California Redevelopment Law
In 1945, the California Legislature enacted the Community Redevelopment Act to assist local governments in eliminating blight through development, reconstruction, and rehabilitation of residential, commercial, industrial, and retail districts. The Act gave cities and counties the authority to establish redevelopment agencies (RDAs or agencies).
In 1951, the Legislature superseded the Community Redevelopment Act with the Community Redevelopment Law (CRL), Chapter 710, Statutes of 1951. Codified in California Constitution, Article XVI, Section 16, and the Health and Safety Code, beginning with Section 33000, the CRL provides funding from local property taxes to promote the redevelopment of blighted areas.
The CRL also established the authority for tax increment financing (TIF), which is a public financing method to subsidize redevelopment, infrastructure, and other community-improvement projects. TIF uses future increases in property taxes to subsidize current improvements, which are projected to create the conditions for the increases. For example, the completion of a public project might result in an increase in the value of surrounding real estate, which generates additional tax revenue. Redevelopment agencies are required to pass through a portion of their tax increments to the local taxing agencies within their project areas.
In 1976, the California Legislature required that at least 20% of the tax increment revenue from redevelopment project areas be used to increase, improve, and preserve the supply of housing for very low, low, and moderate income households.
In 1993, the California Legislature enacted AB 1290, known as the “Community Redevelopment Law Reform Act of 1993,” which revised the CRL to address alleged abuses, and added restrictions on redevelopment activities, including limiting them predominately to urban areas.
An RDA is a separate legal entity, established by ordinance of the relevant local government (city or county), that exercises governmental functions and has the powers enumerated in the CRL. RDAs are controlled by a governing body in one of three forms: 1) the local government may establish itself as the governing body of the RDA; 2) the local government may appoint a separate governing body for the RDA, or; 3) the local government may establish a community development commission, which allows the legislative body or a separate appointed body to function jointly as a RDA and housing authority.
The RDA’s powers described in the CRL include:
- The ability to buy private property for resale to another private person or organization, for redevelopment purposes
- The ability to use the power of eminent domain (condemnation) to acquire private property
- The power to collect property tax increment in order to finance the redevelopment program
- The ability to issue tax increment bonds
RDA Accounting and Reporting
An RDA must account for its activities to both the State and its governing body. Each RDA is required to submit an annual financial and compliance audit to its governing body and to the State Controller’s Office (SCO). Pursuant to Health and Safety Code Section 33080.1(a), the audit is to be conducted “in accordance with generally accepted auditing standards, and the rules governing audit reports promulgated by the California State Board of Accountancy. The audit report shall also include an opinion on the agency’s compliance with laws, regulations, and administrative requirements governing activities of the agency.”
In order to meet this requirement, the SCO requires RDAs to prepare their financial statements on a component unit basis, detailing all funds of each project area in combined statements. The component unit statement presents the agency’s activities without combining them with other unrelated city or county activities.
Los Angeles County RDAs
Los Angeles County, with 88 cities and more than 10 million residents, is the most populous county in the nation. The County is governed by a five-member Board of Supervisors, which serves as both the executive and legislative authority of the largest and most complex county government in the United States.
According to the SCO’s most recent Community Redevelopment Agencies Annual Report, for the Fiscal Year ended June 30, 2010, Los Angeles County’s 71 active RDAs, encompassing 315 project areas, received a combined total of $1,107,385,007 in apportioned tax increment revenue. The County’s former RDAs had more than $21.6 billion in outstanding liabilities as of February 9, 2012.