Redevelopment funds as bulwark vs. housing crunch?

By Robert Rogers
Staff Writer

With communities across the state decimated by the deepening housing crisis, state legislators and local redevelopment associations are pushing for legislation that would free billions in local dollars to scoop up foreclosed and vacant properties.

One bill working its way through the state legislature would free local redevelopment agencies to use those dollars in acquisition of foreclosed properties as a way to prevent chronic vacancy, blight and crime that many cities fear could result from the steep downturn.

Assembly Bill 2594, authored by Assemblyman Gene Mullin (D-San Mateo), would allow redevelopment agencies to fund programs ranging from pre-foreclosure assistance to post-foreclosure acquisition, including subsequent sale or rental of single-family homes by the government agencies.

"As far as the extent to which it would enable redevelopment agencies to help mitigate the effects of foreclosures, this bill is unprecedented," said Tom Hart, deputy director of the California Redevelopment Association, a Sacramento-based nonprofit group of redevelopment officials and consultants which supports the bill. "This is about expanding the ways redevelopment dollars can assist local communities, which is what redevelopment has always been about."

More than 350,000 homes in California are expected to be foreclosed on through in 2008-9, according to California Redevelopment Association estimates.

As foreclosures skyrocket, credit tightens and prices plummet, city leaders and economists are growing more wary of what a protracted downturn could mean in terms of broader community impacts, particularly crime and blight in suburban neighborhoods.

Redevelopment revenues represent another source of funding that local governments can tap to ease the steep drop in the housing market.

California voters added to the state constitution in 1952 redevelopment agencies, which receive about 8 percent of annual property taxes and have clearly defined spending guidelines. In a state where local governments have been tightened by property tax limits since 1978, the tax revenues funneled to redevelopment agencies become all the more vital to local communities.

Mullin's bill was approved by an Assembly housing committee April 30 by a 6-0, bipartisan vote. It has until May 30 to get a floor vote in the 80 seat Assembly.

With simple majorities in the Assembly and Senate, the bill would go to Gov. Schwarzenegger's desk.

Opposition has mainly come from low-income advocacy groups, including the Western Center on Law and Poverty, whose concerns are that funds otherwise focused on low-income housing needs will be diverted into property acquisition and other housing measures.

Steve Panages, a legislative assistant in Mullin's San Mateo office, said passage of the bill would be a crucial tool in addressing long-term real estate market weakness.

"We need to put RDAs to work in a new way to combat this problem," Panages said. "Because this problem is as serious as anything we've seen in a generation."

Paneges, also noted that the proposed bill would sunset in 2013, and compared it to the creative legislation passed by Franklin Roosevelt during the Great Depression.

"We're literally having vacant homes scattered through key communities all over the state, and so there is the potential for persistent blight like we haven't seen since the Great Depression, so we need to take progressive actions with the tools we have, and that includes redevelopment agencies," Paneges said.

With San Bernardino county among the top-3 nationwide in foreclosure rates, local leaders and redevelopment heads are expected to welcome any opportunity to access more money.

Robb Steel, director of Rialto's redevelopment agency, said local cities could benefit from greater flexibility in how they use RDA funds.

In Rialto, the housing downturn has dipped to crisis proportions.

In the first three months of 2006, just two homes were foreclosed on in the entire city. Over the same period last year, 42. This year, the number has jumped to 314, Steel said, and the city projects that more than 1,000 will meet that fate this year.

"The problem is really mushrooming," Steel said.

Steel said he's hoping that legislation loosens restrictions on RDA monies, enabling his agency to buy foreclosed properties at discounts and maintain or rent them through the downturn, as well as providing assistance to homeowners teetering on the brink.

"We've got to be aggressive," Steel said. "These foreclosures, not being absorbed into the market, create a recipe for blight and crime that drag down entire neighborhoods."