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Solimar Research

Insight: Has The Funding Spigot For Planning Run Dry?

Bill Fulton on
Dec 4, 2012

Five years ago, the planning and development world in California was flush with money. With 20% of the nation's planners and at least that percentage of real estate developers, the state was awash in plans. Big general plans were paid for by flush general funds. Redevelopment agencies had plenty of money to update their redevelopment plans and then subsidize the resulting projects. Ambitious specific plans to accommodate flashy new projects both infill and greenfield were paid for by developers itching to build.

That world feels like a lifetime ago for most planners and developers in California today. Although the state's real estate prices are inching upward and construction has clawed its way upward from an astounding low in 2009, business is still slow. The planning and development apparatus has shrunk significantly maybe permanently since the heady days of the 00s. Indeed, the whole development industry in California has shrunk so much that the Construction Industry Research Board always the most reliable source of information for new housing starts in the state has basically gone out of business.
 And even more worrisome is the fact that most of the funding sources that have covered the planning gap since 2008 are on their way out. The $6-billion redevelopment machine is already gone. Proposition 84's $60 million or so in planning grants will be depleted after one more round of funding. Developers themselves aren't interested in funding big planning efforts these days. And the federal Sustainable Communities planning grant program was zeroed out in the current fiscal year after being funded at $150 million previously. It may come back at a lower level maybe $50 million nationwide but it will probably provide funding for, at most, a few projects in California over the next couple of years. Not for decades have local planning departments been so thinly staffed; and never have there been so many unemployed planners in California.

Yet California's development context is changing dramatically and odds are that local governments around the state are going to have to revise and update a lot of plans in the next few years. For one thing, the whole climate-change thing has altered the regulatory context. Greenhouse-gas reduction strategies are now more or less mandatory, and as a result "climate action plans" are becoming common. Also, the real estate bust has resulted in a fundamental change in what developers want to build or, at least, what they can get financed. The rush both single-family suburban tracts and mixed-use infill projects has more or less stopped, and developers are now pushing rental apartment projects often much more dense than the mixed-use projects envisioned by old plans -- because that's what banks will lend on. And finally, all those plans done during the real estate boom eight, 10, 12 years ago are getting old. That means, at least in theory, that they are legally vulnerable.

To be sure, some local governments are squeezing their own funds to pay for plans they have to do. Most cities are taking housing elements seriously, though the going rate for them is headed downward. More and more cities are also doing climate action plans largely because doing such a plan up-front and devising citywide strategies for greenhouse gas emissions reduction is actually less expensive than going project-by-project. (In the case of both housing elements and CAPs, fear of getting sued is a big factor.) And a surprising number of cities are still doing general plan updates with money they've squirreled away, though these efforts tend to be more focused and less wide-ranging than they used to be.

Overall, though, there's not much planning going on. So how will it get done over the next few years? There are three answers: transportation money, developers, and (horror or horrors) efficiency. And there's a wild card: The state's cap-and-trade money.

1. Transportation Money

The conventional wisdom is that there isn't enough transportation money around. State and federal gas tax rates haven't gone up in 20 years, while people are driving less in cars that get better mileage. The federal Highway Trust Fund is bankrupt propped up by loans from the federal general fund and the state's accounts aren't much better off.

But many transportation agencies are doing pretty well, thanks largely to countywide transportation sales taxes, and increasingly these agencies are shifting funds to planning on the theory that better land use planning affects travel demand and also makes it easier to implement SB 375. L.A. Metro, for example, is about to dole out $10 million to localities in Los Angeles County for a program commonly known as "TOD III" the third round of funding for transit-oriented development planning efforts.

It's important to note, however, that this money will go only in one direction away from greenfield development and toward infill, mixed-use stuff.

2. Developers

OK, developers have no money at the moment. But they do have chutzpah, entrepreneurial skill, and access to people with capital. And especially on the urban/infill side, they recognize that the end of redevelopment left a big hole. They can't easily drop their infill projects into urban locations unless there's a plan in place that makes it easy for them to do so, as well as public (or public-private) efforts to assemble land and build infrastructure.

So look for savvy developers to figure out how to construct a public-private or non-profit alternative to redevelopment, which can engage in large-scale plans and find new ways to finance infrastructure coordinated with private development. Civic San Diego the transmogrified Centre City Development Corp. is the closest thing so far, though it's still basically a city entity.

3. Efficiency

Oftentimes, nobody involved in the planning process has much incentive to increase productivity and efficiency in planning processes. Government agencies begin with either a set pot of money (for their own plans) or money from developers (especially for environmental review); and often they don't track their own staff time against planning projects very well. Consultants are in the business of spending the money the government has. And, frankly, a lot of the most expensive parts of the planning process, especially public meetings, are labor-intensive and therefore expensive.

Nevertheless, look for developers, government agencies, and consultants alike to come up with more efficiencies to stretch the dollars farther. There have been a variety of attempts over the years to figure this out, ranging from computerized, do-it-yourself planning templates to among large firms outsourcing work to offices in Asia, where labor is cheaper. But nobody has ever really cracked this question. There'll be a lot of pressure in the next couple of years to do so.

4. Wild Card: Cap-and-Trade Funds

The state just held its first, apparently successful, cap-and-trade auction, generating money from greenhouse-gas emitters. There'll be a huge scramble in Sacramento over what to do with this money, but it's likely that at least some of it will flow toward planning especially if the planning is designed to reduce greenhouse gas emissions. It's up to the Office of Planning & Research and the Strategic Growth Council to lean on the Air Resources Board to make this happen, but the most likely outcome is that some money will be used to replace the dwindling Prop. 84 planning resources.