Redevelopment 2.0 keeps flaws of the old redevelopment

Factory Automation Robotic _Palettizing_Bread, WikipediaThis is Part Two of a two-part series. Part One is here.

March 29, 2013

By Wayne Lusvardi

Los Angeles-based redevelopment expert Larry Kosmont is marketing his Redevelopment 2.0 idea as a way to compete with other states that currently are out-competing California for industries.  As Kosmont puts it:

“The reason no one is buying up these old buildings is because they are too expensive for any company to retrofit them for handicap access and just to make it work.  So they export those jobs to Texas or Glendale, Arizona where they can buy a cheap building.”  

But this doesn’t explain the hot e-commerce market where e-tailers must have warehouses close to Los Angeles’ consumer markets.  And if part of the problem is obsolescent buildings, why does Kosmont’s bill replace “blight” with “unemployment” as the criterion for redevelopment?

Under the previous system the state eliminated in 2011, “blight” commonly was used to justify redevelopment. But that idea generally has been discredited.

The main effect of Kosmont’s Redevelopment 2.0 would be to try to divert e-tailing warehouse and distribution facilities from new, state-of-the-art facilities in the Inland Empire to old, obsolescent industrial districts in Los Angeles County. Kosmont’s Redevelopment 2.0 effectively would steer development from politically Red to Blue areas.

But even with Redevelopment 2.0, Los Angeles can’t compete with the much cheaper land prices in the Inland Empire.  Indeed, Los Angeles property prices could be going higher. A forecasted tight industrial building market for 2013 will result in the market finding the best sites for e-tailing warehouses in close-in areas to Los Angeles consumer markets.  Location is so critical in e-commerce that one source said:

“Location-sensitive industrial users will either need to pay more for high-end space, or lease in buildings with less-than-optimal operational efficiency potential.” 

This may mean re-using older industrial facilities in some cases.

e-Commerce competition is also inside L.A. market

Los Angeles County industrial real estate markets are not competing for e-commerce with Texas or Arizona, but mainly with each city within their own market area.  All that would happen from Kosmont’s proposed bill, AB 690, would be an unnecessary wild scramble for each city to capture e-tailers with tax increment financing.   It would be better to just even the playing field by not using redevelopment at all.

Kosmont’s Redevelopment 2.0 would issue bonds to fund vague jobs programs.  Using bonds to fund social programs is risky and is what almost bankrupted New York City back in the 1970s.

What government does best is help facilitate new infrastructure.  The infrastructure is already mostly in place in the older “factory belt” areas of Los Angeles County.  The current federal low interest rate policy makes tax-exempt bonds and tax-increment financing to retrofit old industrial buildings mostly superfluous.

Building  “parks, libraries, and bike lanes,” as Kosmont’s bill also proposes, would only create more jobs that have no economic multiplier effect.  And financing such jobs would end up costing about 50 percent more because of bond interest.

Blue Jobs Model Failing

AB 690 is just a way for depressed communities to tax themselves to create more jobs that would be taken out of the private sector and shifted into the public union sector.  A good example of this already happening is El Monte, where the Blue Jobs Model — high taxes and many government jobs — is failing. In El Monte, seven out of the top 12 employers are governmental.  Of the five remaining large private employers, two have gone out of business.

# Employer Number of Employees
1 El Monte School District 731
2 El Monte Union High School District 623
3 Mountain View Elementary School District 670
4 Longo-Toyota Lexus 475
5 City of El Monte 429
6 Gregg Industries (closed) 400
7 Driftwood Dairy 300
8 El Monte Adult School 300
9 Spirit Honda (closed) 300
10 San Gabirel Honda 300
11 California Air Resources Board 300
12 M.C. Gill 250
13 Crown City Plating (closed) 100 to 250 estimated

El Monte needs to bring more private sector jobs into its economy.  AB 690 would add a lot of redevelopment agency jobs and costly makeshift private-sector jobs.  It wouldn’t guarantee bringing an e-commerce industrial user into El Monte more than what might occur without AB 690.  

AB 690 Unneeded

A flaw in Kosmont’s bill — and in the old model of redevelopment as well — is that local voters will always vote to capture business away from more competitive perceived communities.  Redevelopment creates the psychology of a competitive jobs “horserace” that ends up robbing school districts of needed property tax revenues.

As the California Legislative Analyst’s Office has concluded, redevelopment doesn’t create new jobs, it just shifts them around.  Most jobs created by redevelopment would have been created by the private sector in the same communities in the same time frame anyway without it.

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