Opinion: Why California is better off without redevelopment agencies

The redevelopment scam, which has turned into a windfall for developers, bond marketers, planning consultants and professional sports teams, has racked up $88 billion in public debt statewide -- without voter approval.

By Daniel Borenstein


The screams from cities about Gov. Jerry Brown's plans to disband about 400 redevelopment agencies across the state are hypocritical.

While city officials claim the state is trying to raid their funds, it's actually the cities, using their redevelopment agencies, that siphon billions of dollars from badly needed government services and spend the money on projects that often have little to do with cleaning up blight.

The redevelopment scam, which has turned into a windfall for developers, bond marketers, planning consultants and professional sports teams, has racked up $88 billion in public debt statewide -- without voter approval. Kudos to the governor for finally taking it on.

What was presented to voters in the 1950s as a plan to finance new construction in some of the state's worst slums has morphed into a scheme to indirectly subsidize municipal budgets. Cities are hogging huge sums of property tax money that should be shared with the county, special districts and schools.

Communities like San Diego and Los Angeles have used the money to fund sports complexes while Santa Clara is planning to do the same. In Hercules, millions of dollars of redevelopment funds went to consultants who have almost no construction to show for it.

A Los Angeles Times investigation published in October found that, "at least 120 municipalities -- nearly one in three with active redevelopment agencies -- spent a combined $700 million in housing funds from 2000 to 2008 without constructing a single new unit. ... Nor did most of them add to the housing stock by rehabilitating existing units."

While advocates claim redevelopment agencies help bolster the California economy, the nonpartisan state Legislative Analyst's Office reported last week that "there is no reliable evidence that redevelopment projects attract businesses to the state or increase overall economic development in California. The presence of a redevelopment area might shift development from one location to another, but does not significantly increase economic activity statewide."

Redevelopment has helped produce low- and moderate-income housing in many communities, but at a tremendous cost. However, if the goal is affordable housing, a more efficient way must be found.

Across California, property taxes are usually split between schools, counties, special districts and cities. But when a city forms a redevelopment agency, it can capture all the tax growth from that designated blighted area. Gradually, it must start sharing some of it again with the other local governments. But most of that money goes to the redevelopment agency and can be leveraged to fund improvements within the area and offset city costs for projects there.

Without the redevelopment agencies, advocates claim, there would be little increase in property values and taxes in those areas. But a 1998 study by the nonpartisan Public Policy Institute of California found about half of tax increases in redevelopment areas would have happened anyhow.

Thus, redevelopment agencies are collecting money that would have otherwise gone for other critical government services. Currently, redevelopment agencies capture nearly 12 percent of property tax revenues across the state, or about $5 billion a year.

The single biggest chunk of that money, about $2 billion, would have gone to schools. But, since the state is responsible for funding schools, it's the state that loses that money. That's why Brown is so concerned about redevelopment agencies.

Counties are the next big losers, losing about $1.4 billion a year that would otherwise go to social services, health care and public protection. Cities lose about $1 billion, but don't look for them to complain because they run most redevelopment agencies and subsidize their budgets with some of the money.

Since the passage of Proposition 13, the 1978 property tax-cutting initiative, cities have rapidly increased their use of redevelopment agencies. In 1982-83, redevelopment agencies received 3.6 percent of property tax revenues statewide. Today's it's 11.9 percent.

In Santa Clara and San Mateo counties, about 9 percent and 10 percent, respectively, of property tax revenues went to redevelopment agencies in 2008-09. Alameda County was 13 percent. But, in San Bernardino County, redevelopment siphoned off 31 percent, followed by Riverside County at 27 percent.

With the promised streams of tax revenues as security, redevelopment agencies borrowed money for their projects. As of 2008-09, they had a collective $88 billion in debt, including $35 billion in bonds.

It's an easy way to borrow money. Unlike bonds for parkland, school construction or, say, a marina improvement, redevelopment bonds don't require voter approval.

It's time to put an end to all this. Sure, money must be set aside to pay off the debts. But, Brown is right: California cannot afford its redevelopment agencies.

Daniel Borenstein is a columnist and editorial writer for Bay Area News Group.

Reach him at 925-943-8248 or dborenstein@bayareanewsgroup.com.