A PLAN TO REBUILD ALTADENA AND BEYOND
INTRODUCTION
Rebuilding Altadena will be a task requiring all of our community. Our nonprofit is focused on finding sustainable paths forward for community development and we see the rebuilding of Altadena as the example of how we can rethink community development corporations. We have been involved in multiple projects examining these themes and think this is the time to apply those learnings to something tangible.
The plan will have three distinct stages:
Stabilization of the community and land values
Rebuilding Housing
Economic Development
Each stage requires different goals and stakeholders and should be seen as separate, not tied together per se. It is our hope this report gives community leaders the blueprint to begin the necessary steps of guiding our community (and others like it) back from catastrophic disasters.
We also appreciate there must be a new way of seeing development. Our state is without resources to sustain a rebuild of the scope being envisioned. Our federal government is also at its capacity for funds availability for a rebuilding effort. The situation therefore requires a new way of thinking. Philanthropy can only do so much. It will be incumbent on policy makers to look to new sources of capital and new ways to catalyze that capital to solve Altadena and beyond.
STAGE 1: STABILIZATION
The media is full of stories of families who have lost everything because of the Eaton and Palisades fires. Generational wealth has been wiped out. The single largest asset of families has been depreciated and there is fear they will have to sell for pennies on the dollar. Because a good portion of Altadena’s community were “redlined” and bought in Altadena, there is an additional layer of complexity to this story. There should be dignity in how this next stage plays out and right now, there is nothing to give people comfort. The question is how we can stabilize the community and turn fear and anger into relief and hope.
The first step in our plan is to create a stabilization mechanism allowing those who choose to sell their land to do so at a fair market value. Fair market value should be based on the value the property held as of January 6, 2025, the date before the Eaton Fire swept through our community.
Fair market value allows property holders to determine what their property is worth and not have to sell to investors at below that value. The governor imposed a 90-day moratorium on such purchases. In that period, it is important to create a mechanism to give people options should they choose to take it.
Our plan would be to create nonprofits, with full transparency and community representation, to provide “bids” for the land people choose to sell. The bids would be offered only to allow people “an option, not an obligation.” If property holders choose to sell, the nonprofit will hold that property and wait a certain period before selling it back to whatever redevelopment occurs. The goal of the first stage is to give people the chance to get a fair price for their property, not to develop anything.
The nonprofits should receive their money from sources, including banks, under the Community Reinvestment Act (CRA), which has adequate capacity to absorb what we consider to be a $5 billion investment in Altadena (based on the number of affected properties and what their underlying value roughly is).
What’s most important at this stage is the fact the nonprofits would be accountable to the community in which they serve. It is likely the State can create the mechanism to bring in the money from CRA and place it with the nonprofits to begin the purchases and within a very short period. If the State cannot, then there is the County which can potentially do the same. Legislation has been drawn up in draft form so it can be done relatively quickly, and we see no barrier to moving such a piece of legislation.
We feel there should be options available to those who need options as waiting 3-5 years to rebuild is just too far a period to wait, and money from federal, state, and other sources will be too slow to leverage the need.
STAGE 2: REBUILD
After the community has “stabilized,” the next stage is to start engaging those stakeholders who want to rebuild and discuss the “how.”
Redevelopment will take on several different forms and frankly at this initial stage, will be different than what will ultimately be the final plan.
We envision a plan sponsored by the same nonprofits involved in the stabilization stage, or others to begin building homes as required by the community. It will be up to the local leaders to determine what form the development takes and the nonprofits or other investors will only work to enhance what local leaders envision.
Since many of those in Altadena were uninsured or underinsured, it will be incumbent on the nonprofits or developers who undertake the rebuild to think about how to bring new housing to the community. Affordability will be front of mind. Preserving community characteristics will also be critical we feel based on conversations thus far.
We also think something very critical will be how can people be able build and not be burdened by debt? There are sources available to obtain low-cost debt, but debt is still debt. What if there was a way to allow people to rebuild differently? What if we could use the California Dream for All as a model? What if investors could share in the appreciation of the equity in the home in exchange for making up the difference without the homeowner incurring debt?
Back of the napkin type figures are if 6,000 houses were destroyed by the Altadena fire, and the average square footage of the home was 1,800 square feet, the cost of building back would be approximately $10 billion at roughly $1,000 a square foot. Again, finding a “stack” of capital to accomplish this goal is multi-faceted.
Philanthropy can be a catalyst for this initial stage in rebuilding for those who have no insurance providing a seed capital for the rebuild.
Government can provide Tax Increment Financing (TIF) to bond part of the rebuild with the appreciation of property values obtained via the first stage of this plan. For instance, if a property had a $200,000 tax value and now it was worth $900,000 based on the purchase value of Stage 1, that spread is bondable under TIF and clear to investors.
Government can also “bond” monies obtained from the federal government under the Community Development Block Grant Disaster Recovery (CDBG-DR) Program. Whatever money the federal government might send, we can get a portion upfront and when the redevelopment occurs, the funds can be replenished. If we can bond up to $1 billion at this stage, that would be a major source of new funds.
Community Reinvestment Act (CRA) and private investors can assist in developing houses as well.
STAGE 3: ECONOMIC DEVELOPMENT
Alongside the housing development, there is an economic development requirement. To rebuild the small businesses and attract new businesses, which will create a vibrant community and tax base in Altadena, it is important economic development be evenly and equitably distributed. It is here we envision Community Development Corporations, using funds from CRA banks, to rebuild and relocate outside businesses within the Altadena community.
Economic development tools essentially fall into three categories, debt, equity, and tax credits. Within the debt category, there is a well-established pool of funders, including the Small Business Administration (SBA) and other community lenders. Equity is for investors but there is not a mechanism to bring scaled equity to the equation. Finally, tax credits are well known at the state and federally (i.e. New Market Tax Credits and Opportunity Zones). These components come together to create a “capital stack.”
The goal in Stage 3 is to create a fund or funds like Stage 1 where investors can participate in the development of small businesses and bring those businesses into communities. We think it is important to develop the “equity” portion of the “stack” in this stage building on the success of Stage 1. The same investors or new ones can be relied on with a similar structure as Stage 1 for businesses. The goal would be to attract and keep businesses to our community to help rebuild and strengthen it.
Stage 3 also offers philanthropy another way to participate in the economic development in what we think could be a very interesting approach- working with Congress to reimagine the Opportunity Zone and New Markets Tax Credit programs. In our plan, philanthropy can apply an excise tax paid to treasury to those investment mechanisms to invest in communities and situations like the Eaton fire. We have multiple federal elected officials on The House Ways and Means Committee to effect change.
To give an idea of what we are talking about, if the 5 largest private foundations in Los Angeles were to utilize this tax advantage, over $25 million can be invested in businesses annually forever in underserved communities and without affecting any current funding for those same foundations. That does not include many smaller ones which can be pooled together as well. Moreover, profits from those investments can be returned to the very same foundations for additional investments or grants to Community Based Organizations.
Lastly, a similar State Level Community Reinvestment Act (CRA) program for financial institutions within the State could be additive. What if we could catalyze another source of funds for rebuilding both Altadena and communities at large? Such an option would be very interesting indeed for economic development in Altadena and beyond.
CONCLUSION
The plan here is meant to be simple, digestible, and without too much jargon. The goal is to rebuild quickly, without reliance on government funds in this challenging funding environment. There is a lot to discuss, but the point here is to begin the discussion certainly, not end it. We want to get people what they need fast, give a path forward, set the tools, and begin to march to where it can go. There is a way to do it, and leadership exists to get it done.
Altadena will be a $15-$20 billion rebuild. It is a huge number, but it also one we can do. It will not all happen at once, nor will it happen from one source. We need coordination and need to understand how to get there.
Importantly, we must acknowledge the realities that the state is facing deficit for a long period of time and federal support is not likely without making concessions. We are on our own, and that is a good thing. We can move faster and without the constraints.
It is California’s time to show how things can be done. We can show the nation how we can lead the way to bringing sustainable solutions, quickly, and ensure those solutions last for generations to come. We are faced with a unique moment for leaders to show a path forward, utilizing new techniques.
It is time to begin to rise up, see what can be, and how to do it right. There is so much hurt. So many who lost so much; there is no denying any of that. What needs to happen however is to look ahead, start to discuss what can come next, and align around a plan to help people move to their next stage.
People need vision. Leaders need to lead. The resources are here. We need a north star, something unifying, and that is why we wrote this plan.
QUESTIONS & ANSWERS
Beginning with Step 1, how can we move this project along quickly?
There is draft legislation already created and submitted to elected officials at the County, State and Federal levels. The legislation needs to be implemented and should be done in the upcoming legislative session for fire relief. There is no reason to delay on this Stage other than politics as usual and special interest interference. In our opinion, the only consideration is that voters need to be addressed, and special interests should not be the ones to dictate whether a bill moves or not. The extraordinary tragedy affecting our community calls for normal rules of politics to be put aside for the interests of the voters to be the top of the list.
Why is Sustainable Community Development Corporation proposing this plan?
Sustainable Community Development Corporation (SCDC) is located in Altadena. The Executive Director and author of this document is a resident of Altadena. We have friends who lost homes. Schools we are board members of are gone. The effects are deeply personal, and we understand the steps forward. In fact, we have a specific expertise since we were developing related strategies for as the Financial Strategies Lead for the Los Angeles California Jobs First initiative and understand the various inputs (financial strategies, economic development, interplay with various levels of government, nonprofits, foundations, community based organizations, and so forth), so we are uniquely positioned to examine how new strategies can be deployed and implemented for efforts like this rebuild and others. We thought it was time to share that knowledge to bring change.
So, you are telling me the options exist today and do not require a lot of deliberation?
For Stages 1 and 3, yes. The options are already drawn up and legislation has been vetted from a legal perspective and waiting introduction. Operationalizing the components listed here should not take too long. Community input is important, but we want to keep that input focused on how we can bring benefits to our community quickly and without the encumbrances that typically limit the deployment of effective solutions.
How can we help SCDC move this vision forward?
Call and email your city, county, state and federal elected officials. If you believe your community, even if not in Altadena or the Palisades, call your elected as there may be a time when this affects you. As we say in the business, “bring the noise.” Tell them to get moving. Tell them to operationalize what is already there. There may be a time this model may be applied to your community so make it happen today and have the tools to move fast and break things. Politics is about engagement- that is how timelines are expedited. It is the voters, not interest groups, who ultimately determine who gets elected and who does not. We sometimes forget voters are the currency elected officials need to be accountable to ultimately, not special interests and these events are good reminders of the need to revert to what it is supposed to be not what it is.
What about Stage 2, the seemingly “stickiest” of all three stages?
There’s absolutely no doubt that Stage 2 is the “stickiest”, as we say in politics. A person’s house is one of their basic needs and we have enough struggles in Los Angeles with housing, homelessness, and related concerns. A home is also highly emotional, as it is where a family is raised and the biggest asset of most families. It cannot be treated as “an investment.” It is so much more.
While we have a great opportunity to “reimagine” what housing could look like, there are a lot of competing interests about the “how” and we have to be sensitive to all those considerations. At the policy level, there are a lot of concerns to be balanced with the “want” to keep things the same. We need to afford the greatest choice to people affected so they can have what they had, but at the same time, we also need to acknowledge events create changes, including some broader trends which have been accelerated as a result of this devastation. Time is needed to let events take their course, let people make choices, and then it will be important for those considerations to be factored into what comes next. In other words, making choices about development today and policy proposals would be premature. We are aware of the considerations and see multiple paths forward, but the path which will emerge has not coalesced yet.
Being that the expensive part is Stage 2, how you would this be funded?
While Stage 1 is being completed (i.e. funded and being deployed over the next 24 months), it is important to be “standing up” Stage 2. We need to understand the extent of the rebuild will be for those who choose to stay and ensure options are available to meet their needs to inform their choices.
While local elected officials have committed to expediting rebuilding, that process will still take time. Moreover, there will be a “mouse through the snake” of permitting and contractors. Also, no one wants to see building codes relaxed so much that there is the risk of another disaster to occur, so it is important we have quality work completed.
Many options have been proposed, from prefabricated homes to modular building to reduce costs of replacement. It is balancing those pieces with existing financing mechanisms (i.e. what can we afford to rebuild versus how much is available to do that rebuild).
If we can rebuild for $500 a square foot versus the $1,000 being floated around, then we can cut the cost of rebuilding approximately $6 billion. We think that nonprofits as we designed in legislation for Stage 1 should be a part of this Stage due to the accountability to the community, but that is not a given.
Money from the banks through CRA is an option. Another is potentially any settlement as a result of liability from this event. Private investors can be a part of this initiative as well with the right inducements. Tax credits are another source of funds as we outlined above through the Tax Increment Financing and even Low Income Housing Tax Credits (LIHTC) where mixed use developments are constructed (we already have some being constructed along transit corridors in Altadena).
Can you please explain the "Settlement” piece a little more?
There is a question of liability as to the cause of the fire. Assuming there is liability attached to the event, perhaps a part of the settlement is a fund, created by those at fault, to fund maybe no interest loans for up to 10 years at say $500 a square foot for the house being constructed as part of the restitution.
In other words, if you want to build beyond that number, you can self-finance or use your existing insurance to meet the difference, but if you did not have insurance, there is a base of $500 per square foot up to the size of your previous home (total amount of $6 billion or so). After 10 years, you can refinance the loan, sell your home, or take a below market rate (of say 2%). The fund will replenish itself through the repayment of mortgages. The goal is to compensate those for the loss and ensure those who were lost were compensated at a reasonable rate.
If the settlement can be worked out quickly, that would begin the rebuilding quicker, benefitting all those involved. There are other damages to be settled by the plaintiff’s lawyers, but again, it is not about performative legal actions, rather, getting people to rebuild quickly and get them home.
The above is just an idea of finding sources of money that do not exist today to help rebuild our community quickly.
If you were to do a rebuild on the scale you are talking about above, how do you help keep the costs stay at say $500 a square foot?
Like with the purchase option in Stage 1 where we stabilize prices and not allow below market rates, we cannot “mandate” the costs. Having a nonprofit or multiple nonprofits participate in the rebuild with a limited profit to ensure prices stay competitive and a set model of rebuilding could help control the costs for that stage of the rebuilding since they will have disclosures, transparency, and community accountability.
Of course, like Stage 1, it is optional. Optionality means if you want something else, you are free to choose to do so. If you want to take a different contractor, go for it. We are here to provide options, and those options are available to all. The hope is by presenting such options, we can provide a baseline to ensure the rebuild is accomplish reasonably.
Is a rebuilding effort also a tremendous Workforce Development option?
Yes, it is. And this is why Stage 2 would be a nice transition to Stage 3. Workforce Development and providing jobs training is important to our communities. In fact, if we can create entrepreneurship opportunities for people who otherwise have not had the option through stewardship models, something fantastic and something we are looking seriously at. In other words, there are many new potential options which will present once we get going with a plan, but the plan is what is needed.
What does SCDC need from the federal government right now?
It is going to be heresy to say it, but we really need legislation not money.
Money has been given thus far through FEMA and reimbursement of expenses expended at the outset of these disasters.
The most important need today is legislation around CRA to ensure we can take in money from other districts and let those banks get credit for the investments in Los Angeles. Additionally, we need a relaxation of what are called Private Activity Bonds and their cap due to the size and scope of our plan here for disasters like ours and others to come. Lastly, we need CRA to ensure disaster-related investments count automatically to CRA.
With relation to investment incentives, qualifying disasters as Opportunity Zones and allowing private foundational excise taxes to be invested in New Market Tax Credits and Opportunity Zones and claim the tax credit so those foundations can use those funds to invest in their communities and beyond would be very important for the long-term rebuild.
As it seems to be so simple - there’s a plan, there are stages and there is money - what am I missing?
At this point, it is pretty simple. There is a plan. It does not have to be complicated. Sometimes, “simplicity is the greatest complexity.”
Instead of spending energy focusing on the “if,” we need to focus on the “how.” We have resources in Los Angeles to accomplish this plan today. Remember, Los Angeles County is larger than all but 7 states, so we are a State within a State of sorts and the resources available exist.
The federal government gave us a tremendous leg up with FEMA. We have the Army Corps of Engineers to clear the land. We need a few things from them in statute or regulation which can ease a lot of the next steps, but we do not need huge infusions of direct grants, which means we can move fast.
From the State, we need legislation and tools. We do not need a lot of money either, which in this budget environment is limited. In fact, the State’s foresight to have the California Jobs First initiative fits perfectly in how we have an answer right now and a path forward. The investments have been already made.
Importantly, we have the philanthropic sources and foundations to provide leadership and money to seed part of the plan. We have access to banks which have a need to invest CRA funds and these are very basic plans to get it done and show an adequate stewardship of the funds. At this point, it is about going forward and making it happen and then adjusting, which is leadership.
The press release can be found by clicking here.