Brown Targets Corporate Welfare

JAN. 17, 2011

This really could be the beginning of the end for the state’s redevelopment agencies, those noxious, corporate-welfare-enabling entities that have wreaked havoc on property rights in California since the 1950s. The new governor’s budget plan would eliminate California’s 425 redevelopment agencies and divert the cash that now goes through them to developers and planners and use it to pay off debt, enhance the state budget and pay for traditional local services such as schools and police. This is one of the most fiscally prudent ideas imaginable, and the best evidence to date that Gov. Jerry Brown might do some welcome and unpredictable things.

Already, we’re hearing the cries of woe from those who believe that government central planning is the source of urban revitalization. For instance, the Sacramento Bee’s recent coverage of Brown’s plan reads like something from a California Redevelopment Association press release: “Old Sacramento was revived with the help of public redevelopment money, back in the 1960s. The city’s new downtown nightlife venue, the ‘mermaid bar’ complex on K Street, got millions of redevelopment dollars, too. … Now California’s multibillion-dollar redevelopment industry is fighting for its life — with Brown as its would-be executioner.”

The story could just as easily have started out with examples of California residents who had their properties taken from them so that developers could have the land on the cheap.

The nonpartisan Legislative Analyst’s Office released a report last week concluding that Brown’s “proposal has merit.” It looked not only at the dollar savings, but at the value of these debt-floating, central planning agencies: “Redevelopment projects divert property taxes from K-14 districts, increasing state education costs by billions of dollars annually. The state’s costs associated with redevelopment has grown markedly over the last couple decades, yet we find no reliable evidence that this program improves overall economic development in California.”

The agencies merely shift development and tax dollars around as one locality competes with another to lure that sales-tax-generating big-box store. The CRA, the redevelopment interest group, has fought virtually every reform that would keep cities from using eminent domain – government’s power to seize private property – for economic development. Redevelopment allows agencies to declare virtually any property as blighted, thus giving them the power to assemble lots and hand them over to developers, who promise cities a tax windfall.

Although redevelopment originally was designed to fight blighted areas, it typically is used as a means to enhance sales tax and hotel tax revenue for cities, which are always looking for new revenue sources to pay for those rich salaries and pensions for their employees.

Just because certain nice areas received redevelopment money doesn’t mean that redevelopment agencies saved those neighborhoods. Often, redevelopment agencies shower their resources on up-and-coming areas. An older area might be a little decrepit but on the upswing because of its location. Redevelopment officials parachute in and offer subsidies and typically handpick the new project. The agencies grab the tax increment – the increase in property taxes – for the next 30 years. Then redevelopment officials, and reporters who uncritically accept the line from redevelopment agencies, praise the agencies for the upgrade. It’s a scam.

The Brown administration gets that point. In its lengthy budget summary entry on RDAs, the administration argues that “private development that occurs in redevelopment project areas often would have occurred even if the RDAs were never established. There is little evidence that redevelopment projects attract business to the state.”

Often enough, redevelopment agencies destroy areas. The Anaheim Redevelopment Agency turned that city’s historical downtown into a series of parking lots in the 1970s – something from which it will never recover. When redevelopment kicks in, property owners stop investing and upgrading their properties as they wait for the officials to make the key decisions.

The result is that non-redevelopment areas often redevelop more quickly than government redevelopment areas. Cities like to bulldoze vast areas filled with what they call “piecemeal” development and replace them with large centrally planned projects that are more cost-effective to build and bring in a higher rate of tax revenue. As a result, they often tear down the interesting and replace it with more chain stores and schlock condos with fake columns.

Mainly, these agencies ride roughshod over individuals and property rights. They enrich consultants and empower bureaucrats. They bully owners of targeted properties and shortchange them, knowing that most of the people pushed off their properties don’t have the time or resources to fight the tax-funded redevelopment agencies to get a fair valuation for their property. It’s not a complete surprise that an old lefty such as Brown might be open to this anti-redevelopment idea, given that redevelopment often harms the poor, immigrants and the elderly.

A big question is what Brown’s plan means after the passage in November of Proposition 22, which protects redevelopment agency funding from state raids. Redevelopment advocates were gloating after that victory. But H.D. Palmer in the state Finance Department told me, “When you’re looking at [Prop.] 22, it is protecting the tax increment, but it doesn’t look at whether [redevelopment agencies] exist or not.” Redevelopment officials thought they were clever by passing an initiative that protects redevelopment funding from Sacramento poaching, but that protection is gone once the state shuts down those agencies.

During his budget presentation, Brown noted that there are other ways to stimulate true redevelopment and pointed to the need to curb excessive local regulatory burdens and NIMBYism. Those are significant points, although I strongly oppose his idea to make it easier for localities to raise taxes.

Still, the ending of redevelopment is a more freedom-friendly idea than what one might expect from many Republicans, who often champion redevelopment in the name of helping business, forgetting that favor-seeking businesses are no better than favor-seeking unions.

Brown is on to a great idea that’s likely to annoy many of redevelopment’s beneficiaries. If it succeeds, it will make many of his bad ideas, which are sure to come, easier to take.

–Steven Greenhut