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Summer 2014
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California

Steven Greenhut
Redevelopment Resurrection?
Jerry Brown signals the return of abusive local agencies in a limited form.
23 May 2014

Sometimes the right things happen for the wrong reason, such as when California governor Jerry Brown signed budget legislation in 2011 to shut down the state’s ham-fisted redevelopment agencies. Brown’s opposition to redevelopment had nothing to do with fidelity to private-property rights or disdain for eminent-domain abuse; it was a fiscal expedient to find money in a tight budget year. The agencies had siphoned 12 percent of the state’s budget annually from traditional public services—public education, firefighting, and the like—and directed it toward local economic-development projects. They also distorted local economies, subsidized developers, and abused property owners. Now that the state’s budget outlook has improved at least superficially, the agencies could make a comeback.

Over the last three years, Brown vetoed several bills that would have revived the redevelopment agencies in one form or another. Earlier this month, though, the governor unveiled his revised May budget, which suggested a much brighter fiscal picture. Officials are now talking about how to squirrel away surpluses and pay down debt. And the redevelopment agencies’ supporters are stepping up efforts to resurrect their favored program.

Formed by a 1940s-era law designed to channel money into urban slums, redevelopment agencies became a means for cities to subsidize tax-generating auto malls, hotels, and shopping centers—especially after 1978’s property-tax-limiting Proposition 13 curbed the locals’ ability to raise taxes on homeowners and businesses. Here’s how it worked. The agencies would declare an area blighted and then float bonds to pay for new infrastructure in the targeted neighborhood. The “tax increment”—the growth in property-tax revenues following the creation of the project area—would be used to pay off the debt. Cities gained tax revenue from the new shopping centers and hotels.

The controversies surrounding redevelopment came to a head in 2005, after the U.S. Supreme Court ruled in Kelo v. City of New London that local governments could use eminent domain for “public benefit”—even if that benefit happened to enrich private developers. (In California, redevelopment agencies often grabbed properties to help developers build tax-generating projects that would fill their coffers.) After Kelo, more than 40 states passed at least modest reforms to check eminent domain’s excesses. But the Golden State’s idea of “reform”—shepherded by the League of California Cities and the California Redevelopment Association—was a ballot initiative merely restricting eminent domain in residential neighborhoods.

In 2010, redevelopment supporters passed another initiative, this one protecting the agencies’ funding from being raided by the legislature. Brown outsmarted them by simply shutting down the agencies over the objections of most Republican lawmakers, who, despite their property-rights rhetoric, argued that the move was an assault on local control. But earlier this year, Brown said he could support expanded use of Infrastructure Financing Districts (IFDs)—projects that used the same tax-increment financing mechanism as the defunct redevelopment agencies, but with tighter restrictions and for a limited number of projects. IFDs can wield eminent domain, but they require the consent of other affected bureaucracies. Under the old redevelopment arrangements, cities could create an RDA and swipe tax dollars from other agencies at will. So the IFDs offer protections for other government agencies—but nothing for property owners. Brown has no objections to them, as long as revenues for public schools and other traditional public services remain untouched.

Meantime, an attorney with the law firm of Rutan & Tucker has filed a state initiative that would revive the old redevelopment regime, with even fewer limits. The measure would repeal the agencies’ elimination, remove past caps on debt limits, broadly expand blight definitions, and reduce affordable-housing requirements. Though some cities support the measure, many political observers suspect it is really intended to prod recalcitrant Democrats into restoring the redevelopment agencies in some form.

Redevelopment’s foes worry about these efforts to revive the program, but their voices are mostly absent from the public debate. When California voters have heard about RDAs lately, it’s usually from figures like Tim Donnelly, a Republican assemblyman and gubernatorial candidate from the Southern California mountain town of Twin Peaks. Donnelly had been sharply critical of Brown—not for trying to revive redevelopment, but for shuttering the RDAs in the first place. (Donnelly backed away from his RDA support after it became an issue in the campaign.) In all likelihood, redevelopment will come back in the form of expanded Infrastructure Finance Districts. Brown has been forthright about his intentions, and unless the economy collapses again, Californians should have no reason to expect a change of heart from the governor. The big question is what will happen after Brown finishes his final term. That’s when California will need to have a real debate about redevelopment.

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