@CVP - The ENRON-ization of Democracy
A four part report by Bob Silvestri investigating the history and politics behind the push for Northern California's Plan Bay Area regional planning initiative, and how the abuse of joint powers authorities (JPAs) is robbing communities of representative government.
The Demise of California’s Redevelopment Agencies
In 1945 the state created local Redevelopment Agencies, funded primarily by local allocations of property tax revenues. Over the subsequent decades, they played an important role in residential and commercial development. On February 1st of 2012 the California Supreme Court dissolved these redevelopment agencies, ostensibly, due to the need to find more revenues for schools and special districts. At least that was the rationale.
In truth there were other reasons.
As much good as the Redevelopment Agencies had done over the years, funding infrastructure and redevelopment projects like Old Pasadena and San Diego’s Gaslamp Quarter, they had also more recently become a “trough” of public funds where special interests fed without restriction.
As reported by the Los Angeles TImes, Los Angeles County Board of Supervisors Chairman Zev Yaroslavsky said, Redevelopment Agencies, over the years, "evolved into a honey pot that was tapped to underwrite billions of dollars worth of commercial and other for-profit projects." The projects "had nothing to do with reversing blight, but everything to do with subsidizing private real estate ventures that otherwise made no economic sense.”
The Court, in its ruling, generally agreed with this assessment.
Once again, what started out as a good idea had become a backwater of corruption and political favoritism with little regard for the communities it impacted or the displacement of low income residents. But as I’ve said before, never under estimate the power of a bad idea.
So redevelopment agencies are back. The legislation to resurrect them is called Senate Bill 1 (SB1) and it was endorsed by the State Appropriations Committee on Wednesday, moving it ever closer to approval by the Legislature.
Senate Bill 1: Endgame for Plan Bay Area
SB1 is an unapologetic end run around the State Supreme Court’s ruling on redevelopment agencies. If it becomes law, the “honey pot” will be open for business again, this time better than ever. And you can give special thanks to Senate President Pro Tem Darrell Steinberg and newbie rep Marc Levine from Marin for helping it get passed.
Under SB1 redevelopment agencies would now be called “Sustainable Communities Investment Authorities (SCIA).” And their legal structure will be… you guessed it, a Joint Powers Authority (JPA).
The old redevelopment agencies may have been corrupt and mismanaged, but at least they were public agencies under the direct control and oversight of local governments. Their budgets were part of the city or county budgets and scrutinized annually. But since SCIA’s are JPAs, none of this will be true. And best of all for them, SCIAs won’t have pesky voters to contend with.
So ask yourself this. How likely is it that the new Sustainable Communities Investment Authorities will be better at avoiding corruption and political influence and backroom deals than the agencies that the Supreme Court dissolved?
If you answered that they’ll be better, I have a bridge to sell you in Brooklyn.
Left in a Lurch
In fairness, many cities and counties with ongoing and approved projects were left in a lurch by the Supreme Court’s decision. And some remedy was needed. But SB1 goes too far. SB1 adds language to advance the agenda and goals of SB375, Plan Bay Area, PDAs, TPP zones, and high density transit oriented development (TOD). Myopic academics and “social change” planners must be orgasmic at the thought.
SB1 was drafted by Senate President pro Tem Darrell Steinberg, the darling of big union and big developer interests and the ultimate political insider – the man you brought you SB375. It appears he’s come to the rescue of his political funders again.
In short, SB1 reads like another big developer jobs bill.
MTC’s Lobbying for SB1 to Fund Plan Bay Area
MTC Executive Director Steve Heminger had publicly mourned MTC’s sudden loss of power to directly influence growth and development in the nine Bay Area counties. He’s recently complained about how they “can’t get anything done” (i.e. the way they used to).
In his June 25th letter of support for SB1, to the State Assembly in Sacramento, Mr. Heminger urges Sacramento lawmakers to consider that “significant new funds are needed (for Plan Bay Area) and SB 1 will be a very helpful step in that regard.”
Really? This brings to mind several questions.
Was the public made aware of this connection when we were being sold Plan Bay Area?
Did any of our elected representatives know this? And if they did, why didn’t they mention it?
Perhaps voter awareness and concerns about local control might have interfered with MTC’s plans.
SB1’s Brave New World
Senate Bill 1 regurgitates the erroneous “findings” of SB375 and Plan Bay Area regarding GHG emissions from cars and light trucks, and how transit oriented development can positively impact them. Likewise, it relies on the faulty analysis of Plan Bay Area’s EIR, which failed to account for recent emissions data trends (downward), the introduction of hybrid cars, and the new 54.5 MPG CAFE mileage standards.
Consider the following problematic issues found in SB1:
1. SB1 grants city and county agencies (“members”), like planning departments, the power to join together to set up new JPAs, called “Sustainable Communities Investment Authorities” (SCIA). If the recurrence of the phrase “sustainable communities” sounds familiar (Plan Bay Area is our Sustainable Communities Strategy), the similarity is more than a coincidence.
2. SB1 allows each member to allocate a percentage of their general fund tax revenues annually toward the operating costs and programs of the new SCIA. Once set in motion the SCIAs will invest directly in the development of high density TOD, focused primarily in areas designated as Transit Priority Project zones (TPPs) and Priority Development Areas (PDAs).
3. The bill makes no distinctions about whether development is for profit or nonprofit, nor does it require any proof of actual need for the development or any social or environmental benefits from the projects. Under the statute the SCIA can rely solely on the legal definitions of need and environmental benefit found in SB375, SB226, this bill and any other related state or federal legislation. This effectively eliminates consideration of all local conditions or policies.
4. The bill “declares” that high density TOD is environmentally beneficial and reduces greenhouse gases, without any science or credible analysis to back up that claim. In the face of overwhelming research that questions those claims SB1 requires no further analysis and discussion on that issue.
5. The bill authorizes the new JPAs to eliminate “blight” which it defines as “inefficient land use,” a term so vague that it could encompass just about any situation its social engineering goals require, including land zoned for single family homes. SB1 has no provisions to allow local elected officials or the public to determine what criteria should apply to designate “blight.” The powers rest with the SCIA. Of course, this makes no sense whatsoever. But that’s irrelevant. This policy direction is coming from the very top: HUD.
6. Once established, SCIAs will operate like all other JPAs, drafting policy, doing planning and making decisions out of the public eye and spending their funding without any public input. They can issue bonds and borrow money, and even bring in outside for profit and nonprofit investors and partners, all without any public voting or even public notice.
Chapter 4, section 34191.28, even provides that:
“…any state or local public pension fund, including, but not limited to, the Public Employees’ Retirement System, the State Teachers’ Retirement System, or an independent system, may invest capital in the public infrastructure projects and private commercial and residential developments undertaken by an authority.”
Terrific. Now our under-funded Marin County Employees Pension Fund will be able to invest in one of the JPA’s projects to “sweeten” its returns (based on the “pro forma” projections of profits that the JPA makes up). And when a project defaults or fails to rent up, the taxpayers can now have two things to bail out.
But not to worry, SCIA “members” will monitor the JPA’s activities through a required audit every five years. Every five years!? Best practices to ensure accountability would require an audit every year.
Just remember for a moment how much happened in the five years between 2007 (when Federal Reserve Chairman Ben Bernanke told Congress that “the contagion from housing loan problems has been contained and won’t affect the economy.”) and today.
And can someone please explain to me how all this is not a loss of local control?
Plan Bay Area as a Trojan Horse – Part 2
When the “representatives” of the 101 Bay Area cities and counties voted to adopt Plan Bay Area, last month, no one mentioned that in doing so they were also certifying all the TPP zones designated on the ABAG/MTC Plan Bay Area maps. These zones underlie the locations of Priority Development Areas that have been so controversial of late. And they remain in place regardless of whether we remove PDAs in Marin, or not.
For example, even though Marinwood and Tam/Almonte/Manzanita are no longer PDAs, they are still official TPP zones. With the funding and programs prescribed by SB1 these areas sit in the bulls-eye of this bill’s high density, TOD target.
SB1 gives teeth to the pipe dreams of Plan Bay Area and tees up big development interests with large scaled TOD projects for a direct pipeline to city and county tax revenue funding (called “tax increment financing”), as well as additional borrowed monies. But like Plan Bay Area itself, it contains no provisions to address the real affordable housing needs of small cities in Marin.
Chapter 1, General Provisions, 34191.10 (b):
"The construction industry has been one of the sectors hardest hit by the economic downturn of recent years. Creating incentives for construction can help restore construction and permanent jobs, which are essential for a restoration of prosperity.”
Comment: This is an interesting statement, coming at a time when residential real estate prices have recovered from the 2008 debacle and multiple offers and even full cash offers are now the norm in Bay Area markets. The stock market’s broad measures recently hit all-time highs, major homebuilder stocks are doing well, and not a single economist in the country believes we’re in a recession. Even the Federal Reserve has begun to reduce its stimulus efforts for fear of igniting inflation.
Call me cynical but it sounds like the people in Sacramento are either very far behind the curve or they’re being influenced by Darrell Steinberg’s biggest campaign contributors: big real estate development and big union and construction interests.
Chapter 1, General Provisions, 34191.10 (d):
“Implementation of the growth plans identified by the metropolitan planning organizations in their sustainable communities strategies, and in particular the development of areas identified for transit priority projects, is essential if California is to achieve the multiple benefits that would result from economic development. Implementation of growth plans in transit priority project areas requires redevelopment of existing developed areas.” (emphasis mine).
Comment: SB1 offers no evidence or justification for its claim that TPPs are “essential” for robust economic development. And it only takes a modicum of common sense to know they’re not (i.e. any development in another place would be just as “essential,” if any of it is even essential at all). After all, TPP areas where chosen without any analysis or studies that would substantiate this claim. They were chosen for ideological, top down planning reasons and political reasons.
But this very neatly ties this new law to the Sustainable Communities Strategies (aka: Plan Bay Area) and SB375.
Chapter 1, General Provisions, 34191.11.
“The Legislature further finds and declares that inefficient land use patterns cause an increased economic burden on taxpayers for the costs of an inefficient transportation infrastructure, and create a high combined economic cost of housing and transportation for California residents. These development patterns have also contributed to declining property values and foreclosures in many communities.”
Comment: There is zero evidence that “inefficient land use patterns” caused the maladies noted. This is a lame attempt to blame bankruptcies of suburban “sprawl” cities like Vallejo on this mythical concept of inefficient land use rather than government corruption and fiscal mismanagement and large-scaled overbuilding, which were the real causes of their demise.
Chapter 1, General Provisions, 34191.12:
“The Legislature finds and declares that the interrelated problems identified in this chapter are a form of blight that can be addressed through a new Sustainable Communities Investment Program.”
“In order to more effectively address blight, the program shall be established to support development in transit priority project areas… This new program shall use tax increment revenue to fight blight…”
Comment: A dangerous but plausible interpretation of this (advanced by most ABAG and MTC planners) is that the “Legislature finds” that suburban development and suburbia in general represents inefficient land use and therefore “blight,” and blight needs to be fought by redeveloping it as high density TOD.
SB1 tries to give credence to the argument that single family home development and zoning is a form of “blight” that causes economic problems leading to loss of property values. The assertion that single family homes cause loss of property value is so ridiculous that normally it wouldn’t even warrant a rebuttal – except that it’s a basic tenet of this law.
Chapter 2, 34191.20.(c)
“An authority… may rely on the legislative determination of blight and shall not be required to make a separate finding of blight or conduct a survey of blight within the project area.”
Comment: With SB1, no separate, impartial, third party findings are required to declare an area as “blight” and target it for redevelopment. This is particularly true if it sits in one of the designated TPP zones.
Chapter 4, 34191.26 (a) states that it’s a requirement the JPA members pass:
“A sustainable parking standards ordinance that restricts parking in transit priority project areas to encourage transit use.”
Comment: This oxymoronically named “sustainable” requirement is saying that in order to qualify for funding a project that is in a TPP zone has to “restrict” parking for cars to encourage transit use, even though the bill has no provisions for funding or providing any public transit.
How exactly is that supposed to work? They’re suggesting that at Larkspur Landing it’s required (to get funding) to restrict the amount of parking available to “encourage” people to take the ferry?
Good luck with that.
Chapter 4, 34191.26 (b) states that it’s a requirement the JPA members pass:
“An ordinance creating a jobs plan that requires all entities receiving financial support from the authority to enter into an agreement with the authority describing how the project will: (1) Further construction careers that pay prevailing wages and create living wage permanent jobs."
Comment: “Prevailing wages” is the term for federally mandated Davis Bacon Act wages. It means that every contractor working on a SCIA project will have to pay legislated wages and benefits. Social advocates will applaud this as a good thing.
The problem is that the only contractors who can afford to pay these wages and benefits and do all the required administrative paperwork are the very biggest ones, who typically make their living off doing government jobs. This means that pretty much all of the small to mid-sized, local contractors will be locked out of these construction jobs, regardless of the size of the projects.
So much for helping local businesses and stimulating small, appropriately scaled mixed use, infill development solutions in Marin. This stipulation pretty much guarantees that only the biggest projects will get top priority and funding.
Tell me, where is the social equity in this? We not only lose local control but we also lose local jobs.
SEC. 2. Section 21094.5 (a)(1) of the Public Resources Code
SB1 amends current regulations. It states that in the event a qualifying infill project is required to do an environmental impact report (EIR) under CEQA…
“(1) Alternative locations, densities, and building intensities to the project need not be considered.
"(2) Growth inducing impacts of the project need not be considered.”
… so long as the project…
“Is consistent with the general use designation, density, building intensity, and applicable policies specified for the project area in either a sustainable communities strategy or an alternative planning strategy.”
…aka, Plan Bay Area.
Comment: These provisions, in combination with SB375 and SB226, essentially eliminate any reasonable CEQA process. This is more than CEQA “streamlining.” This is making CEQA a hollowed out shell. Senator Steinberg knows that CEQA rebuttal arguments about these issues form a critical part of a community’s defense against bad projects. This wording not only removes those arguments but it reinforces the dominance of Plan Bay Area (our “sustainable communities strategy”) over local control.
How is SB1 protecting the public from environmental harms or the degradation of city services, schools and infrastructure costs, or from bankruptcy when a city is forced to support development that potentially pays no property taxes?
SB1 – GENERAL COMMENTS AND CRITIQUE:
Prior to this week’s hearing, many of us wrote the Legislature and Marc Levine to ask that SB1 be voted down because of a variety of concerns.
Public Liability for Debts:
Do we really believe that the debts and agreements of the SCIA’s won’t become the liabilities of the taxpayers when problems arise with individual development projects, or the next time the markets fail us?
I say “when” not “if” because the best and the brightest have failed in the development business before and with great regularity. Be it the S&L banking crisis of the 1980s that brought down half the multi-family developers in the country or the Crash of 2008 that set homebuilders back half a decade and bankrupted many an investor, market failures are inevitable.
Project-based debt should not be allowed. That is precisely why multi-family “project revenue bonds” were outlawed after the S&L crisis of the 1980s (Note: Project Revenue Bonds were publicly issued debt that were to be paid by the revenues from individual multi-family projects. In the late 1980’s one of my companies was a registered Resolution Trust Contractor doing financial workouts of defaulted debt, almost all of which were project revenue bonds).
Debt against specific projects carries too high a risk to be allowed. Too many private companies and public institutions failed because of it.
Faulty Investment Decision Process:
How could anyone honestly believe that a group of politically appointed bureaucrats, making outsized investment bets in locations and building types decided by top down planners has any hope of surviving the relentless forces of markets and economic cycles better than professionals (who at least have the profit motive to curb their enthusiasm)?
SB1 has no provisions to require transparent decision-making.
Public Liability for Failed Projects:
SB1 champions contend that the debt and defaulted half-built projects of these JPAs will not be the public’s legal liability. But will cities really leave “see through” buildings to sit unoccupied and rotting? Or will the whorey old “too big to fail” arguments get dragged out again to cover up the incompetence of the SCIA managers? It’s almost guaranteed that the public coffers will be opened once again to save defaulted projects to “protect the public welfare.”
Adequate checks and balances to protect taxpayers and residents from this liability are completely missing from SB1.
Public Liability for Lawsuits:
Whereas other types of JPAs like ABAG may credibly distance their actions from the general public (because most do not carry out critical life and safety functions), I do not believe SCIAs will not have that same automatic legal safe harbor.
SCIAs will be the responsibility of their creators, cities and counties. But those creators are bound by a higher standard of responsibility for the “health, safety and general welfare” of their citizens. Similar to the concept of “piercing the corporate veil,” I believe credible legal arguments could be made if defaulted or unfinished projects or hazardous conditions result from projects undertaken by SCIAs.
Increased taxes and fees will be the only way to pay for those liabilities.
No Checks and Balances:
Defenders claim that SB1 is filled with language that qualifies the projects and the participating developers and contractors. It’s true that it is filled with “boilerplate” language, some of it cribbed from regulations written by HUD 30 years ago, about bonding capacity and statements of qualifications and Request for Proposal procedures, and requiring union trained workers and so on.
Unfortunately, that’s been true of every government boondoggle in history. Taking twice as long and costing two times as much is par for the course for government managed projects and probably always will be. But that could bankrupt JPAs created by small Marin cities.
If a project like the Fireside Apartments had been a project of a City of Mill Valley SCIA, the cost overruns and rent up problems it experienced would have set in motion one of the biggest financial crisis’ in the city’s history.
We can’t afford to have that happen.
Small Cities and Counties Should Not Be Allowed to Participate:
SB1 is a recipe for financial disaster for small, undercapitalized cities and counties. Small cities should not be allowed to be in the redevelopment business. Mercifully, we didn’t have these agencies in Marin’s small cities during the 2008 financial crisis. It could have taken down many of them.
Small cities have no capacity, either in staffing or financial expertise, to properly select or monitor projects or provide much needed supervision.
No Transit in the “Transit Oriented” Equation:
SB1 conveniently forgets that the words “transit-oriented” are also in its TOD goals.
In counties like Marin there are no viable public transportation options for 90 percent of the things our residents need to do. It’s absurd to think that investing in more development, before investing in viable public transportation options will do anything but cause more and more congestion and air pollution.
How can people be manipulated into abandoning their cars if there are no alternatives offered? Perhaps if the powers that be set out to solve our public transportation challenges, first, the rest would take care of itself.
Pushing Back on Redevelopment
I’m told SB1 passed in the Appropriations Committee with flying colors. Everyone will cheer its “social equity” solutions and plans for a “sustainable” future. The political fashion it represents may just too tempting for career politicians to pass up. And it appears that SB1 is intended to be Senator Steinberg’s “legacy.”
So what can be done? As always, I suggest we start by contacting our elected representatives to urge them to stop SB1 and contacting Governor Brown to urge him to veto it?
Going beyond SB1, in any legislation where an individual city or county might be involved directly in the development of projects, the following issues must be considered.
1 - Restrict participating cities and counties based on minimum size and financial strength.
Restrictions on the size and financial capacity of cities and counties that participate in a development in any way, are needed in any legislation dealing with development and debt. We cannot afford to risk our city’s financial health and well-being by putting it the hands of politically appointed bureaucrats, operating behind closed doors.
2 - Remove the Prevailing Wage provisions for projects under $10 million.
Requiring prevailing wages pretty much guarantees that development will not address the real affordable housing needs in Marin. 90 percent of Marin’s affordable housing opportunities, to provide the types of affordable housing we really need, are small scaled, mixed use, infill development owned by sole proprietors and small real estate interests. Likewise, 90 percent of our local design and contracting firms are also sole proprietors and small sized businesses.
Legislation like SB1 is geared towards big, urban projects and union contractors. Its definition of “infill” is an urban one, suggesting projects of 200 to 300 units. This has nothing to do with the realities in Marin.
3 - Choose not to Participate
Perhaps, the best defense against the unintended consequences of SB1 is to just say no. Until or unless Sacramento begins to craft legislation that addresses the need for more transparency in government instead of less, and more local control of what types of development and affordable housing we can build and where it should be located, not participating in these schemes is the best course of action.
We can also try to elect local representatives who understand the financial downsides: representatives who will resist the lure of grants and other “carrots,” and steer clear of getting involved in Sustainable Communities Investment Authorities.
And if our present representatives don’t understand the pitfalls, then I advise raising Cain to get their attention.
Coda on SB1 and Marc Levine
People ask me why Sacramento continues down this road of one size fits all urbanism. My guess is as good as yours. A good deal of it is coming from higher up the food chain. But underneath everything there are usually the same basic drivers: politics, big money, greed and lust for power, and someone who thinks he knows what’s best for everyone else.
Marc Levine, who was recently elected to the State Legislature by an eclectic coalition of grassroots groups in Marin, voted in favor of SB1 without voicing a single comment or concern. This was in spite of the fact that he was the Vice Chair of the Appropriations Committee hearing and had the opportunity to make last minute changes and put in safeguards.
He could have said anything he wanted. He chose to be silent.
As someone who voted for Marc, I am disappointed but hardly surprised. He’s demonstrated that he’s just another “go along to get ahead” politician who lacks the character to lead. In his short time in Sacramento he’s already reneged on some of his core campaign “beliefs” about government transparency and accountability, and turned his back on many who voted for him: people who support local control.
But as troubling as all this is, it’s only the beginning. There’s a lot more brewing in Sacramento right now than just SB1. And I believe there’s more at stake than local control.
The Best Laid Plans:
Our Planning and Affordable Housing
Challenges in Marin
by Bob Silvestri