A Powerful Tool and a Source of Heated Debate

Redevelopment has literally changed the way that California looks.

Scores of downtown office buildings, hundreds of commercial and industrial structures, tens of thousands of affordable homes and apartments and vastly improved public works exist today because of redevelopment. And yet, local officials’ use of their redevelopment powers remains painfully controversial in many California communities.

What redevelopment does and why it’s so controversial are inseparable.

In this short piece I’ll explain the basics of redevelopment agencies, their powers and how they work. But I won’t take a position on Measure A, the redevelopment issue on the June 8 city of Ventura ballot. That local political question requires Ventura’s voters to make up their own minds after educating themselves about redevelopment. As an outsider, I neither support nor oppose redevelopment.

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Every city in Ventura County--plus the county government itself--uses redevelopment. In fact, in 1996-97, the 11 redevelopment agencies got $26.4 million from their 21 project areas.

What is a redevelopment agency? Officially, each community redevelopment agency is a state agency run at the community level by local officials. In nearly all communities, the city council or county supervisors run the redevelopment agencies. These are not hidden, invisible governments. Rather, local elected officials are in charge of each community’s redevelopment program.

State law gives redevelopment agencies two extraordinary powers: property tax increment financing and property management powers (particularly eminent domain). These two powers go beyond the powers of ordinary local governments, such as counties, cities or special districts. These extraordinary powers are what make redevelopment agencies so unusual--and so controversial.

Property tax increment revenues are redevelopment agencies’ main revenue source. To raise the public capital needed for their redevelopment efforts, local officials sell government bonds called tax allocation bonds to private investors. They use that money to build public works, buy property, make loans and promote affordable housing. Where do they get the money to repay those bonds? The California Constitution and state law allow redevelopment officials to capture the property tax increment revenues that come from inside the redevelopment project area.

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If taken together, the 403 separate redevelopment agencies in California would be one of the nation’s biggest businesses. Redevelopment agencies take in more than $1.6 billion a year in property tax increment revenues, about 8% of all of the property taxes statewide.

It works like this. When a city council adopts a redevelopment plan, it locks in the distribution of the property tax revenues that come from inside that redevelopment project area. As the redevelopment efforts begin to work, the property values in the project area start to grow. New buildings go up, landlords rebuild old structures and private investors buy up property as it becomes more attractive.

Without redevelopment, the property taxes that come from higher property values would go to the city government, the county and the schools. With redevelopment, these property tax increment revenues pay for the bonds.

It’s a lot like buying a house with a bank mortgage. You borrow the bank’s money to buy the house. The bank is willing to lend you the money because your potential future income makes you a good credit risk. Likewise, investors are willing to lend money to redevelopment projects based on the project area’s potential for success.

Redevelopment’s second extraordinary power is the ability to manage real estate in the fight against blight. The key to understanding this controversial feature of redevelopment is to remember that the purpose of redevelopment is the elimination of blight. Local officials use their redevelopment powers to scrub out physical and economic blight on private property.

The state Constitution gives public agencies the power to convert private property to public use provided they follow strict limits. One requirement is that private property can’t be taken except for a public purpose. When a city takes private property to widen a public street, the city council’s public purpose is pretty clear. Because the public purpose of redevelopment is to eliminate blight, redevelopment agencies have more latitude than other local governments in how they use eminent domain.

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Redevelopment officials used to invoke their eminent domain powers in slum clearance projects. They’d acquire rundown private property, sometimes from unwilling slumlords, clear off the dangerous buildings and resell the land to other private investors who were willing to put up modern offices and apartments.

More recent redevelopment projects stay away from eminent domain. In more and more communities, local elected officials adopt redevelopment plans that prevent them from using their eminent domain powers. The more modern redevelopment projects legally prevent the use of eminent domain on residential property. Some redevelopment projects won’t use eminent domain on any property. These projects reflect elected officials’ understanding that the public is uneasy about old-style redevelopment.

Is California-style redevelopment a success?

It’s the right question but there’s no easy answer. Voters, landowners and elected officials in every community must debate redevelopment for themselves. It’s a powerful tool to stimulate and retain private investment. It may not be for every community but when used wisely it can change a community’s future.

Peter Detwiler is a consultant to the California Senate’s Committee on Local Government, which reviews bills affecting cities, counties, special districts and redevelopment agencies. He teaches public policy seminars and land use courses at Cal State Sacramento. Earlier this month he spoke about redevelopment at a forum hosted by the Ventura County League of Women Voters and the American Planning Assn.