Brown Wisely Takes On Corporate Welfare

JAN. 10, 2010


The Sacramento Bee’s  coverage of Gov. Jerry Brown’s proposed plan to eliminate redevelopment agencies reads like something out of 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. Even the midtown loft building that Gov. Jerry Brown calls home was partially funded with redevelopment money. Now California’s multibillion-dollar redevelopment industry is fighting for its life – with Brown as its would-be executioner.”

The idea that redevelopment agencies are purveyors of the public good is an absurd abstraction. Note the word executioner also, if one has any doubts about the tilt of this piece. The story could just as easily have started out with examples of California residents who had their properties taken from them by force so that developers could have the land for pennies on the dollar, or of Armani-suit-wearing developers who are adept at milking the redevelopment system for corporate welfare. I’d be glad to introduce the reporter to some of these people. Fortunately, amid the sea of “woe is me” reporting, he did quote one of the state’s best-known redevelopment critics, Assemblyman Chris Norby, R-Fullerton, who wrote on Flashreport that redevelopment is  “a playground for bureaucrats, planners and politically connected developers who prefer profits from the public trough rather than the free market.” Redevelopment is a form of central planning that erodes property rights and often leads to empty lots and destroyed neighborhoods and empty subsidized hotels and auto malls.

If Jerry Brown succeeds in eliminating these agencies, it will be a great accomplishment not only for budgeting sanity given that redevelopment agencies take billions of dollars from traditional public services, but for property rights. The CRA has fought virtually every reform that would keep cities from using eminent domain for economic development. Redevelopment allows agencies to declare virtually anything blighted, thus giving  them the power to bulldoze private property in order to enrich private developers who have other ideas for the property. Government planners love redevelopment, because it enables them — rather than the free marketplace — to determine what goes where in cities. Although redevelopment originally was designed to fight blighted areas, it typically is used as a means to enhance sales tax revenue for cities.

Just because certain nice areas such as the ticky tacky (but architecturally pleasing) Old Sacramento got redevelopment money doesn’t mean that redevelopment money and redevelopment officials saved those areas. Often, redevelopment agencies focus on up-and-coming areas and engage in what is called growth capture. The area is booming for market reasons, or has some great location (Old Sac or Downtown San Diego) and then they throw money at favored developers and capture the tax increment in an area that would have done well left to the marketplace. Then redevelopment officials, or reporters who uncritically accept the line from redevelopment agencies, praise the agencies for the upgrade. And the agencies gain the tax increment — the increase in property tax revenues following the establishment of the redevelopment area — to shower on other developers.

Often enough, redevelopment agencies destroy areas. The Anaheim Redevelopment Agency turned that city’s historical downtown into a giant parking lot 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 cost-effective to build. As a result, they tear down the interesting and replace it with Quizno’s and Starbucks and schlock condos with fake columns, etc.

Mainly, these agencies ride roughshod over individuals and property rights as they serve as land-clearing agencies on behalf of big developers, who prefer not to have to negotiate with people the old-fashioned way with willing buyers and willing sellers. They enrich consultants and empower bureaucrats. They bully people and try to shortchange them, knowing full well that most of the poor and working class people pushed off their property don’t have the time or resources to fight the tax-funded redevelopment agencies to get a fair-market valuation for their property.

It’s no surprise that an old lefty such as Brown might be open to this idea, given that redevelopment mainly harms the poor, immigrants and the elderly. And it shifts money from schools and public safety to handouts to millionaires, which adds another reason to shut down this travesty of a system.

The interesting question is what Brown’s plan means in the context of the recent passage of Prop. 22, which protects redevelopment agencies from state raids. The CRA was gloating after that victory. But, according to Capitol sources, it appears that by shutting down these agencies, Prop. 22 becomes a moot point. Very clever. We’ll be reporting on that issue this week.

During his press conference, Brown noted that there are other ways to stimulate true redevelopment and pointed to local regulatory burdens and NIMBYism. Those are significant points. This is far better than what one might expect from many Republicans, who often champion redevelopment in the name of helping business. The key is helping freedom and free markets — favor-seeking businesses are no better than favor-seeking unions and other interest groups.

Note that Republican Assemblyman Nathan Fletcher inserted budget language that vastly expanded San Diego’s redevelopment project area so that subsidies could flow to stadium developers. Fletcher, like other big-government Republicans, then went on to sign Grover Norquist’s no-tax pledge. Yet Fletcher’s redevelopment actions show that these pledges often are for show — he clearly is of the big-government, tax-wasting, special-privilege mold.

Brown is on to a great idea likely to annoy big government types on the left and right. If it succeeds, it will make many of his sure-to-come bad ideas easier to take.

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  1. Bruce
    Bruce 10 January, 2011, 22:56

    I was very interested to learn — from the LAO report one of your Calwatchdog colleagues linked to — the vast difference in the share of tax revenues that flow to redevelopment areas, from one jurisdiction to another. The highest, oddly, was San Bernardino County while the lowest was San Francisco. Among cities, the very highest was Fontana, with something like 75 percent of property taxes going to redevelopment.

    Now, San Francisco isn’t everyone’s cup of tea — but one place is an internationally famous tourist destination and famously livable city of extraordinary wealth. The other is … Fontana. (No offense: I live in a city famed mostly for its gas stations and summer heat.)

    Anyway, those two endpoints are probably a flimsy frame for an argument, but it’s a striking contrast nonetheless.

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  2. David from Oceanside
    David from Oceanside 11 January, 2011, 07:20

    “If it succeeds, it will make many of his sure-to-come bad ideas easier to take.”

    Thanks for the laugh.

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  3. Erik
    Erik 11 January, 2011, 10:36

    RE Bruce – the reason for THAT is that the city/county SF collects already a high percentage of property tax dollars collected. Providing a high percentage from redevelopment tax increment actually can work to SF’s DISADVANTAGE – as non-tax increment property tax receipts come with no strings attached while Tax Increment money has to be spent in the redevelopment area.

    And in case you were wondering – the % of property tax dollars that goes to city or the county versus the local school district or special districts is a function of the post-prop 13 “temporary” fix that was never replaced. It locked in the distribution to the detriment of cities that were small/rural and/or frugal in the years leading up to prop 13’s passage. Conversely, if you were spending like a drunken sailor in the early 1970s, the “fix” allowed you to continue your bad ways with little/no fundamental fix. It is really a screwed up system.

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  4. Jim House
    Jim House 11 January, 2011, 16:58

    By redistributing property from local to corporate owners who are often headquartered out of the area and likely of the state at least two undesirable results occur: Tenants, business or private, have less resilience to downturns and less inclination to stay put if conditions get difficult and most of the earnings of the business disappear from the local economy.

    Take a storefront for example. The typical chain retail outlet employs very few people who earn enough to buy a home, at best a manager or two. Most of the employees are minimum to low wage earners. A privately owned property with a well run business generates income that tends to stay in the local area. The owner(s) as well as managers have a stake in and contribute to the local economy for their own consumption as well as that of the business.

    Most important a person who owns the land and building where his business is located may have to reduce the lower paid elements of the workforce in slow times but once business picks up again that company will be rehiring. Meantime the owner will be paying not only business taxes but taxes on an upscale residence as well. Contrast that with the turnover at the local mall where chain stores come and go on a regular basis and during financial squeezes the vacancy rates can add up significantly. Empty stores don’t contribute to any economy, local or distant.

    While small business owners are often loathe to make improvements on the scale of a modern redeveloped downtown the community may find itself paying for their amenities in ways that aren’t apparent.

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