Nobody expected Gov. Jerry Brown’s first budget to be a painless affair, not least because he announced in advance that it would be ugly.
What was surprising, however, was the first ox he chose to gore.
It turned out to be redevelopment agencies. Maybe you’re not familiar with this odd corner of government, but you should be.
That’s because local government redevelopment agencies lay claim every year to about $5 billion in property taxes that would otherwise go to school districts, counties and the state. But they’ve never had to show they’re worth the money. In fact, they’ve never had to show that their efforts produce any measurable net gain in property values or employment in the state, which is the whole point of having them in the first place.
As part of his budget plan, Brown proposes to abolish this entire structure by July 1, with the goal of eventually redistributing that property tax revenue more broadly. Whether this is a serious threat or even politically possible, a close look at redevelopment is overdue. Those squeals of agony you hear? That’s the redevelopment lobby facing its own mortality.
First, a few basics. California’s redevelopment system was established in 1945, when cities and counties were empowered to create special agencies aimed at fighting blight; in 1952, the agencies were given the power to use property taxes as a funding source. For the most part it’s cities, not counties, that have been the most assiduous users of the benefits of redevelopment, which include the right to seize property by eminent domain. Dozens of other states have established similar programs.
Here’s how the system works: A municipality designates a “blighted” neighborhood as a redevelopment district and calculates a baseline figure for the district’s land values and property tax revenues. The redevelopment agency floats bonds to finance land acquisition in the neighborhood and basic improvements such as hazardous waste cleanup, then starts transferring property to developers.
The bonds are paid off from increased property taxes generated within the district — those in excess of the old baseline.
California has about 400 redevelopment agencies; more than half were created in the wake of 1978’s Proposition 13, which intensified the competition among cities, counties and school districts for shares of the shrunken property tax pie.
The agencies’ grip on property tax revenues tightened accordingly. They now lay claim to 12% of all property taxes in the state. In some places it’s even more: Fontana’s redevelopment agency receives more than two-thirds of all property taxes collected in the Inland Empire city. Most of that money thus becomes unavailable for San Bernardino County services or schools.
These agencies are subject to virtually no outside oversight. Cases abound of apparent sweetheart deals between redevelopment bodies and private developers. State auditors have found some agencies consistently shortchanging their local schools and counties out of the small portion of their tax collections state law requires them to hand over.
The city of Bell’s redevelopment agency helped fund the scandal there by steering $500,000 in affordable-housing funds into the hands of city officials, according to state Controller John Chiang. Last week, Chiang launched an audit of 18 redevelopment agencies around the state to get to the bottom of the debate over whether they’re “engines of local economic and job growth or are simply scams providing windfalls to political cronies.”
But a more important issue is whether even non-scam agencies truly serve the taxpayers. To hear redevelopment types talk, there’s no doubt about it.
“This is virtually the state’s only economic development program,” John Shirey, executive director of the California Redevelopment Assn., told me. “It supports over 300,000 jobs in normal times and adds $40 billion to the state’s economy, $2 billion of which is tax revenue to the state and local governments.”
“We have very powerful anecdotal evidence about what happens to urban properties” in the absence of redevelopment authority, says Chris McKenzie, executive director of the League of California Cities.
But anecdotal evidence is like a lamppost on a dark street: It doesn’t tell you what’s beyond the light. In this case, the darkness encompasses how much development would have occurred even without the redevelopment programs, and whether some projects may amount to one city simply siphoning a project out of a neighboring city’s tank.
Consider Emeryville, an Alameda County municipality at the east end of the Bay Bridge, which touts its redevelopment-funded biotech industrial center. The district hosts a passel of companies that were pretty much 100% guaranteed to locate somewhere in the Bay Area. If Emeryville snagged them from San Francisco or Palo Alto, then its redevelopment spending has produced no net gain for the state; if they would have otherwise located in Fremont or Oakland, then it’s a wash for the state and the county both.
Nor do anecdotes tell you if the $5 billion in annual redevelopment revenues could be better spent on other state needs in these straitened times. Jean Ross, head of the California Budget Project, asks: “If we don’t get the money from redevelopment funding, should we shut down UC and Cal State? Take it out of K-12 education?”
To justify keeping redevelopment in place, the anecdotal evidence must be backed up with empirical data. So how many objective studies have been made of California’s redevelopment program in its 65 years of existence? As far as I can tell: One.
That analysis was prepared in 1998 by Michael Dardia, then a researcher at the Public Policy Institute of California. Dardia found that while there was faster average growth in redevelopment districts than in other areas, in general they didn’t grow fast enough to justify their share of property taxes. Similarly skeptical conclusions have come from studies in other states. The Legislative Analyst’s Office in Sacramento offers this blunt assessment: There’s “no reliable evidence” that redevelopment agencies improve economic development overall.
Shirey scorns that conclusion, saying: “There’s no reliable evidence that they don’t, either.” He dismisses Dardia’s study as outdated, which only raises the question of why the redevelopment community has never taken any steps to document its achievements and justify its price tag. His answer is that such studies are “complicated and cost a lot of money.”
Obviously that’s not good enough anymore. The fiscal crisis is forcing state government to scrutinize and prioritize every expenditure. Programs shouldn’t be exempt just because they’ve gotten a pass for 65 years. Gov. Brown’s implicit challenge to the redevelopment lobby is simple: “Put up or shut up.”
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at firstname.lastname@example.org, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.