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Phil Trounstine: The Case for Why Redevelopment Must Go

In an era of austerity, diversion of property taxes to RDAs is a luxury we can't afford

To hear mayors, council members and bureaucrats from throughout California screech and squeal about Gov. Jerry Brown’s call to shut down redevelopment agencies in favor of schools, the elderly and disabled, you’d think Krusty had proposed bulldozing Main Street.

Phil Trounstine
Phil Trounstine

As John Shirey, executive director of the California Redevelopment Association, put it the other day: “I must be clear: we are stridently (sic) opposed to the governor’s proposal to abolish redevelopment and our singular goal is to defeat this proposal that will destroy hundreds of thousands of jobs and billions in economic activity.”

Strident, indeed. Hysterical, overwrought and hyperbolic, too. Seldom have we witnessed such widespread, collective urban self-centeredness coupled with apparent disregard for the social fabric.

There’s no way to know for sure, but it appears redevelopment agencies have already done what they can to hoard their loot by slapping together and hastily approving projects that would consume the same $1.7 billion in property taxes that Brown’s budget would use to keep from having to make further cutbacks to schools and social services as California struggles with a $27 billion deficit.

San Diego officials are cooking up a plan to sequester $4 billion for a football stadium for the Chargers, Los Angeles is trying to lock up $1 billion and other panicky RDAs are scheming to do the same.

Their bet is that Brown won’t sue them to recover those funds (even if the agencies are on shaky legal ground) because he won’t want all of those mayors and city officials opposing a June ballot measure to approve his budget by extending $12 billion in taxes and fees adopted two years ago.

How that will play out politically remains to be seen. But we don’t have to wait to understand the debate.

Needs in conflict: As long-ago urban affairs reporters, Calbuzz saw the powers of redevelopment used positively, to help revitalize urban areas in desperate need of infusions of investment. So we get that there are good arguments for the continuation of redevelopment, which are being blasted out to media and policy makers by the coalition to “Stop the State’s Redevelopment Proposal” (although we do wonder how much redevelopment money they’re spending on lobbying).

But California is facing a budget crisis of historic proportions that at least two and possibly three previous governors and their concurrent legislatures refused to own. And Brown has concluded that the interests of schools, widows and the disabled should have first call on funds that — according to the best, most objective studies — do little to expand California’s collective economic health when they are funneled into redevelopment agencies.

He’s right.

Redevelopment law allows cities (and counties, but they use it less) to declare a geographic area “blighted” and in need to revitalization. The property taxes in that redevelopment area are frozen and any new property taxes generated above that base may be used to purchase land, build streets and sewers, and subsidize development in the project area.

The tax increment above the frozen base can be guaranteed as a source of funds to pay interest on bonds sold on the open market. This is called tax-increment financing and it is a hugely powerful tool for urban investment because of its ability to leverage vastly more money at one time than is generated by the flow of property taxes annually.

There are some 400 active redevelopment agencies throughout California diverting more than $5 billion a year away from schools, counties and special districts and into the coffers of those agencies. The economic theory that argues for the process echoes Reaganesque trickle-down: by generating construction jobs, sales taxes and other activity in the redevelopment area, the rising tide is said to lift all boats and the region around the project area is expected to benefit. Like giving tax breaks to the wealthy is supposed to help the middle class.

Spinners for the RDAs argue that redevelopment activities support 304,000 jobs annually, including 170,600 construction jobs; contribute more than $40 billion annually to California’s economy in the generation of goods and services; and generate more than $2 billion in state and local taxes in a typical year.

Moreover, since the law requires 20 percent of the tax increment to be dedicated for low- and moderate-income housing, the RDAs argue that eliminating redevelopment will significantly undermine efforts to provide homes for those who otherwise cannot afford it.

A close look at the numbers: But the most thorough and academically sound study of redevelopment we’re aware of, by Michael Dardia of the Public Policy Institute of California, found in 1998:

“After correcting for local real estate trends, the author finds that redevelopment projects do not increase property values by enough to account for the tax-increment revenues they receive. Overall, the agencies stimulated enough growth to cover just above half of those tax revenues. The rest resulted from local trends and would have gone to other jurisdictions in the absence of redevelopment.”

A study by the nonpartisan Legislative Analyst’s Office recently concluded as much and more.

“While redevelopment leads to economic development within project areas, there is no reliable evidence that it attracts businesses to the state or increases overall regional economic development. Instead, the limited academic literature on this topic finds that — viewed from the perspective of an entire city or region — the effect of this program on property values is minimal. That is, redevelopment may cause some geographic shifts in economic development, but does not increase the overall amount of economic activity in a region. (emphasis added)

“The independent research we reviewed found little evidence that redevelopment increases jobs. That is — similar to the analyses of property values — the research typically finds that any employment gains in the project areas are offset by losses in other parts of the region. We note that one study, commissioned by the California Redevelopment Association, vastly overstates the employment effects of redevelopment areas.

“Redevelopment agencies receive over $5 billion of tax increment revenues annually. Lacking any reliable evidence that the agencies’ activities increase statewide tax revenues, we assume that a substantial portion of these revenues would have been generated anyway elsewhere in the region or state.

“For example, a redevelopment agency might attract to a project area businesses that previously were located in other California cities, or that were planning to expand elsewhere in the region. In either of these cases, property taxes paid in the project area would increase, but there would be no change in statewide property tax revenues.

“To the extent that a redevelopment agency receives property tax revenues without generating an overall increase in taxes paid in the state, the agency reduces revenues that otherwise would be available for local agencies to spend on nonredevelopment programs, including law enforcement, fire protection, road maintenance, libraries and parks.” (emphasis added)

The bottom line: In other words, despite the good arguments that RDAs make about the enormously positive local impacts of redevelopment — San Jose’s downtown and its northern industrial area are excellent examples — the evidence suggests there’s a huge cost to the state (which has to back-fill funds that otherwise would have gone to schools) and little benefit or a substantial cost to counties and special districts.

We’re not even getting to other issues, like the fact that the only “blight” a lot of redevelopment areas had before they were made projects was pear blight, and the fact that there’s virtually no oversight of how redevelopment funds are spent (and millions of dollars are spent outside the law’s intent to subsidize flagging city budgets and improve stable neighborhoods). That’s just piling on.

Brown’s budget would ensure that RDAs will receive enough money to cover the debt service on bonds they have already issued (although the structure of the agencies that will make those payments still must be worked out).

But in an era when California is faced with draconian cutbacks to higher education, schools, parks and public safety, the diversion of property taxes to redevelopment agencies is a luxury the state can no longer afford.

— Phil Trounstine co-founded Calbuzz.com with veteran Santa Barbara journalist Jerry Roberts. A communications consultant, pollster and political writer, Trounstine is the former political editor of the San Jose Mercury News, former communications director for Gov. Gray Davis and was the founder and director of the Survey and Policy Research Institute at San Jose State University. He is co-author of Movers and Shakers: The Study of Community Power. This commentary is republished with permission from Calbuzz.com.

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