September 12, 2012

Resuscitating redevelopment in California

By Resuscitating redevelopment in California

Columnist Dan Walters has been following recent bills introduced into the state legislature to resurrect redevelopment in California.  As you may recall, late last year the California Supreme Court upheld AB26, the bill which eliminated California’s redevelopment agencies.  This marked an important and hard-earned victory for property rights advocates because these agencies were notorious abusers of eminent domain.  In accordance with an unfortunate state law, city officials would collaborate with these agencies to declare large urban areas “blighted” in order to seize people’s homes and businesses and devote the underlying land to more lucrative uses.  Cities welcomed the opportunity to replace lower class neighborhoods and old business centers with new malls, big box stores or sports arenas.  Promising to “clean up” unsightly areas made politicians popular with voters and tax increment financing provided a method for funding these projects.

Under tax increment financing, once a city declares an area “blighted,” the property tax assessment rate becomes frozen; any increase in tax revenues above that level goes directly to the redevelopment agency to pay off any debts from the redevelopment project and then to support other development activities within the redevelopment zone.  As a result, cities can keep the increased tax money local and avoid sharing it with either the county or local school district.  It is not surprising, therefore, that cities seek to declare as much property as possible “blighted.”  In Southern California, for example, city officials in Diamond Bar tried to declare the entire city blighted in 1997; by 2004, 22% of San Bernardino County and 25% of Riverside County fell within blighted zones.  Even Coronado, a ritzy vacation destination on the ocean near San Diego, declared its entire city—multi-mullion dollar homes and all—blighted.  By 2005, redevelopment agencies owned $12.9 billion worth of property in California and were receiving 10% of all state property taxes.  It’s no wonder that Jerry Brown saw ending redevelopment as a way to plug the state’s budget deficit.

Now, however, it looks as though the death of these agencies may be short-lived as at least four different bills seek to reincarnate them in slightly different forms.  Two of these, Senate Bill 1156 and Assembly Bill 2144 have already passed the state legislature and await the Governor’s signature.  The former, introduced by Senator Darrell Steinberg, would create “Sustainable Communities Investment Authorities”—entities very similar to the defunct redevelopment agencies authorized to work at the local level, minus the tax increment financing windfall.  The latter, introduced by Assembly Speaker John Perez, would expand the hitherto narrow scope of Infrastructure Financing Districts (entities allowed to take on debt to improve infrastructure when approved by a two-thirds vote) to make them more like redevelopment agencies.  The vote requirement for incurring debt would be lowed to 55% and the districts could broadly exercise the power of eminent domain.

According to Assemblywoman Diane Harkey, these two bills “significantly expand the use for which public funds may be spent, including ‘Sustainable Communities’ strategies, high speed rail accommodations, open space, environmental mitigation, and the purchase of land and property for development purposes.”  Making it easier for government to use more taxpayer money for a broader spectrum of purposes is a toxic combination because as the Coronado example demonstrates, “blight” is no limit at all when it comes to cities’ use of eminent domain against their residents.  Moreover, too often promised redevelopment projects never materialize and people’s former homes and businesses stand empty and rotting for years.  It is no surprise that a 2010 Los Angeles Times investigation recounted “too-cozy relationships and sweetheart deals between developers and elected officials,” along with “widespread instances of corruption, questionable spending and poor accountability” such that redevelopment projects “end up worsening blight and hurting the people they were supposed to help.”  There is no reason to believe that the reconfigured agencies proposed by SB1156 and AB2144 will be any different.  Until Californians fix the underlying problem of eminent domain abuse by setting an actual limit on its use, any revival of redevelopment agencies is very bad news.

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