1993-1994 LOS ANGELES COUNTY GRAND JURY     FINAL REPORT   A. REVIEW OF THE MONTEREY PARK REDEVELOPMENT AGENCY BACKGROUND After receiving several citizen complaints questioning the effectiveness of redevelopment activities in the City of Monterey Park, the 1993-94 Grand Jury decided to review the City's redevelopment practices. As part of this review, Price Waterhouse was asked to examine Monterey Park's Freeway Development Project No. 1 as a case study. The objectives of the study are to assess the following: The degree to which the redevelopment agency has met its goals as stated in the redevelopment plan for Freeway Development Project No. 1. Impact of Freeway Development Project No. 1 on schools and special districts of Monterey Park. Review of Redevelopment agency actions to comply with state requirements regarding (a) determination of blight and (b) provision of low and moderate income housing. Though the focus of our study is on a single project within the City, it is important for the reader to have some context in which to place our findings. The following information on the Monterey Park Redevelopment Agency provides some perspective on the overall organization and management of the City's redevelopment function. Monterey Park Redevelopment Agency The Monterey Park Redevelopment Agency (Agency) was activated in 1969 under provisions of the California Community Redevelopment Law. The Monterey Park City Council acts as the legislative body of the Agency, and the City Manager serves as Executive Director. The Agency currently has 7.7 full-time equivalent staff positions. It works with developers and private businesses in the development of new projects and the rehabilitation of existing structures. Since its creation, the Agency has adopted four redevelopment projects, two of which have been merged. Exhibit 1 provides an overview of the four redevelopment projects for FY 1991-92, the year prior to the merger. The Agency currently has three redevelopment areas: (1) Atlantic-Garvey Redevelopment Project No. 1 (2) Merged Redevelopment Project (formally Freeway Development Project No. 1 and the Central Commercial Redevelopment Project), and (3) Southeast Redevelopment Project. This review focuses primarily on Freeway Development Project No. 1 (Freeway Project) and some of its key management issues. Exhibit 1 Overview of Monterey Park Redevelopment Projects for FY 1991-92  Atlantic-Garvey Redevelopment Project No. 1Freeway Development Project No. 1Southeast Redevelopment ProjectCentral Commercial Redevelopment ProjectYear Established1972197419851987Number of Acres519 acres40 acres190 acres185 acresTax Increment Revenue$2,849,561$30,294$0$953,309Tax Increment Revenue Deposit into Housing Fund$323,640$3,046$0$95,314Administrative Cost $932,964$85,778$0$112,703 PROCEDURES On January 18, 1994, Price Waterhouse began field work consisting of the following activities: Kick-off Meeting -- Conducted a kick-off meeting with the Mayor, City Manager, Economic Development Director, City attorney, accountant, and development consultant. Objectives of the review were explained and the City was asked for its cooperation. The City cooperated fully and provided the documents Price Waterhouse requested as well as a narrative it prepared on Freeway Project. Literature Review -- Surveyed existing written materials on redevelopment law, regulations, and policy. Interviews -- Interviewed City and Agency staff including the Director of Economic Development, Finance Director, Associate Planner; County personnel from the Auditor-Controller and Chief Administrative Office; and redevelopment observers from the State Department of Housing and Community Development, Southern California Association of Governments, Community Redevelopment Association, and California Debt Advisory Commission. Document Review -- Reviewed thousands of pages of documents including redevelopment plans, housing set-aside resolutions, city ordinances, annual reports, audited financial reports, and correspondences between the Agency and County. The limited scope of this review required that we focus only on the Freeway Project. Redevelopment law has evolved and changed significantly in the past 20 years since the creation of Freeway Project. Our evaluation takes this into account. Using this project as a case study, we developed findings and recommendations to improve redevelopment management practices. While Freeway Project was small (40 acres), we do believe the case history provides valuable insight into redevelopment practices, how unforeseen events can have a significant impact on development opportunities and how one local agency addressed these challenges. FINDINGS Redevelopment law allows much discretion in local decisions. We found no evidence that the Agency had done anything that would exceed their authority. However, we did identify several opportunities for improvement in redevelopment management practices, based upon the case history of Freeway Project. Also, we found that the role of state agencies could be strengthened. While this report is intended for the benefit of Monterey Park Redevelopment Agency, it is also hoped it will benefit others who are responsible for, or interested in, redevelopment. Although it is not required by redevelopment law, the Agency did not conduct a formal risk assessment prior to commencing the project area. A formal and systematic effort to identify risks prior to commencing a project can produce effective tactics to prevent losses or mitigate losses when they occur. In the case of Freeway Project, we could not find evidence of such formal and systematic risk assessment prior to the commencement of the redevelopment project area. For instance, although most Freeway Project parcels have been developed, there have been a few impediments to achieving revenues from property taxes and completing development of a few remaining parcels. These unanticipated problems include: Voter initiative - Proposition 13 and resulting change in state law to limit revenue available from property taxation Market Conditions - economic downturns and lack of financing for hotel development Public agency intervention - acquisition of three parcels for public use by Los Angeles County and Cal State University, Los Angeles. Whether the Agency could have identified any one of these problems that occurred is arguable. Our finding is not meant to second guess the planning and decision support regarding Freeway Project. Instead, it points to an area where more formal and systematic attention could make a difference. This becomes all the more important in larger scale projects where the risk of loss is greater. Formal risk assessment gives an organization an opportunity to consider developing alternative strategies and contingency plans. Although it is not a requirement of redevelopment law, the Agency did not establish clearly defined objectives for the Freeway Project against which progress towards stated goals can be assessed. The Agency created the Freeway Project with the goal to eliminate blight and to create land usage as specified in Community Redevelopment Law. We know that among the objectives of the project was to retain two major employers within the City: Ameron and Lincoln Savings and Loan Association. However, the redevelopment plan itself does not identify measurable objectives. Objectives are statements that define the specific result or impact an organization plans to make in order to support the outcome expressed in its goal(s). For an organization engaged in redevelopment, it is particularly important to have formally documented objectives. This is because redevelopment projects, once established, exist for a long time. Without objectives, it becomes very difficult to consistently measure progress towards meeting a goal. Performance evaluation is more likely to be subjective and inconsistent. Although it is not a requirement of redevelopment law, the Agency did not define the types or levels of costs and benefits expected for the Freeway Project. The Agency should allocate its resources to redevelopment projects based on the service or accomplishments the project area will create. The Agency did not have effectiveness or efficiency indicators which link the costs associated with the Freeway Project to specific benefits that will result. We could not identify any criteria to determine whether an appropriate level of resources have been expended for the outcomes of the Freeway Project or whether management of the project area has been efficient. Redevelopment law does not require State agencies to maintain data against which the performance of one community redevelopment agency (CRA) can be compared with that of other CRAs. As noted in the above findings, there are a number of ways to assess performance of an agency. One way is to measure performance compared to stated goals and objectives. Another is to measure an agency's performance compared to that of like organizations. However, existing public information on CRAs does not directly address performance measures. The State Controller maintains a record of CRA financial transactions and indebtedness while the State Department of Housing and Community Development collects information on the contribution and use of CRA housing funds. The annual reports generated by both state agencies focus on activities (what CRAs are doing). They do not provide measures of efficiency or outcomes. Without this information, it is difficult for an agency to identify performance benchmarks. It is difficult to discern the specific annual accomplishments in the Agency's recent Annual Reports. Redevelopment law requires the Agency to prepare and submit an Annual Report to the City Council and to the State. However, the current Annual Report has limited use for communicating annual accomplishments. For instance, facing an unfavorable real estate market, the Agency has been unable to locate a hotel developer. Without a discussion of this in the Annual Report, it is impossible for the reader to be assured of the current status and progress of Freeway Project. Although it is not a requirement of redevelopment law, the Agency does not evaluate the results of housing rehabilitation programs when making housing set-aside findings. The Agency reports the amount the City has allocated to housing rehabilitation programs as documentation to exempt it from making the full 20% housing set-aside. Funds allocated for housing rehabilitation indicates the level of input the City is committing. It does not, however, reflect actual program results. The City provides in its departmental Program Summaries (part of its Annual Budget) the actual number of units rehabilitated. The Agency does not make any reference to this data in its Annual Reports. We did not identify any Agency attempts to detect potential gaps between the City's projected efforts to meet housing needs with the actual efforts realized. The impact of the Freeway Project on schools and special districts is low because it contains a small number of parcels and generates limited tax increment revenue. The Freeway Project is unique in that it consists of only six parcels totaling 40 acres, three of which are owned by government entities and two are undeveloped. Its impact on taxing entities is low because the Agency receives limited tax increment revenue for this redevelopment area. State agencies which collect information on all CRAs do not monitor CRA performance. Oversight of the Agency is limited because there is no external authority that monitors its performance. The State Controller maintains records of the Agency's financial transactions and statements of indebtedness. The State Department of Housing and Community Development keeps track of its housing set-aside contributions and the creation of new housing. However, neither of these state agencies review the accuracy or implications of the data the Agency submits. In fact, the State has not conducted a comprehensive study of California redevelopment activities since 1985, and prior to that, 1975. RECOMMENDATIONS While the following recommendations address management improvements for the Agency, they reflect management principles that may help to enhance the performance of other CRAs, as well. The Agency should ensure that each project area has measurable goals and objectives against which redevelopment progress can be evaluated. Measurable goals and objectives will help the Agency stay on track as well as allow a more thorough review of its annual accomplishments. The Agency can use such information to monitor performance and to identify issues and accomplishments for internal and external reporting. The Agency should develop three to five year management plans with outcome performance measures and review them annually. A revolving three to five year plan requires the Agency to be forward-looking and self-adjusting. The Agency should set both short and long term goals and objectives and revise them as appropriate. The Agency should develop and use such a plan to ensure that it is making sufficient progress for each redevelopment project and that all redevelopment activities support the mission and goals of the Agency. The Agency should conduct formal risk assessment and develop contingency plans prior to major commitments. Whenever significant change is planned (e.g., long term commitment of real property), an analysis of costs and benefits as well as alternatives should be developed. A formal (e.g., "pro forma") analysis provides both an audit trail and a basis of discussion for alternatives. In large scale or complex projects, the Agency should consider retaining the services of an independent financial/business advisor. We found numerous examples of the appropriate use of redevelopment consultants, real estate analysts, attorneys, and auditors. To supplement this, when major (large dollar amounts or complex) project decisions are to be made, the Agency should seek an independent financial advisor with a business management background. This advisor should provide a fresh perspective and insights on project-specific issues as well as Agency-wide business concerns. The advisor may identify alternatives the Agency might not have considered on its own. The Agency should corroborate information used to support its annual housing findings with related information found in other reports. The Agency should monitor both housing program inputs (i.e., annual funding allocations) and outputs (i.e., number of housing units rehabilitated) to develop a better picture of the City's progress towards meeting low and moderate income housing needs. Such analysis would help determine the effectiveness of existing housing rehabilitation programs and whether the Agency needs to design an alternative program using its low and moderate income housing fund. The 1994-95 Grand Jury should commission a study on the feasibility of establishing benchmarks concerning the performance of CRAs in the County of Los Angeles. The Grand Jury could oversee the development of the recommended study to be completed by a qualified professional. This study should lead to a benchmarking system that is: Collaboratively prepared -- CRAs in the County should help identify the types of benchmarking information most valuable to them. Non-intervening -- Benchmarking information should be provided to CRAs for their voluntary use. Focused on effectiveness -- The extent to which redevelopment projects in the County have met their goals and/or contributed to desired outcomes. Balanced -- Including measures of efficiency regarding Agency's performance as an organization. Enables peer group analysis -- Benchmarking information should be presented in a way that acknowledges the variety in CRAs and identifies the key characteristics that would group similar CRAs together. The Board of Supervisors should recommend that the State develop performance measures for which CRAs are responsible to report. While the State may not have the resources to monitor the performance of CRAs, it can help to make the appropriate performance data available. By compiling and publishing basic performance measures (e.g., percentage of increase in assessed valuation, number of new jobs created), the State would provide a basis for more objective public evaluation of redevelopment practices. [Return To Grand Jury Index] [Return to Main Page] APPENDIX DOCUMENTS REVIEWED Documents from the Monterey Park Redevelopment Agency Annual Financial Reports, 1989-1993 Annual Reports, 1991-1993 Annual Reports of Financial Transactions of Community Redevelopment Agencies, 1991-1993 City Ordinances Concerning Freeway Development Project No. 1, Central Commercial Project, and Merged Redevelopment Project Communications Between Agency and County Regarding Merger Concept Fiscal Review Committee Report Regarding Merged Project Amendment Area Housing Set-Aside Findings and Resolutions Pass-Through Agreements for Freeway Development Project No. 1 Pass-Through Agreements for Central Commercial Project Program Summaries, 1991-1993 Market Studies for Hotel Development Redevelopment Plan for Central Commercial Project Redevelopment Plan for Amendment No. 1 to the Merged Development Plan Report to Council for the Merged Redevelopment Project Amendment OTHER REFERENCES Auditor General of California, A Review of Tax Increment Revenues Provided to School and Community College Districts from Redevelopment Project Areas, December 1990. California Debt Advisory Commission, The Use of Redevelopment and Tax Increment Financing by Cities and Counties, 1985. California Redevelopment Association, Citizen Guide to Redevelopment. Second Edition, 1994 California State Department of Housing and Community Development, Redevelopment Agencies in California: The Effect of Their Activities on Housing, FY 1990-92 Logan, J.R. and Molotch, H.L., Urban Fortunes: The Political Economy of Place. Berkeley, CA: University of California Press, 1987, pp. 174-5. [Return To Grand Jury Index] [Return to Main Page]