Jerry Brown’s Good Deed Gets Punished

Forced to choose between funding public schools and subsidizing ritzy golf courses, many California officials prefer the latter. That’s become painfully clear in the past few weeks as Golden State politicians have fiercely opposed Gov. Jerry Brown’s plan to shave $1.7 billion from the state’s budget deficit by shuttering California’s 400 redevelopment agencies.

The roots of this story go back to 1945, when the California legislature allowed cities and counties to form these redevelopment agencies. Their purpose, at least in theory, was to fight urban blight. Once public officials deem an area blighted, redevelopment agencies can use eminent domain to clear old properties and sell bonds to pay for improvements.

To pay off the bonds, the agencies gobble up any subsequent increase in tax revenue—what the state calls the “tax increment.” In addition, a portion of the sales taxes generated by the new retail and commercial centers go into city, not state, coffers. That’s the main reason redevelopment agencies are popular among local politicians, Republican and Democratic alike. (Plus, they allow pols to reward favored corporations and developers.)

But in the last 60-some years, redevelopment agencies have become fiefdoms that run up enormous debt and abuse eminent domain by transferring private property to large developers promising to build tax-generating bonanzas. Today, there are 749 such projects. In the late 1950s, there were only nine. According to the state controller, redevelopment agencies consume about 12% of all state-wide property taxes—money that would otherwise go to critical public services.

Because city governments have become so dependent on these agencies diverting revenue to them from the state, the pushback against the governor’s plan has been powerful. “This is the wrong time to move away from job creation,” said Los Angeles Mayor Antonio Villaraigosa. Sacramento Mayor Kevin Johnson recently called redevelopment projects “magical things.” Others, like San Jose Mayor Chuck Reed, have warned that shuttering the agencies will hurt economic recovery.

These mayors may have the rhetoric down, but a new report from state Controller John Chiang explains why the governor is intent on closing these agencies. The report portrays them as a source of waste and governmental abuse—not a generator of jobs and economic growth. Among his audit of 18 agencies, Mr. Chiang found that Palm Desert’s redevelopment agency proposed to eliminate so-called blight by spending nearly $17 million on revamping a municipal golf club that remains one of the nation’s premier golfing locales.

In the 12 years I’ve spent reporting on this issue, I’ve seen an agency attempt to bulldoze an entire residential neighborhood and transfer the land to a theme-park developer. I’ve witnessed agencies declare eminent domain against churches—which pay few taxes—in order to sell the property at a deep discount to big-box stores that promise to keep city coffers flush. Working-class people and ethnic minorities often are the victims of this process since they often live in the vulnerable neighborhoods, and they have less muscle than big business developers.

The trouble is that blight is an amorphous concept, easily abused by government officials and redevelopment agencies. Once “blight” is found, the agency creates a project area and can then begins selling bonds (incurring debt) without a public vote. In 1995, one area of the city of Diamond Bar, where I lived, was declared blighted because there was chipped paint on some buildings.

Redevelopment has attracted the Brown administration’s attention for an obvious reason: The more aggressive cities have become in using this “tool,” the more they divert tax dollars from traditional public services like schools, fire-fighting and police services. Under Gov. Brown’s plan, the state will still have to pay off the redevelopment debt, but shutting the agencies will redirect funds back to general state coffers and save local governments money by shutting down bureaucracies.

Fearful that the plan might pass, many redevelopment agencies have been spending their funds rapidly—often on half-baked projects that haven’t been thoroughly vetted. “It’s like a teenage girl maxing out Dad’s credit cards even though she knows he’s already bankrupt,” says Orange County Republican Assemblyman Chris Norby, a longtime redevelopment foe.

Fortunately, the governor has stuck to his guns. Unfortunately, most Republicans have been mum, and many are even defending the agencies. For instance, Sen. Bob Huff, a Republican from the San Gabriel Valley, has echoed the California Redevelopment Association’s line that “Redevelopment is one of the few tools to promote economic development.” Other Republicans champion redevelopment as a local-control issue, preferring to see the dollars in the hands of city politicians rather than Sacramento lawmakers.

While economic development and local control are crucial issues, it’s hard to understand why any Republican would believe that a regime of government planning and subsidy is the best way to achieve those goals. They should be standing up against the abuses of property rights and the fiscal irresponsibility inherent in the redevelopment process and championing market-based alternatives to urban improvement—even if it means defending a proposal from a Democratic governor they often disagree with.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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