Santa Monica Place: Might over Blight and the Bottom Line:

Part I Redevelopment In March of 1972, Santa Monica City Council decided to begin an urban renewal project that would convert the two blocks between Broadway and Colorado and Second and Fourth Streets in downtown Santa Monica into a regional shopping center: Santa Monica Place. Urban renewal projects of this scale are sometimes done through a city’s Redevelopment Agency which is a legal entity within the city. In Santa Monica, City Council appoints itself to sit as the Redevelopment Agency. Redevelopment Agency projects are a means by which a city can use eminent domain to take over property from owners in order to bundle  separate parcels of land into one large parcel. They are often resold to a developer who agrees to rebuild the area according to a redevelopment plan prepared by the agency. In California, for an area to qualify for redevelopment of this kind, it has to be ‘blighted’ which means it can no longer support its own infrastructure with the tax revenues it generates and shows little prospect of being able to do so. There are advantages to redevelopment. Most significant is the tax revenue income. Property taxes rise significantly when new developments go in. In exchange for its efforts, the redevelopment agency receives all of the additional revenue to reinvest in the project without having to share it with the county, school districts or other traditional recipients for 35 years during which time bonds issued to pay for the project are paid off. In building a shopping center, a city would also benefit from additional sales tax revenue and increased taxes on stock in trade. This money goes into the General Fund. And, a city council pursuing redevelopment projects has the opportunity to decide what it would like to see built in a particular area and to choose who will build it according to the parameters they set. Sighting (siting, citing) Blight It was the early 1970s and the Santa Monica Mall (today’s Promenade) was struggling financially. The two square blocks at the south end caught the eye of city council as a way to raise revenues for the city. The city owned all the properties on the eastern block bounded by Third Street, Broadway, Colorado and Fourth Streets. The westerly block (between Third and Second, Colorado and Broadway) was taken up mostly by the publishers of the Evening Outlook, a local Santa Monica paper that had thrived here since 1875 and was thriving still in 1972. The rest of the block comprised small businesses and a few residences. The city declared the area “blighted” and moved forward with the shopping center redevelopment project. The city put a freeze on all building permits in the proposed redevelopment area in March 1972. Any new development or repairs in the area would make it more costly to acquire, and might make blight findings difficult to make. “I want something that is imaginative enough that it won’t be obsolete in a dozen years.” — Council Member John McCloskey to the Outlook on May 5, 1973. Motivated mainly by the promise of greater tax revenues, City Manager Perry Scott said that the council hadn’t decided on a concept for the proposed 15-acre redevelopment area in February, 1973 when builders were presenting plans to try to win the contract. The City Council chose the Rouse Company of Columbia, Maryland to develop the new Santa Monica shopping center with Frank O. Gehry as architect because they felt it was the more imaginative proposal. The city would acquire and clear the land for Rouse and provide the two costly parking structures. The large corner department store structures were not designed by Frank Gehry, whose talents were applied only to the shopping center core and the parking structures. A Shifting Financial Picture A bond issue of $15 million would be needed to pay for the cost of the two parking structures and the cost of acquiring and clearing the land. This amount was affected by the Brathwaite Act of 1972 that  increased land acquisition costs by requiring greater compensation for displaced businesses and residents. Council and staff felt confident that the additional property tax revenue as well as the newly captured sales tax revenues would easily pay for the parking as well as richly pad the city coffers. What they didn’t anticipate was a change in several tax laws, two by Ronald Reagan that reduced the tax burden on businesses, and one by Prop 13, which cut deeply  into anticipated profits late in the game. The City was able to negotiate with Rouse on the Prop 13 loss in order to maintain property tax revenue at a level that would repay the bonds but no more than that. Any other profit that the city benefited from would have to come from sales tax revenue. “For perhaps the first time, I wish that I were still director of planning for Santa Monica, so that I might play some small part in carrying the program to fruition.” — Evening Outlook commentator and former Santa Monica Director of Planning Les Storrs wrote in reference to the proposed shopping center in his March 22, 1972 column. Environmental Director John Jalili said, “There will be no development if we do not spend $15 million, based on what developers can afford to pay.” He went on to explain that most shopping centers are built in outlying areas where land is cheap. But in an urban core, without a hand from the city, no development would ever take place. Councilmember Donna Swink told a group at the Broken Drum Restaurant that she hoped the new shopping center would “capture” $50 million in sales that were going to other shopping districts. “I truly believe our city staff are dedicated people and that the city is being run more like a business than ever before,” she continued. She saw the fact that private investors had put up $53 million to develop the mall as proof that this was a money making proposition (Outlook 9/30/76). Other council members felt that the loss of revenue from declining businesses downtown was having a  larger and larger impact on the city coffers and would soon deprive the city of basic services such as police and fire protection. They also alleged that project opponents were against progress and claimed that the shopping center would be an important and attractive new amenity for residents and visitors —  with its  specific flavor and character left to the businessmen and others with commercial interests. “I don’t believe in subsidizing department stores.” Objections were coming from merchants on the mall (today’s Promenade) as early as 1973. They feared that the new shopping center would put them all out of business. Local groups emerged in opposition to the project. They were not confident that the project would create enough revenue to repay a debt that could be as high as $15 million. Many felt that the risk of a bond offering, needed by the city to get the land and build the promised parking, was too great. Resident David Shulman told the Evening Outlook on Jan 20, 1976, “I don’t believe in subsidizing department stores. Everybody’s for free enterprise but nobody’s for competition.” Others felt that “natural laws of the business market” would adequately resolve the problems of the downtown district and the result would be more compatible with the existing mall businesses. Only one council member, John McCloskey, agreed with the opponents. The Lawsuit, part I: Blight? The Legal Aid Foundation of Los Angeles brought suit against the city to block the shopping center on behalf of Sharon Gilpin and Lynda Vitale. Robert M. Myers of the Venice office of the Legal Aid Foundation represented the plaintiffs free of charge. Myers, 26, had been practicing law for only one year. He later became the Santa Monica City Attorney. Noted attorney Eugene B. Jacobs, a redevelopment law expert with experience in over 90 cases, was retained by the city. The major thrust of the suit was the fear that the unnatural rise in taxes and rents in the area would drive out low income residents creating economic inequity. It also called many other issues into question. Had the city followed correct legal procedures to declare the area “blighted?” The city owned the westernmost block – was it responsible for the condition of the property? Was the easternmost block, occupied substantially by the Santa Monica Evening Outlook, truly blighted? Did the city make a proper statement of findings for the blighted area? Was the freeze on development in the area designed to add to the disrepair? Was there proof that the private sector couldn’t develop the area without government intervention? The suit also claimed that the city’s general plan was invalid and thus this redevelopment project was also invalid; and thus tax revenues would be illegally diverted from agencies that provided public services. “The city was always focusing on how beneficial the shopping center would be to the city and not if there were alternative modes of development,” said Myers in February 1977. And in March 1977, “The evidence before the city did not show the area to be blighted. It did show that the city needed a retail shopping center. The city started the redevelopment process in reverse. First they decided they needed a retail shopping area – then they decided this was a blighted area,” Mr. Myers explained. To be continued.Nina Fresco is a Landmarks Commissioner.