Originally posted at Fox and Hounds Daily
Governor Brown has proposed eliminating redevelopment as part of his State Budget plan. But redevelopment is a key component of the state’s long-term economic growth and short-term job creation, and one of the rare opportunities for business and government collaboratively pursue these shared goals.
Redevelopment is a process whereby local agencies can borrow against future growth in property tax revenue to improve blighted communities. Here is how it works: A redevelopment agency identifies the signs of a struggling neighborhood – run-down buildings, falling property values, high business vacancies, or other conditions that hinder development and jobs – and establishes that neighborhood as a “project area.”
This allows the agency to issue bonds to finance capital improvements, from small fixes like filling potholes to major infrastructure projects like roads and railways, in order to enhance the area’s attractiveness to business, ameliorate unsafe conditions, and cultivate the forces of employment and economic recovery. Redevelopment agencies work closely with developers and businesses to fill the gaps in financing, permits and other barriers to revitalizing a property.
In just the (almost) two years that I have served on the Sacramento Housing and Redevelopment Commission, I have seen first-hand how redevelopment creates jobs and economic opportunities. It transformed Sacramento’s shuttered Florin Mall into a thriving outdoor shopping area by leveraging a $65 million investment with $2 million in redevelopment funds. It acquired the land and brokered the deal to get a supermarket into the Oak Park neighborhood that before had no access to decent groceries. And with a $33 million investment, it leveraged half a billion dollars to convert McClellan Air Force Base, which closed in 2001, into a business park that has since attracted 225 companies and 14,000 jobs to the Sacramento region.
Just these few examples helped create thousands of jobs in construction, retail, and services; added untold millions to property values; and made Sacramento more palatable to the investors and companies that ultimately will drive our economic recovery.
To pay back the funds, redevelopment uses a portion of the project area’s total property tax revenue: the amount by which tax revenue has grown since the year the project area was established. Critics of redevelopment have pointed out this system deprives schools and other local agencies of the growth in revenue, at least until the project area expires.
But what puts redevelopment on the chopping block this year is its impact on the state General Fund. Because the state must backfill school districts’ funds in the amount that they lost due to redevelopment, the state indirectly supports redevelopment to the tune of about $1.7 billion a year. Now facing a $26.6 billion shortfall, the state is seeking drastic measures to balance its budget, and redevelopment is being considered for elimination.
There should be no doubt we need to cut government spending. But let’s not forget what finances our government in the first place: commercial activity. Redevelopment is an essential tool for stoking that fire, contributing roughly $40 billion to California’s economy annually, and generating more than $2 billion in state and local taxes.
Given how the national recession impacted California, that tool is needed now more than ever. If we look at the surplus of labor in construction and related building trades, the credit crunch that squashed riskier real estate investments, and the combined effects of unemployment and home foreclosures on inner cities, I think we’ll find redevelopment is as essential now as it has ever been, perhaps since it was enacted 65 years ago.
When I served in Governor Schwarzenegger’s Office of Economic Development, our number one goal was promoting business investment that creates jobs, and redevelopment was often vital to meeting that goal. At the state level, we regularly worked with redevelopment officials throughout California to align our public goals with business interests, companies that generally had a strong track record of investing in disadvantaged neighborhoods that, without the support of redevelopment, would certainly test the bounds of feasibility. The experience convinced me of how intimately redevelopment is tied to our statewide economic goals and our fight against joblessness.
Moreover, redevelopment is one of the few opportunities for business and government to truly collaborate in the public interest. In nearly all of its tasks, government is either a deliverer of services or a regulator of business; redevelopment is one of the last areas where government acts instead as a partner to the companies that create jobs, channeling the energy and capital of the private sector toward public interests through partnerships rather than regulations and taxes. These partnerships help local officials leverage nearly $12 in private and outside funds for every redevelopment dollar spent. Tax-and-spend programs don’t even approach that level of efficiency.
Redevelopment isn’t perfect, and it is expensive in light of the cuts the state must endure to match spending with revenue. But eliminating this program outright is like cutting out gasoline to save money – We saved a few bucks but now how do we get to work? I think there is room for improvement, careful reforms so we get more mileage out of redevelopment at perhaps less cost.
Redevelopment should be maintained and improved upon. The powers of business and government to create jobs and build a foundation of economic growth depend on it.
Josh Rosa serves on the Sacramento Housing and Redevelopment Commission, and previously served in Governor Schwarzenegger’s Office of Economic Development.