelopment agencies, providing funding for future projects.”

But something is missing in this description, isn’t it? How does the redevelopment agency get the seed money to start the redevelopment project? How does it acquire the to-be-redeveloped land?

Mr. Frank forgot to cover that little item. But the answer is clear: the redevelopment agency gets its grubstake by selling bonds and using the proceeds to acquire the to-be-redeveloped land – usually, but not necessarily, by eminent domain. Then – and here comes the first hit on the public treasury – it razes the acquired land and conveys it to the redeveloper for less than the public cost of acquisition (known in the redevelopment business as “land writedown”), or hands it over to the redeveloper for free. Thus, in the notorious Kelo case, the redevelopment plan called for the city of New London to convey a 91-acre waterfront parcel to the redeveloper for 99 years at $1 per year. That may be a hell of deal for the redeveloper, even if in the Kelo case it did no good to anyone – the project failed – but it has consequences. One of them is that all that new tax money envisioned by Mr. Frank’s description of the process has to be used to pay interest on the bonds and eventually to pay them off. Not only that, but redevelopment deals often provide for large tax abatements – in Kelo, The Pfizer pharmaceutical company got a deal from the city, whereby it would have to pay only a fraction of its property taxes until 2012. So those touted new taxes are often diverted to the redevelopers' pockets. If you want an insight into the avalanche of money that cities lavish on favored companies, check out Jim Dwyer, Companies We Keep, and Pay For, N.Y. Times, May 16, 2010, at p. MB1.

So where were we? Oh yes. The money. So what happens is that the new tax revenues coming from the increased values of the redeveloped properties do not go to the usual municipal taxing authorities for police and fire protection, schools, sanitation, etc. No sir. That money goes in the first instance into the pockets of tax-exempt redevelopment bond holders, who these days collect over 5% tax-free, even as U.S. treasury bonds eke out a couple of percent in interest that is then subject to taxation by Uncle Sam, thus giving the holders of federal treasury paper a return of zip while holders of redevelopment bonds are cleaning up. Actually, if you take inflation into account, the return on short-term federal paper is less than zero.

Then, after the redevelopment bondholders get their cut, what’s left of the money often goes, not back to the municipal taing authorities, but – as Mr. Frank correctly tells us – for new redevelopment projects. So once a redevelopment project is created, it never closes. One result has been a steadily rising mountain of bonded indebtedness by state redevelopment agencies. Municipal Officials for Redevelopment Reform (MORR), a watchdog group, reports that the total bonded indebtedness of California redevelopment agencies has skyrocketed from $5 billion in 1985 to $82 billion in 2006, and counting. See MORR’s annual report, Redevelopment: The Unknown Government (2007) at p. 12. If you want the gory details you can get them from the California State Controller in his Community Redevelopment Agencies Annual Report.

Finally, to be fair, we note that Mr. Frank recognizes that all is not well in California redevelopment land:

 “If California Governor Brown ultimately succeeds in his effort to abolish the state’s redevelopment industry, it will be due in significant part to the self-inflicted wounds administered by redevelopment agencies. If they are to have any chance of survival, the state’s redevelopment leaders will have to get their heads out of the sand and submit to at least a reasoned discussion over the relative value of redevelopment agencies in a fiscally-challenged era.”

Of course, to do that, redevelopment agencies would have to have a case to offer that could stand the test of financial soundness and elementary moral precepts subscribed to by the society in which they function. But they lack such a case. The sad fact is that redevelopment has grown from a poorly thought-out do-gooder effort to clear slums over a half century ago, into a shadowy racket that at its best loots the public treasury and abuses property owners whose land it seizes to feather the nests of politically well-connected redevelopers, while blatantly undercompensating its rightful owners. And that is something that the people have grown too smart and too well informed to buy any longer.  As Honest Abe Lincoln put it: You can fool some of the people all of the time, and you can fool all of the people some of the time, but you can’t fool all of the people all of the time. And when the likes of  Richard Frank speak of redevelopment’s “self-inflicted wounds” and allow as how redevelopment agencies need to get their heads out of the sand and “make a case” for the legitimacy of their continued existence (which so far they have not attempted to do), it’s time to shut them down and put all the money they waste to better uses.

Follow up. Don't miss an op-ed, in the Los Angeles Business Journal, Jan. 31, 2011, at p. 46, entitled Time to Chase CRAs Out of Town, by Charles Crumpley, Editor. The title says it all, but do read it. Our favorite quote:

"[O]ver the years [redevelopment agencies] have evolved into corrupt little political fiefdoms that muck up the works  and don’t do much good.” 

Another Big Redevelopment Project (this One In Baltimore) Bites the Dust

A tip of our hat to Jesse Walker of Reason.com for alerting us to an expose of a major redevelopment project failure in Baltimore. You can find the story in the Maryland Daily Record (Melody Simmons and Joann Jacobson, Daily Record Investigation: A Dream Derailed, January 30, 2011) — go to http://thedailyrecord.com/2011/01/30/daily-record-investigation-a-dream-derailed/

This is one of those situations where one doesn’t quite know where to begin, but since begin one must, let’s start by quoting the opening paragraph of the Daily Record story:

“The nation’s largest urban redevelopment, a projected $1.8 billion effort to transform 88 acres of East Baltimore into a world-class biotech park and idyllic urban community, lies derailed amid vacant lots, boarded houses and unfulfilled dreams a decade after it began.”

It goes downhill from there.

So far, $564 million has “already been committed” (though we are not sure what “committed” means. Like how much has been actually spent?) The Daily Record reports that of that amount, $212.6 million is the public share “more than a third of which is from loans that will take three decades for the city to pay off with diverted property taxes.”

Speaking of which, Baltimore’s former Mayor who was in office at the time in question, is quoted as saying that “she did not know the city sold $78 million in bonds to support the project when she was mayor.” Her Honor appears to have company. Get this.

“The Daily Record’s investigation found that The New East Baltimore’s public funding is so complex and poorly scrutinized that local elected officials, some of whom serve on EBDI’s board, said they had little grasp of the $108.5 million in city funds committed to the project at a time of tax increases, and furloughs and pay cuts for city workers, including firefighters and police.”

But what about all that U.S. Supreme Court palaver about how redevelopment is a legislative prerogative, with the reins being held by the people who elect those clowns who do these things? Get this.

“Although the mayor approves the hiring of EBDI’s chief executive officer as a matter of protocol, according to [a] former Mayor. . . the organization’s nonprofit status shields it from much public scrutiny. It was formed without approval of either City Council or the Board of Estimates, and it does not have to adhere to city rules in areas such as hiring, competitive bidding and salaries.” . . . “As a nonprofit, EBDI is not audited by the city or state government. Officials at EBDI declined to show the Daily Record its internal audits, saying that it is not required by law to make them public.” (Emphasis added).

Got that? So it would appear that if you are a citizen of Baltimore,  your civic duty is to pay your taxes so these clowns can blow them without being accountable, and to keep your mouth shut. You certainly cannot vote them out of office, and there goes the Supreme Court’s fairy tale about the ballot box being a check on abuses. It now remains to be seen if there are any civic and political forces in Maryland capable of dealing with this disaster.

And what about all those jobs that redevelopment projects are supposed to generate? Get this.

“In the early years EBDI [East Batimore Development, Inc. - the nonprofit outfit that's running this fiasco] received federal money on the premise that the biotech park would create 1750 jobs. As recently as 2009, EBDI reported to the federal government that the entire project would eventually generate 6,500 permanent jobs.”

“Today, more than two years after the lone biotech building opened, there are 422 employees there. An EBDI employment official says she does not know how many jobs were created or simply transferred there when business tenants moved there.”

“None of the permanent jobs, though, were created for East Baltimore residents, as had been promised.”

For this, “699 houses and other buildings have been demolished and another 700 are ready to come down, many of them long vacant.”

And so it goes. Your tax money at work.

As our readers surely know, our admiration for the accuracy of press reports of such matters is — shall we say? — less than unconditional, but in this case, even if only half of this stuff is true, this is a major scandal that cries out for some sort of remedial if not punitive response. But, hey man, this is urban redevelopment. American urban redevelopment. City officials and redevelopers do these things because there is money in them. But what about judges who by and large just rubber-stamp these outrages and their associated looting of public municipal funds, to say nothing of undercompensating the property owners whose land is taken by eminent domain to facilitate all that? What’s their excuse?

Follow up. For the next installment of this fiasco see Joan Jacobson and Melody Simmons, Daily Record Investigation: Jobs Come Slowly in New East Baltimore, Maryland Daily Record, February 1, 2011. Go to http://thedailyrecord.com/2011/02/01/daily-record-investigation-jobs-come-slowly-in-new-east-baltimore/ For another article in this series, particularly noteworthy for its concluding section that provides an insight into the finances of this mess, go to http://thedailyrecord.com/2011/01/31/daily-record-investigation-the-muddled-money-trail/

Related story. See Phillip A. Hummel, East Side Story: The Redevelopment of East Baltimore, 15 U. Balt. Jour. Env. L. 97 (Spring 2008). This is a generally favorable article that tends to extol the virtues of the East Baltimore redevelopment. But even its upbeat author concedes that the project, has been of no benefit to the former residents of the area, and has produced few, if any, new jobs in the area. And of course, it was written three years ago. It would be nice to learn if the author has revised his upbeat assessment in light of the recent revelations.