Redevelopment: Grabbing other people's money
Sunday, January 30, 2011 at 6:32PM Two mistakes frequently mar news reports on the fight over Gov. Jerry Brown’s redevelopment proposals.
The first labels Brown’s plan a “state grab” of local redevelopment revenue. It is easy to understand how the media might make this error. “State grab” is how local officials like to spin the fight: They, the virtuous defenders of local government, are the victims, set upon by the big bad state. Many editors and reporters seem inclined to accept the local home-team spin as gospel truth. But in their uncritical acceptance of spin they confuse the public about who are the real grabbers and the grabbed in this fight.
Consider how redevelopment works. A local government, usually a city, designates a portion of its jurisdiction “blighted” and declares it as a redevelopment area. When that designation is made, the amount of property taxes that flow from land and buildings in the area to local governments—city, county, school districts—is capped.
Going forward, for the life of the designation, any increase in property tax collections from that area above the cap is diverted to the redevelopment agency, which uses it to fund infrastructure, subsidies to developers, and its own operations. This is true even if the increases are entirely the result of normal events—inflation, reassessment of properties at change of ownership, or new construction—unrelated to any of the agency’s activities. To put it baldly, the redevelopment agency grabs all the growth, known as the tax increment; the schools and county get nothing.
In practice, things aren’t quite so stark. When redevelopment areas get proposed, other local governments are often able to bargain for a share of the tax increment. And schools get made whole by the state, which backfills their lost revenue to the tune of $1.8 billion a year. But the essentials are clear: Redevelopment agencies are the real grabbers at the expense of other local governments and the state budget.
Brown’s budget seeks to end that grab. He proposes to abolish redevelopment agencies as of July 1, 2011. In the first year, this would make available $1.9 billion of tax increment above redevelopment agencies’ existing obligations for bond payments and pass-through agreements with other local governments, money Brown would use to close the budget gap. After that, all the property tax increment revenues would once again flow to school, city, and county coffers as they did before the redevelopment agency existed. No more grabbing.
The second common mistake is to report that Brown is proposing to end local redevelopment. In fact, Brown simple wants to change how redevelopment is financed. He has asked the Legislature to pass a constitutional amendment to permit local governments to raise taxes and issue bonds for infrastructure and redevelopment with the approval of voters.
This alternative would let cities to do everything they do today with redevelopment: erect parking lots for museums, subsidize mermaid bars, hand out goodies to auto dealers willing to move from the next city over, build sports palaces for millionaire athletes and billionaire sports team owners. The only difference? Instead of financing it by grabbing other people’s money, they would have to do it directly and openly, with public consent.
That’s why Brown’s proposal throws mayors and other city officials into such a tizzy. It’s a small but telling blow against their privileges under California’s dysfunctional Prop 13 operating system.
That system absolves local elected officials of any responsibility for raising the tax dollars they spend and reduces public scrutiny of how they spend it. It lets them buy the goodies their constituents and campaign contributors like—from shiny downtown buildings to bloated police pensions—without having to ask for the money to pay for it. When their irresponsible decisions lead to unbalanced budgets and cuts in day-to-day services, they just point their fingers at the state Capitol for grabbing “their” money. If the latest PPIC poll, in which voters approved of Brown’s redevelopment proposal by more than a five-to-two margin, is any indication, at least one small piece of that system may be tottering.
Reader Comments (3)
I think this piece is very interesting and balanced. But I think it misses one piece of the impacts of eliminating redevelopment - the removal of $1 billion in local funds for affordable housing that will go away when RDAs go away. When the state allowed cities to create RDAs, they wisely mandated that 20% of the tax increment fund affordable housing opportunities, so that in these new "un-blighted" parts of a city, low and moderate income households were not excluded. That $1 billion in funding for affordable housing is the largest source of money for affordable housing development, after the federal government, in the state, and that doesn't just get reallocated if RDAs go away - it gets lost totally. Since an affordable housing development needs about one-third of its funding to come from local agencies, this action, without any alternative funding plan in its place, will effectively end new affordable housing construction in the state. I think this is the third mis-reporting of the issue in the media - not enough focus on what impact this has on affordable housing.
Fine post that sheds light on this obscure corner of California government -- at least it was until the governor focused on it. Mark is right on the money about how these redevelopment agencies function outside of public scrutiny. They are poorly understood at best.
It's difficult for me to see this article as balanced. First of all, Redevelopment has been around for years. This is nothing new to the State and now that they are at the end of their financial rope they claim that they need to change the rules. The State has painted itself into the corner with their poor fiscal management and their inability to create private sector jobs with any benefit coming back to them which local government has been able to do for years. The projects mentioned in the article I'm sure used Union Labor, increased the land value of property around the area of the project and created new jobs. Business' such as hotels and restaurants and office space in those areas benefit as well. So what does a local community get when the State takes redevelopment funds away? I don't think it will be much if anything at all when you look at their track record. What happens to all the money that would come to our schools from the lottery, which is nothing but a tax on the poor. Every year the State holds up the teachers, law enforcement and colleges and use them as the poster children for the State being on the edge of financial melt down if we don't act. So we as residents go along with tax increases and such to only have the State come back the next year and do it again. Had the State taken care of business years ago they would not be in this mess. You can't blame it on Redevelopment. Why can't we blame it on the Prison Guard Union, or a poorly handled pension fund for an over staffed State government? And what about the affordable housing? Is the State going to step up and continue to assist those 400 Cities with continuing to create and preserve affordable housing? I've worked in Redevelopment on both sides of the counter and I can't believe the level of ignorance that exists when it comes to individuals who work in government and have no idea how jobs are created throughout this State as a result of Redevelopment. And just as a bit of information, there is a law that prohibits big box retailers from jumping from one City to the next when Redevelopment is involved. When I read an article that makes a claim that this is currently a common practice of Redevelopment it tells me that the person understands very little about Redevelopment.