Workers install the red carpet in front of the Kodak Theater on Hollywood Boulevard in Hollywood, California, on February 23, 2011.
Workers install the red carpet in front of the Kodak Theater on Hollywood Boulevard in Hollywood, California, on February 23, 2011. - 
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Bob Moon: Did you watch the Oscars last night? That gala has taken place for almost 10 years now at the Kodak Theater, in the center of Hollywood. The complex that includes that theater was partly paid for by public money. Now, though, a $25 billion hole in California's budget means that stream of public money may soon end.

Marketplace's Jennifer Collins has the story.

Jennifer Collins: The Kodak Theater is the gilded center of the Hollywood and Highland complex. There's also a high-end hotel, a fountain and a four-story mall. Local resident Marion Gore says she comes here as little as possible.

Marion Gore: It's really not user-friendly. Not on any level -- not for shopping, not for events that I've come to.

Hollywood and Highland is one of thousands of projects in California partly paid for by community redevelopment agencies. The state agencies help finance projects through bonds and then use a share of the property taxes to pay off debt. For Hollywood and Highland -- the agency kicked in nearly $100 million of the more than $600 million it cost to build the place.

Then, three years after it opened, the developer sold the complex at a huge loss -- and that was before the real estate market collapsed. Bob Blue is with a Hollywood preservation organization.

Bob Blue: By any stretch of the imagination, it's a financial failure.

But the complex did help attract tourists and shops to the area -- which also includes the Hollywood Walk of Fame, Grauman's Chinese Theatre and Madame Tussauds wax museum. Madeline Janis is on the board of the L.A. redevelopment agency.

Madeline Janis: You go to hotel owners in Hollywood and they'll say, "Thank God for the Hollywood and Highland project. It helped us bring our business back.'

Dozens of states use redevelopment programs to finance similar projects. But now California Governor Jerry Brown says his state's agencies should be shut down. They lock down as much as $5 billion in taxes that could be put toward education and other programs.

Steven Frates teaches public policy at Pepperdine University.

Steven Frates: There's no question it has distorted development. And in terms of distorting cash flows of government, you can make a strong argument that its time has passed.

California lawmakers are still debating whether the state should roll up the red carpet on projects like Hollywood and Highland -- and other states will be watching.

I'm Jennifer Collins for Marketplace.