Grab redevelopment cash

MAY 24, 2010

Few things are more ironic, and infuriatingly funny, than listening to California’s notoriously ham-fisted redevelopment agencies complain about the state’s “theft” of redevelopment funds. Last week, California cities had to comply with a Sacramento Superior Court judge’s ruling requiring them to make the first of two payments transferring a total of $2.05 billion to the state over the next two years.

We heard whining, weeping and gnashing of teeth. “They have stolen more than $6 million from the city of Vista,” said that city’s Councilwoman Judy Ritter, as reported in the North County Times. Ritter and other San Diego County officials followed the California Redevelopment Association playbook to the max: They posed at a press conference with a giant $165 million check to emphasize all the supposedly vital funding that would be diverted from “job creation and economic development.”

In the wake of the May 4 court ruling, the CRA – a taxpayer-funded lobbying group that militates for more taxpayer funds and fewer protections for property rights – issued a bulletin to local agencies, urging them to hold press conferences that emphasize that the state is “raiding” funds that will hurt the local economy and lead to an expansion of blight and widespread misery.

No wonder the same scenario played out almost identically in Orange County, where Lake Forest Mayor Peter Herzog told The Register, “the bottom line is that this is just theft. … It’s a sad day for California.”

Actually, the court ruling that allows the state to divert redevelopment funds to public schools is one of the few bright spots in a dismal state budget picture, as state legislators continue to resist the fundamental budget reforms needed to close a gaping $19 billion fiscal hole.

Hard-pressed California taxpayers should not shed any tears for redevelopment agencies, which know a thing or two about theft, given their wanton abuses of eminent domain powers and their misuse of taxpayer dollars for corporate welfare and cadres of government-dependent consultants. CRA and the League of California Cities, another taxpayer-funded interest group that has been decrying the loss of redevelopment money, funded a campaign that ultimately stopped serious eminent-domain reform in California, leaving property owners vulnerable to seizure if cities find a “better” use for their land or business. It’s good to defund these agencies.

Other ironies abound.

“These funds ultimately would have been used to revitalize blight, create jobs, build affordable housing, etc.,” stated some CRA talking points. “The important point is that so-called reserves are funds that will be used in the future to better your community.” CRA reminded cities to talk about real-world effects of these cuts: “How many children will lose access to a new community center? Will crime increase?”

How overstated and absurd. These redevelopment bureaucracies believe that blight removal, job creation and “affordable” housing are the results of their central planning, yet in my years writing about the subject, I’ve found the opposite to be true. Blight is removed as owners buy and sell properties in the open market. Those cities that have the least-burdensome development regulations most quickly see older areas revive, whereas cities that embrace redevelopment the most retard the market processes that lead to blight removal.

Government doesn’t create employment beyond those tax-sapping jobs within its own bureaucracies. And true affordable housing is a product of a free and open housing marketplace. The subsidized “affordable” housing projects created by redevelopment set-asides mainly benefit the politically well-connected developers who get to build these unappealing units.

Let’s remember how redevelopment works. Redevelopment agencies were originally formed to fight decrepit urban neighborhoods by allowing local cities to keep tax revenue within their boundaries. But cities quickly learned that they could essentially declare anything blighted and create ever-larger redevelopment areas. Within those areas, cities have vast powers to take property from owners through eminent domain and give the land to new owners – i.e., developers who promise to build big-box stores and auto malls that fill local treasuries with sales-taxes. Redevelopment agencies float debt, which then funds the corporate welfare and related infrastructure. The tax increment – the increase in property tax dollars after the redevelopment area is formed – pays off the debt. Sales and bed taxes go to the general fund – although sometimes cities are so generous in their corporate gift-giving that they receive little financial benefit when it’s all said and done.

There is no evidence government-run redevelopment activity generates wealth or reduces crime. A strong case can be made that redevelopment so severely distorts the marketplace that it harms economic growth. Central planning doesn’t work anywhere it is tried, even in California. In essence, redevelopment agencies transfer land-use decisions from private individuals to government planners.

Those developers with the right connections get big subsidies, while small businesses without clout at City Hall have to wait years for approvals within redevelopment areas. Business owners sometimes see their life’s work taken away (they often are offered pennies on the dollar during eminent domain proceedings and must fight for years for full-market value) so that a developer preferred by city officials can have the land.

Redevelopment turns cities into giant tax-sucking mechanisms that sacrifice the general quality of life for more sales-tax revenue. Redevelopment officials are so intent on maximizing the tax benefit of every parcel that they clamp down on freedom within cities. I know many stories of churches that can’t get permits (or have even been targeted for condemnation under eminent domain) because they don’t pay property taxes. Small mom-and-pop stores and suburban-style housing developments are viewed as liabilities, while city officials compete with other cities to lure malls and car dealers and high-rise condos. The cities that have become most dependent on this redevelopment cash – which redirects dollars from schools and public safety to “economic development” – cry the loudest as the state takes back a small percentage of these ill-gotten gains.

Lake Forest Mayor Herzog said that the money will go back to the state budget black hole. True enough, but here again redevelopment advocates know a thing or two about black holes, given the sort of monstrosities that have at times been funded by officials eager to lure new development.

Ironically, redevelopment advocates bitterly oppose local initiatives designed to stop their centrally planned projects. “Redevelopment agencies are state agencies!” they declare, and so are off-limits from local meddling. Well, now a judge has ruled that, because they are state agencies, the state has the right to take the cash. And now, redevelopment officials are aghast that the state would “raid” these supposedly local funds. They claim the court decision is unconstitutional, even as they rebuffed those of us who complained about their seemingly unconstitutional property grabs.

Yes, things are bad in Sacramento. But this decision is not one of those things.

–Steven Greenhut