Redevelopment: Grabbing other people's money

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.