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Capital Ideas

By Frank Gruber

Tomorrow night's meeting of the Santa Monica City Council could be the most important meeting for decades about public investment in our city.  The council members will indicate their priorities for capital expenditures under the redevelopment project the City established after the 1994 earthquake.

At present, the Earthquake Recovery Redevelopment Project is throwing off about $60 million per year in tax increment funding -- this money represents the property taxes on the increase in property values in the redevelopment zone, which encompasses about a third of the city. 

More than half of this money is available to the City for capital projects.  (Some of the tax increment money cannot be claimed by the City's redevelopment agency and goes back to the government entities that would otherwise get it, and the City must spend 20 percent of the money on affordable housing.) 

Based on fairly conservative economic projections, the City's staff and consultants project that there will be enough income to service at least $283 million in debt; while this is not a little money, to put the number in context, it's about as much as each of the most recent bond issues approved by local voters for the School District and Santa Monica College.

The kicker is that under the law, the redevelopment agency must incur this debt by mid-2014 (the agency will then have access to the tax increment funds to pay it off until 2042).  The five-year capital plan that the council must adopt this year for the agency will therefore be the ultimate word on the investment of the earthquake redevelopment funds.

In the staff report for tomorrow night's meeting, the City's staff outlines the priorities it suggests that the City Council adopt in its role as the redevelopment agency.  In addition to affordable housing, staff is proposing a total of $272.8 million in investments in the Civic Center area (many projects, including projects related to the terminus of the Expo light rail and at Santa Monica High School), downtown (mostly parking), the Pico Neighborhood (a new branch library), mid-city (expansion of Memorial Park and in connection with the Expo stations coming there), at the Pier (to keep it standing), and around the city for various infrastructure improvements.

What will probably draw the most attention tomorrow night from the public will be the staff's reaction to plans that the School District has put forward for joint development of recreational and other facilities at Samohi.  These projects potentially total about $230 million -- City staff recommends contributing $46 million of redevelopment funds, plus possibly additional funds for "shared parking."  Supporters of the high school's plan will surely ask for more.

While all public money should be spent (or invested) wisely, there is a particular need to spend the earthquake redevelopment funds with an eye towards lasting public benefit.  This is because Santa Monica, a relatively wealthy city, used the earthquake to create the redevelopment zone and thus capture revenues that would otherwise go to the state and the county to pay for education, social services, the justice system, etc. -- expenditures that would benefit a broad spectrum of Californians.

The theory behind tax increment funding is that a redevelopment agency's investments in a "blighted" (or in this case, "earthquake-damaged") area will result in an increase in property values, and it's reasonable to capture the increased taxes that result to pay off the bonds issued to pay for the investments.  But in Santa Monica it would be ridiculous to contend that the increase in real estate values over the 15 years since the earthquake had anything to do with any investments the City has made with redevelopment funds.

While it's thus hard to justify Santa Monica's capturing these revenues, Santa Monica does have a "moral" advantage over many redevelopment districts when it comes to investing those funds.  That's because Santa Monica plays an important regional role, particularly with respect to recreation, and because Santa Monica itself has a large low-income population that lives mostly in areas -- the Pico Neighborhood and mid-city -- that are underserved with parks and other public facilities.

Capital expenditures that support public education also have a wide public benefit; voters in Santa Monica, Los Angeles, and throughout the region have voted time and again over the past two decades to tax themselves to build schools, and it's reasonable to use redevelopment money to supplement those funds.

If you review the list of projects that staff recommends, you'll find that nearly all of them fall within the beneficial categories I mention above (although you may disagree on the staff's suggested allocations). 

The projects will benefit Santa Monicans, but they also will help Santa Monica welcome visitors who will be arriving on Expo line trains.  They will provide more parkland for a city that needs more parks, a library in Pico, and sports facilities on the Samohi campus that will benefit the public as well as students.  (One editorial comment is that while I hope the City funds the Michigan Avenue promenade and bikeway through the campus that the School District is proposing, I hope the district changes its policies so that it could be open during school hours.)

There is one big exception, however, when it comes to the quality of the projects.  Almost 20 percent of the money staff proposes to spend -- $53 million of the $273.8 million -- would be for parking, either building it or acquiring land for it, and that number is in addition to $17 million the City's parking authority would spend.

Underground or otherwise structured parking is expensive -- the School District estimated the cost for underground parking at $44,000 per space (although that number may turn out to be less given the economy).  Monthly debt service to amortize $44,000 over 30 years at the 6 percent interest rate that staff estimates the redevelopment agency would have to pay would be $264.  The City charges less than half of that for monthly parking in its downtown structures, and of course it gives away the first two hours of parking downtown.

Yes, parking is cheap, but the parking structures the City has built downtown in recent years are nearly empty most of the time.  Now it proposes to build more.  Subsidized parking only encourages more driving, which contributes to the traffic congestion residents complain so much about.

While the City is waiting for the results of a parking survey for the Civic Center area, I'm not going to wait for it to say that there is no justification for building any more parking in the Civic Center area except to allow the conversion of surface parking at the high school to an athletic field.  This would provide 490 spaces, about 100 more than currently exist at the school.  (And it should be remembered that the Civic Center structure the City built a few years ago was designed to free up the Civic Auditorium parking lot to be turned into a park.)

One cannot, however, simply say that building the 490 spaces would make sense without considering the economics.  While the freed-up land has value, when a parking space costs $264 a month to build, it can't be given away to teachers or to students for nothing or nearly nothing. 

If the School District or the City plan to build more parking, they need to explain how the parkers will ultimately pay for it.  Redevelopment money doesn't exist to subsidize parking.

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