SAN FRANCISCO CHRONiCLE - FEB 16, 2003

"Redevelopment - San Jose Shopping Center Blues"

- Doug Kaplan

A small businessman gets even smaller

If Gov. Gray Davis wants a good place to launch his attack against California's multibillion dollar budget deficit, he might want to ask Dennis Fong.

Fong emigrated to the United States as a child in 1962. His family settled in San Jose, where his father took a job as a butcher in a Mexican market and his mother found work in a cannery. He attended schools in San Jose, graduated from college, married, had a child and in 1982, with another child on the way, Fong decided to go into the grocery business.

With five partners, he bought a small grocery store in an east San Jose shopping center from an owner who was having trouble adapting to the shopping habits of the neighborhood's growing Latino population.

20 years after Fong bought the grocery store, 40 years after he arrived in America - the San Jose Redevelopment Agency exercised its power of eminent domain and voted to seize Fong's shopping center.

"The first thing I did was get rid of the Chinese food and put in a tortilleria," says Fong. "We started advertising on Spanish radio, and within six months sales tripled."

But just as their business was taking off, the partners were horrified to learn that a portion of the separately owned parking lot that served the market and adjoining stores had been seized for nonpayment of property taxes.

Fong offered to buy the parking lot from its new owner. He also approached the owners of the adjoining buildings, including a national real estate investment trust, who all jumped at the chance to get out of a difficult center in a difficult neighborhood. He closed a rowdy pool hall and nightclub, sought tenants who would serve the local residents just as he had done in the grocery store, and soon the center began to fill. By 1992, Fong had assembled enough property to risk a major renovation. He hired an architect, submitted plans to the city and obtained approvals to remodel.

He then did something that he would later regret: He sought help from the government.

With the San Jose Redevelopment Agency as a partner and his proposed buildings already leased, Fong knew he could qualify for a commercial loan. But it wasn't that simple. The agency's staff "told me it looked like Taco Bell," he remembers. "They made me tear up my plans and start over."

For the next two years, Fong once again navigated the city's complex process, all the while dealing with typical developer risks, including the loss of important tenants. He endured hearings, reviews and requests for additional information from city staff. (A typical request from a city planner: "I still need the revised lighting plans from the center and the photometric study to allow for white lighting for the pedestrian walkways so I can send it in to Lick Observatory for their comments.") But Fong persisted. Finally, with the needed permit, he began to build.

But the agency was still not happy. After Fong completed two new buildings and had begun to renovate the original center, the agency decided his project was progressing too slowly. It terminated its agreement, and later voted to turn his project over to an out-of-town developer who was about to become the agency's partner in a shopping center project across the street. (It would be too "confusing to national retailers if two developers were recruiting tenants at generally the same time for the same market area," said an agency report.)

On Nov. 19 - 20 years after Fong bought the grocery store, 40 years after he arrived in America - the San Jose Redevelopment Agency exercised its power of eminent domain and voted to seize Fong's shopping center.

"Our families lost everything in China," Fong's wife says, "and now it is happening to us - in America."

What happened to the Fongs is not only wrong, it is expensive.

The San Jose Redevelopment Agency plans to spend about $50 million rebuilding the two shopping centers. And this is just one of a large portfolio of agency projects toward which San Jose's property taxpayers will contribute about $1 billion over the next five years.

The local agency is one of 375 similar redevelopment agencies throughout the state that are doing the same thing. Altogether, in what must surely be one of California's least-known financial scandals, California's redevelopment agencies are now consuming about 8 percent of all property tax money. Our taxes should go to build public schools, not to rebuild private shopping centers. And our taxes shouldn't be used to frustrate honest, hard-working businesspeople like Dennis Fong.