The Los Angeles Community Redevelopment Agency, which plays a role in virtually all of the city’s redevelopment activity, is perhaps the region’s most criticized agency, save possibly the Metropolitan Transportation Authority and L.A. Unified School District.

Labor and liberal activists say the CRA provides subsidies to fat-cat developers at the expense of high-quality jobs. Taxpayer and homeowner groups say it diverts revenues from vitally needed services like police, fire and schools. Small businesses say the agency rides roughshod over their rights when it comes to eviction. And those in outlying areas say that, until recently, the CRA has focused too heavily on downtown.

This widespread, longstanding criticism has been compounded by a report critical of the CRA’s performance on certain redevelopment projects and internal memos indicating the agency faces a severe budget crisis.

“The CRA is definitely an agency on the defensive,” said Mott Smith, editor of The Planning Report.

CRA Administrator John Molloy says most of the criticism has been triggered by the redevelopment process itself, not by the way the agency has handled its mission. He also says the City Council’s recent efforts to take over the agency are “not a reflection on the performance of the CRA, but an effort to make more efficient use of all the economic development resources of the city.”

So how did this 50-year-old agency, which began benignly enough as a means of redeveloping inner-city areas being vacated by middle-class flight to the suburbs, get such a bad rap?

The answer lies with its core mission: using its power of eminent domain to seize private property to assemble large tracts of land in economically depressed areas. That land is then turned over to private-sector developers who typically with the help of some agency funds jump-start the revitalization process.

To accomplish its mission, the agency uses a tool unique to the redevelopment world: tax increment financing. As a redevelopment project is completed, any increases in property taxes resulting from the increased economic activity go to the redevelopment agency instead of the city’s general coffers. The redevelopment agency can then plow the money back into new projects in the area, raising economic activity and taxes even further.

“The purpose of redevelopment is to go into areas where the private sector has not been investing,” said Don Spivack, CRA’s deputy administrator for community development. “As a result, the areas are already in a downward spiral the buildings are deteriorating, the infrastructure is crumbling. As a public policy, it makes sense to try to reverse this deterioration, and that takes a public investment.”

In some areas, such as downtown’s Central Business District, the redevelopment process has worked well so well, in fact, that nearly 20 years ago, former San Fernando Valley Councilman Ernani Bernardi forced through a cap on the agency’s ability to collect tax increments from the Central Business District. At the time, Bernardi argued that the CRA was drawing too much money out of the general fund. Since then, the City Council has placed spending caps on several of the project areas.

While downtown generated a tidal wave of tax increment, other project areas, like Crenshaw, have generated tax increment far below original expectations. In some areas, little or no revitalization has occurred.

“Look, many of these areas have been in decline for 30, 40 or even 50 years,” Spivack said. “It takes a long time to turn these areas around. Sometimes we are more successful; sometimes we are less successful.”

Spivack and CRA Administrator John Molloy say the recession of the early ’90s has been the primary culprit for the recent shortfalls. But critics say that the projects themselves were too risky and that CRA officials were overly optimistic.

“We have put a lot of money into some of these projects that hasn’t paid off,” said David Runsten, professor of urban planning at the UCLA School of Public Policy and Social Research.

Runsten co-authored a study that looked at nine CRA projects and concluded that only a few of them have yielded a return, either in strict financial terms or in terms of creating high-paying jobs.

Such findings have contributed to tough times. According to an internal agency memo leaked to the media late last year, the CRA faces a $40 million deficit over the next five years.

In an interview last week, CRA Administrator John Molloy dismissed the internal memo and said there is no deficit. “That figure is imaginary,” he insisted.

The agency’s mixed track record and the internal memo alluding to a supposed structural deficit have given impetus to a long-running attempt by the City Council to assume control of the agency, as other city councils have done up and down the state.

Under one envisioned restructuring, the various economic development functions now scattered among various city departments would be consolidated into a single economic development department, while the CRA’s authority to build affordable housing would be shifted to the city’s Housing Department.

In early March, the council voted to set up an ad hoc committee to study that restructuring plan, as well as other options. However, no action is expected on the matter for several months.

Meanwhile, the CRA has been under attack on another front: from businesses forced to relocate to make way for redevelopment projects. While the agency has been forced to curtail its use of eminent domain it no longer targets homes, for example it is still the subject of animosity from others whose properties are seized.

“When they are taking small businesses, which are a lot of the people I represent, they very often offer little in the way of goodwill for the business,” said Roger Sullivan, a partner in the L.A. law firm of Sullivan, Workman & Dee. “It puts a terrific strain on the business owner. They are given a 90-day relocation notice. Then they have to battle for the CRA to help move their fixtures and equipment. It’s really very stressful.”

Runsten said this animosity dates back to the late ’60s and early ’70s, when the CRA seized and razed some 7,000 homes in the Bunker Hill area to make way for office high-rises.

“The whole Bunker Hill episode created a great deal of friction and conflict that dogs the agency to this day,” said Runsten. “That helped create the atmosphere of conflict that has led people to fight the agency at various points in its history.”