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:
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.
Blight consists of the physical and economic conditions within an area that cause a reduction of, or lack of, proper utilization of that area.
Redevelopment can only be used in areas that suffer from adverse physical and economic conditions, defined in the law as “blight.”
The following types of adverse physical and economic conditions have been observed in redevelopment areas to be examples of blight.
Adverse Physical Conditions
Adverse Economic Conditions
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.
Redevelopment activities may include the rehabilitation/reconstruction of existing structures, the redesign/replanning of areas with inefficient site layout, the demolition and clearance of existing structures, the construction/rehabilitation of affordable housing and the construction of public facilities including, but not limited to, public buildings, streets, sidewalks, sewers, storm drains, water systems and street lights. All of this contributes to general economic revitalization of an area, making it more attractive for additional investors.
Through redevelopment, a project area receives focused attention and financial investment to reverse deteriorating trends, create jobs, revitalize the business climate, rehabilitate and add to the housing stock, as well as gain active participation and investment by residents and local business which would not otherwise occur. These revitalization efforts have positive effects that spill over the project area boundaries and improve the entire community.
Community redevelopment is usually accomplished by forming a partnership of public and private enterprise. Public funds are used to lay the foundation and provide the pre-conditions that are necessary for private enterprises to be interested in and capable of investing their financial resources. Through the redevelopment process, a partnership of public and private efforts can join forces to bring new life to deteriorating areas.
The blighted areas designated for redevelopment are those areas where private enterprise has failed to revitalize an area. If deterioration is not stopped and turned around, the area will be unattractive for business investment. Public funds are used to leverage private investment into these blighted areas. These funds may also be spent to improve streets, utilities, landscaping, etc. to encourage and attract private development.
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:
The redevelopment plan must also be in harmony with the city or county general plan. A redevelopment plan generally contains the following components:
A redevelopment agency is a separate public body that reports to the local governing body of a community, and either the city council or county board of supervisors. The California Community Redevelopment Law (CRL) provides that any county or city can establish a redevelopment agency by the action of its governing body. In all but a few agencies in California, the local governing body also serves as the redevelopment agency board. In a handful of cities and counties, the redevelopment agency is a separate body comprised of members appointed by elected officials.
In either instance, the local governing body and the redevelopment agency are two separate, distinct legal entities. And, the redevelopment agency assigns its own staff and advisors to carry out its day-to-day operations as well as to help formulate and implement redevelopment plans.
The benefit of this system is that the redevelopment agency is ultimately responsible to the voting public through the elected governing body that oversees the agency.
A redevelopment plan is adopted by ordinance of the governing body of the community. Adoption of the plan is based on the recommendations of the agency, the planning commission, and the project area or redevelopment advisory committee (if formed). Public hearings are required so that community input can be considered before the plan is adopted.
The redevelopment process involves a series of legally mandated steps. The following basic steps must be followed:
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 by 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.
Redevelopment is primarily financed by tax increment revenue. Other revenue sources includes 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.
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.
A property owner may sell their property to a redevelopment agency. Under California law, a property is offered for sale if the owner offers it directly to the agency for a specified price before the agency begins negotiations with the property owner, or if it is offered for sale no more than six months before and is still available. An agency seeking to acquire property for redevelopment normally appraises the land and offers the owner its fair market value, which must be not less than the appraised value of the property.
The agency would hire an independent appraiser to establish the fair market value of the property. If the owner is not satisfied with the appraised value of the property, he may hire his own appraiser to re-evaluate the property after which both appraisals will be compared and a selling price negotiated. Fair market value is the value that the property would have if it were placed in today's market place and sold.
The redevelopment agency has no power to set tax rates or levy property taxes. Property tax on properties within a redevelopment project area are governed by the same laws as properties outside redevelopment project areas.
Until a property is improved or sold assessed value and tax rates on redevelopment areas are restricted by property limitations.
When redevelopment activities are successful, the property values within and around the redevelopment project area increase over time due to the sale of property, or the rehabilitation and new construction of buildings. Thus, property tax increment revenues are the result of the rise in property values, not an increase in tax rates. The changed image and improved economic base increase the marketability of property in the area. Redevelopment activities enhance the marketability of properties.
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