Redevelopment Implodes

Tuesday, January 3, 2012

The California State Supreme Court has just affirmed the ending of the rein of Redevelopment Agencies in California. These agencies were eliminated in the budget passed last June. Their elimination became a justified, expedient and fortuitously timed part of last year's budget solution proposed by Governor Brown last January.

The Court ruled unanimously last Thursday that, "Assembly Bill 1X 2, the dissolution measure, is a proper exercise of the legislative power vested in the legislature by the state constitution." The result is the abolishment of over 400 redevelopment agencies. 

Since their inception, redevelopment agencies have somewhat fulfilled their promise of revitalizing decaying communities, but they foundered upon their institutionalized excesses.

The powerful economic forces that fathered these excesses such as eminent domain abuse, obscene accumulations of "increment funds" that tempted government spenders, the insidious picking of winners and losers in the competition for redevelopment funds and the often hollow promise of urban revitalization, low income housing and economic prosperity all gave cause and resolve to the governor and legislators to end the rein of redevelopment. The Supreme Court decision sealed their fate.Over the decades, redevelopment agencies shifted their focus to financing private development, not because government agencies are better at it, but rather, bankers and investors will not finance projects they deem too risky and these agencies would take greater risks based on many noble and some not so noble reasons.

To ensure a project's success, eminent domain was often used to forcibly seize private property from unwilling sellers on the cheap then transfer it to a developer along with cash subsidies, otherwise referred to as corporate welfare by fiscal conservatives. This relatively new mission of government selecting winners and losers in the marketplace costs California taxpayers over $5 billion a year and RDAs have accumulated over $80 billion in debt.

One of the best responses to the Court's decision came from Los Angeles County Supervisor Zev Yaroslavsky who stated, "Unfortunately, over the years it (RDAs) evolved into a honey pot that was tapped to underwrite billions of dollars worth of commercial and other for-profit projects that had nothing to do with reversing blight, but everything to do with subsidizing private real estate ventures that otherwise made no economic sense."

The evidence that redevelopment has failed is clear and the Court seems to agree. According to several independent State analyses and audits, there is no reliable evidence that redevelopment agencies create new jobs and many serve as slush funds for government spending not related to urban renewal.

Redevelopment abuse has gotten so out of hand that even its most ardent supporters recognize that, at the very least, reform is long overdue. And financing it to the tune over $5 billion a year is simply excessive, especially when public services are being cut and there is mounting political pressure to raise taxes to balance local and State budgets.

Unfortunately, until circumstances converged in the budget debate early in 2011, any real reforms were rejected and only pyrrhic ones were advanced.

With the Court's decision, redevelopment agencies are expected to expire February 1st, however, the redevelopment lobby is already seeking legislation to reconstitute their existence. To achieve this will require urgency legislation, a two-thirds vote of the California State Legislature and bi-partisan support.

Though I expect proposals to reestablish redevelopment will be advanced their resurrection is problematic. Senate President Pro Tem Darrell Steinberg, D-Sacramento stated in the Sacramento Bee that "the governor doesn't seem all that enamored with doing that."

While a majority of my Republican colleagues in the Legislature opposed the legislation that led to redevelopment's demise, it is doubtful that they will have any appetite to anger their political base again by reconstituting agencies that engage in eminent domain abuse and embark on risky ventures to finance sports arenas, luxury hotels and golf courses, all at your expense.

The elimination of redevelopment agencies was a rare instance of bipartisan budget agreement and one that protects rather than aggrieves the taxpayers.

I expect the debate to continue, but now with a dramatic and overdue shift towards harkening to the original, narrow purpose of redevelopment rather than justifying continued abuse.

Some economic stimulus and RDA reform should be to consider ways to make development less costly, by reducing taxes, eliminating oppressive regulations (state and local), unnecessary environmental restrictions and limiting lawsuits.

Governors, legislators and, yes, the courts agreeing on such significant matters are all too rare. These are times demanding such foresight and courage. Hopefully this example will not be lost as the 2012 budget is considered and such emerging problems like the consequences of one of last year's reform disasters - public safety realignment - are reconsidered.