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Andy Pattantyus: Cutting redevelopment agencies a worthy goal

Right Here, Right Now!

Posted: February 4, 2011 1:55 a.m.
Updated: February 4, 2011 1:55 a.m.
 

Gov. Jerry Brown, a Democrat, has proposed a state budget deficit reduction of $1.7 billion by eliminating redevelopment agencies funded by tax increment financing.

Many from both parties oppose this cut. As a conservative, I like limited government and lower taxes. A Democrat proposing a $1.7 billion cut has my full attention. After some investigation, I have a rough idea of how redevelopment works. I don’t like what I see.

Since the 1990s, state Assemblyman Chris Norby, a Republican from Orange County, has advocated elimination of redevelopment. According to his “Redevelopment: The Unknown Government” in 1998, redevelopment “consumes 8 percent of all property taxes statewide, $1.5 billion in 1997. It has a total indebtedness of over $41 billion” (see http://bit.ly/cQ99RN).

Today, Norby writes, redevelopment initiatives “divert 12 percent of all property taxes statewide, amounting to $2.7 billion taken from public schools and $646 million from counties,” and redevelopment agency “indebtedness now tops $100 billion” (http://bit.ly/eI2OdU).

Brown was quoted by Townhall Magazine’s Debra J. Saunders last month saying that when he was mayor of Oakland, he “liked redevelopment. I didn’t quite understand it. It seemed kind of magical. It was the money that you could spend on stuff that they wouldn’t otherwise let you spend” (http://bit.ly/fiLMae).

What are we getting for the property tax increment redirected to redevelopment?

For the cities, retail tax increment financings result in a net loss of jobs and tax revenues, while industrial tax increment financings result in a net gain, as noted by Paul F. Byrne in the February 2010 Economic Development Quarterly (http://bit.ly/h14o9M).

For the state, redevelopment is not delivering any net gain of jobs, housing or economic improvement.

“Projects collectively generated an estimated 51 percent of the tax increment revenues,” according to Michael Dardia’s “Subsidizing Redevelopment in California,” published by the Public Policy Institute in 1998 (http://bit.ly/ifu3J4).

Of the tax increment financing money collected by redevelopment agencies, 20 percent is mandated to go toward affordable housing. A local newspaper reported that 120 cities somehow spent more than $700 million on housing last year without building a single new unit (http://bit.ly/fiLMae).

Few companies and people move to California, while many leave. With a declining population, competition between California cities is a zero-sum game. Any California city can improve its economy only by taking something away from a neighboring city.

From a state perspective, redevelopment and tax increment financing fuels the competition between cities, does little to gain business from other states, and often funds damaging behavior.

With no standards or definition of what constitutes blight, redevelopment allows a city to declare an area to be “blighted,” as Norby put it in 1998, based only a study by a consultant.

Once an area is declared “blighted,” a city can seize property for redevelopment through eminent domain. Translation: small businesses and individual property owners get trampled, while bigger businesses and special interests prosper, all “for the greater good.”

Tax increment financing rules enable each city’s redevelopment agency to take on debt without voter approval, while the debt must be paid back from property taxes.

Within Los Angeles County, about 12 percent of all property tax revenues now go toward paying off redevelopment debts, at the expense of spending on schools, police, fire and other essential services, according to the Governor’s Redevelopment Proposal published by the state Legislative Analyst’s Office in January.

Without limits on the amount of debt, the potential for abuse is huge.

In the city of Fontana, two-thirds of all property tax revenues goes toward payments on debt incurred by their redevelopment agency, the aforementioned Governor’s Redevelopment Proposal notes.

In 1998, Norby pointed out that the City of Industry had more than $1 million of redevelopment agency debt for each resident.

Tax increment financing money enables adjacent cities to raid each other to attract auto malls and big box retailers. The Cerritos Auto Square, made possible by redevelopment agencies, created new “blight” in adjacent cities in the form of abandoned dealerships and empty big boxes. Net benefit at the state level: zero.

Many cities win, but for every winner there will be one or more losers.

California state taxes, among the highest in the nation, are a business repellent.

The great ship California is slowly but surely sinking, while cities expend tremendous effort rearranging the deck chairs.

How exactly does redevelopment advance California competitiveness?

Cities compete with each other, but why should California pay for it?

States compete with each other, so California state expenditures should be used to help the state compete, rather than fueling the zero-sum competition between cities.

Eliminating redevelopment creates a new, level playing field, with increased accountability and transparency. Under taxpayer scrutiny, local expenditures and new local debt will be more closely aligned with local interests.

I hope California Republicans and Democrats will support the proposal.

A huge step toward balancing the budget, this proposal eliminates wasteful city spending while improving accountability.

Andy Pattantyus lives and works in Santa Clarita and is the president of Strategic Modularity Inc. Contact him at ipattant@gmail.com. His column reflects his own views and not necessarily those of The Signal. “Right Here, Right Now!” appears Fridays and rotates among local Republicans.

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