CRA Approves $340-Million Budget Amid Slumping Revenues

The Los Angeles Community Redevelopment Agency approved a $340-million budget Friday, but the urban renewal agency’s financial future remained clouded because of sharply dropping property tax revenue in the Bunker Hill district downtown.

CRA board members ordered acting administrator Jerry Scharlin to develop a plan within 60 days to guarantee that the Bunker Hill bonds can be paid off when they mature in 2018, to avoid a default that would force an insurance firm to pay bond investors.

“I think there are potential steps we can take to mitigate against any chance of default,” board member Keith Richman said. “There is a certain amount of money we need to add to the reserve fund over the next three years in order to cover ourselves to prevent a default in 20 years.”

Richman and other officials warned that the plan will probably require money to be taken away from redevelopment work downtown and in other areas, including Watts, that depend on the central city for revenue.

Those warnings have sparked concerns that the CRA may need to scale back its projects. A report released this week said 20 of the agency’s 31 project areas require subsidies.

“Bunker Hill has provided financial resources for other project areas that are not financially self-sufficient, so this very well may affect money for other project areas,” Richman said.

The prospect of cuts in funding to redevelopment in Watts and other areas of South Los Angeles has alarmed Councilmen Rudy Svorinich Jr. and Mark Ridley-Thomas, who represent the areas.

“There will be a huge fight if they try to balance the CRA budget on the backs of the projects in South Los Angeles,” Ridley-Thomas said. “That is, in my view, unreasonable.”

An aide said Svorinich also is concerned for the Watts area of his district, which does not generate enough property tax revenue to pay for its work program and receives half of its budget, more than $1 million annually, from Bunker Hill.

Scharlin said he is committed to making sure the agency continues to serve areas of the city most in need, and said he hopes City Hall will be prepared to help maintain those work programs.

The 1999-2000 budget approved Friday diverts $7 million in property tax revenue from Bunker Hill to redevelopment work in seven other project areas: Watts, Little Tokyo, Broadway/Manchester, Normandie, Reseda/Canoga Park, Western/Slauson and Wilshire/Koreatown.

The Reseda/Canoga Park area, with a 1999-2000 budget of $2 million, is slated to get a $700,000 subsidy from Bunker Hill.

After diverting funds to other projects and making debt service payments, the Bunker Hill project area has just $6.3 million for new projects.

The potential shortfall in funds to pay off Bunker Hill bonds was identified in a report to the board Friday by Scharlin, who said he believes the problem is “manageable” but requires immediate attention.

“If Bunker Hill property values do not recover from assessment appeals, there may not be sufficient funds to fully retire the $80 million of bonds maturing in [fiscal year] 2018,” Scharlin said.

Scharlin warned that if property values do not recover at more than 2% a year, an insurance company may have to pay off $61 million of the $80 million in bonds. But such a default could lower the agency’s credit rating and increase costs for future bond issues.

With most downtown property owners successfully filing Proposition 8 assessment appeals, real estate in the Bunker Hill project area has dropped in value from $3 billion in 1992 to $1.6 billion this year, cutting the amount of tax generated for the agency annually from a peak of $34 million to $18.5 million.

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Property values will have to increase 3.5% to 4% annually for the agency to cover its costs on the bonds.

To guard against that not happening, Scharlin and his staff said the agency will probably have to divert more of Bunker Hill’s annual revenue to a reserve fund that holds $11 million, which could have to come from work programs in Bunker Hill and the areas it supports.

Since its creation in 1959, the Bunker Hill project area has seen the construction of 14.2 million square feet of office towers, stores and housing, generating large amounts of property tax revenue for the CRA. The project had long been considered a cash cow for other areas that have not seen increases in property value sufficient to finance their redevelopment programs.

The Watts project area gets 50% of its money from the Bunker Hill project area, much of it going to pay debt on the Martin Luther King Jr. Shopping Center, a 100,000-square-foot development completed in 1984.

The Watts project area includes first-time home-buyer grants, expansion of the Watts library, and construction of major developments including the Grand Oasis Center and Community Marketplace.

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The CRA’s Watts project is also wrapping up construction of a 20,500-square-foot office development to serve as a city government center for area residents.

In Bunker Hill, programs that might be affected by the bond problem include construction of new housing and upgrades for Grand Avenue.

In addition to approving the budget on a 3-1 vote, the board authorized Scharlin to hire financial consultants to help him develop a plan to pay off the bonds.