10:00 PM PST on Saturday, January 15, 2011
Nix Redevelopment
Redevelopment is often abused, largely unaccountable and mostly incomprehensible. Junking it, as Gov. Jerry Brown proposes, would save the state money, promote straightforward use of public funds and bring more openness to government. But the Legislature will need to ensure that such a step results in better public policy, and is not merely a state money grab.
The governor's budget proposes to save the state $1.7 billion in 2011-12 by phasing out redevelopment. Eventually, the more than $5 billion annually in property taxes that now go to redevelopment would instead be available to schools, cities and counties for other public services. In return, the governor would allow local voters, by a 55 percent vote, to raise taxes or approve bonds to help spur local economic growth.
Cities and redevelopment proponents argue the process provides jobs, economic growth, housing and civic revitalization. But the issue is really about control of a lucrative revenue stream, and whether this convoluted form of public financing makes effective use of tax funds.
Redevelopment has little connection anymore to the ostensible goal of urban renewal. Cities have used the process to lure big sales tax producers to town or ease budgets by shifting general fund expenses onto redevelopment. And the state's legislative analyst finds "no reliable evidence that this program improves overall economic development in California."
While redevelopment certainly can provide civic benefits, those gains come at a growing cost to public agencies that would otherwise collect the money. About 12 percent of all property taxes statewide now go to redevelopment, a dramatic increase from the 3.6 percent diversion in 1982-83. And locally, those numbers are far higher: In San Bernardino County, 31 percent of property tax goes to redevelopment, and 26 percent in Riverside County.
The state has to make up for property taxes diverted from schools, at a cost of about $1.8 billion a year. That approach amounts to a state subsidy for redevelopment. But why should taxpayers across California -- even in areas without redevelopment -- underwrite local development elsewhere?
And there is no real state oversight of redevelopment, which invites misuse. The only way to enforce the law is to sue. The Legislature has repeatedly had to enact reforms to end abuses such as declaring open land "blighted" to finance projects that bolster city coffers.
Redevelopment also gives local government the power to borrow and spend money without accountability. Too often, redevelopment serves as a way to give generous incentives to well-connected developers, regardless of whether that step is necessary to land new projects. Since redevelopment spending does not directly affect public services, there are seldom any consequences for bad decisions.
And the process is so complex that few voters grasp the significance of redevelopment items, which limits effective public scrutiny. The complex two-step of tax diversions and state backfills, coupled with the esoteric world of redevelopment financing, makes government funding tough to decipher and spending choices hard to judge.
Of course, the state cannot simply knock out a central pillar of local government financial strategies without offering some reasonable alternative. Brown's plan for local tax increases lacks enough detail to assess.
But the Legislature could make local finances more rational by revising the outdated formulas for distributing property taxes, which date to 1979. And legislators could rework incentives that reward local governments for seeking big retailers instead of balanced planning.
California has long needed to rethink its confusing, haphazard system of financing local government. The state's budget crisis makes that task a necessity, and redevelopment offers a fine starting point.
