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Reviving Redevelopment: A Good Idea for California Government?

Reviving Redevelopment: A Good Idea for California Government?

By William R. Maurer.

California municipal officials will soon be forced to decide whether to support—publicly and, perhaps, financially—a new initiative to revive and considerably expand California’s defunct redevelopment regime.

A new report just released by the Institute for Justice analyzes the state’s now-defunct redevelopment system that the initiative, called the California Jobs and Education Development Initiative (JEDI) Act, would revive and looks at the changes the initiative would make to the old law.

The analysis concludes that reviving redevelopment on a large scale would disrupt the winding down of redevelopment agencies and direct tax revenues currently flowing to cities, counties, and school and community college districts back to those agencies. It would affect the state’s tenuous fiscal recovery by forcing the state treasury to cover deficiencies in educational funding due to property taxes again flowing to redevelopment agencies. And it would revive a system that did little or nothing to improve California’s overall economic prosperity while giving rise to some of the most widespread abuse of eminent domain in the country.

The proponents of redevelopment have claimed that doing away with redevelopment in 2011 caused the loss of $40.79 billion in economic activity, over 300,000 jobs and $2 billion in state and local tax revenues, and that reviving redevelopment is necessary to bring back all that economic activity.

But these numbers are a fantasy.

The non-partisan Legislative Analyst’s Office determined (PDF) that the study from which these numbers derived was “seriously flawed” and “vastly overstate[d] the economic effects of eliminating redevelopment and ignore[d] the positive economic effects of shifting property taxes to schools and other local agencies.”

According to the LAO, redevelopment instead did little to create jobs and economic opportunity, and that there was no reliable evidence that it attracted business to the state or increased overall regional economic development.

Rather than make California more competitive, redevelopment encouraged agencies and municipalities to compete against one another to lure businesses from other parts of the state. In other words, redevelopment turned municipalities into passengers on the Titanic, fighting for the best cabins while the whole ship slowly sank.

The simple fact is that redevelopment did not improve California’s economic prosperity and was a fiscally irresponsible system—bordering on reckless—that harmed California overall.

By 2011, the long-term debt of redevelopment agencies stood at $29.8 billion and agencies paid 38 percent of their outlays toward interest expenses, principal payments and administrative costs, while spending just 13 percent on actual construction costs and project improvement.

On average, agencies consumed over $5 billion in taxpayer dollars annually—12 percent of the state’s property tax revenue.

In some municipalities, agencies took even more money; as much as quarter of their property taxes went to redevelopment agencies—money that was then not available for police, fire departments, school districts and community colleges.

All this came at great human cost. Redevelopment turned California into one of the worst states in the nation for eminent domain abuse, with the brunt of redevelopment agencies’ hunger for property falling on California’s poor, minority and elderly residents.

The JEDI Act would revive and expand this system. Indeed, it would expand the conditions that constitute blight so much that huge chunks of the state would show signs of blight.

Since 1990, 3.4 million Californians have migrated to other states, taking with them billions in tax revenue, economic opportunity and talent. California cannot keep residents in the state, or attract new people to it, if it carries on policies that feature massive debt, diversion of school funds, contempt for property owners and destabilization of the state treasury.

California cities and counties should work together to ensure the state is fiscally solvent and respects private property rights. Redevelopment achieves neither goal.

William R. Maurer is a senior attorney with the Institute for Justice, which fights eminent domain abuse in California and across the country. 

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