By: Gary H. London

As published in the San Diego Business Journal: Jan 23, 2012

The state of California has cancelled redevelopment agencies.

While redevelopment is dead, however, the need for redevelopment remains, and will become more acute than ever in the coming years.

While I have some mixed thinking on the subject, I have come to believe that this is probably a good thing, for the following reasons:

The state has other responsibilities that our legislature and governor have determined are more pressing, mostly education. Now, the diverted redevelopment revenues and taxes will go back to the state. It is hoped the state will use the money wisely — I say with a straight face.

CCDC Successes

While local redevelopment has had phenomenal successes, most notably those achieved by Centre City Development Corp., redevelopment has been too broadly interpreted by many municipalities, and abused by others. I have seen favoritism and cronyism, which are tolerated because there have been successful outcomes. I haven’t personally seen corruption, but there certainly was some.

Redevelopment has mostly not been successful, outside of CCDC, if the test for success is to create market rate development projects in communities where without redevelopment this could not be achievable. There are, frankly, very few cases given the level of personnel and the longevity of the agencies, to suggest otherwise.

But the conclusion regarding the success of CCDC is very specific: The agency was created over 40 years ago to focus resources on redeveloping downtown. Ultimately it worked, although, there were sputter starts. CCDC was supposed to sunset anyway, although that was highly unlikely because it kept its agenda full.

But marketplace was created downtown. CCDC could have backed off. It didn’t. Now it will. We will see if downtown redevelopment continues. I expect it will.

The real action must shift outward to the older communities. We have houses to build and communities to re-build. Some of this must take place in those communities, which were formerly served by redevelopment agencies. But a lot of the focus must now spread to San Diego’s urban communities including the older, close in suburbs that are vintage 1950s or newer.

For this region to accommodate the coming housing demand, our only real choice is creating denser development in existing communities.

The problem is that the communities will push back from the density, and this community has institutionalized the push back. But there are also very real limitations and a clear need to upgrade the infrastructure and public services that must accommodate the redevelopment.

The Financial Model

So here is what must happen: The old agency model of redevelopment must be replaced by a financial model. Mechanisms must now be created to finance the externalities of redevelopment by replacing aging sewer pipes, widening roads and adding fire stations.

Without the mother’s milk of redevelopment — the money created through tax increment financing and other mechanisms — development cannot occur because cities cannot ask developers to foot the entire bill to pay for these types of things. These costs would render all but the largest projects infeasible. The burden of the costs of infrastructure and services need to be spread out among projects and over time.

The solution to the money is in some or various forms of infrastructure overlay financing. One such form that is already available is Infrastructure Financing Districts, which have not been exempted. “I’m not sure if it was an oversight that will be corrected or intentional”, said Attorney John Ponder of Sheppard Mullin Richter & Hampton LLP. “Although difficult to form, I still think IFD is a viable means of financing, particularly if you can get the city and county to consent,” he said.

The idea of utilizing IFD financing is a good start. There can be other approaches which apply districts or “overlays” to what were formerly redevelopment areas to create scale to solve the financing dilemma.

The state Legislature can always create new redevelopment or financing mechanism legislation in the future, and they will.

The important point is this: Regardless of where you sit in the redevelopment spectrum — friend or foe — you cannot escape the reality that we need it. The vacuum that has been created, it must and will be filled by something.