What is the best way to fight blight in our cities? Subsidize private development or public education? Spend public money on new shopping centers or new schools?
In his CRA vs. Genest ruling, Sacramento Superior Court Judge Lloyd Connelly decided for the kids. He upheld the legislature's authority over redevelopment agency money, an important step in achieving a balanced budget and returning those funds to their original purpose.
This ruling restores $2.7 billion in education revenues previously lost to redevelopment agencies, including $166.9 million for Orange County schools.
Redevelopment was created 60 years ago to end urban blight in California. It was never intended to be a permanent drain on the budget. Agencies are supposed to sunset after 40 years but are routinely extended indefinitely, and their indebtedness now tops $93 billion.
Redevelopment diverts an ever-growing share of property tax dollars into subsidizing big box retailers, auto malls, theaters, stadiums and low-income housing. Last year, redevelopment agencies diverted $5.4 billion in local taxes - 12% of all property taxes. That amounted to $2.7 billion taken from public schools and $646 million from counties. There is no money to backfill these losses.
Redevelopment agencies are typically operated by California's cities, who see it as a way to maximize local revenue. But most of that revenue winds up in the pockets of developers to stimulate private projects. None of it can be used for salaries or operations. Tax exemptions, rebates and land acquisition - often under threat of eminent domain - typically benefit developers and giant retailers.
L.A.'s Hollywood/Highland Mall got a $98 million public subsidy and has lost 60% of its original value. In Orange County, Costa Mesa's Triangle Square stands virtually empty after being built with redevelopment funds on land acquired through eminent domain, while Cypress used eminent domain to take church property for a Costco. From San Diego to Sacramento, public funds have been used to bankroll sports franchises and plans are on the books to hand out even more.
The state is littered with deserted shopping centers, half-empty malls, abandoned auto dealers and shuttered movie theaters that were originally financed through public redevelopment subsidies. This fiscal free-for-all distorts land use decisions and pits city-against-city to outbid each other for businesses - at public expense.
In the 1970's redevelopment the Anaheim Redevelopment Agency destroyed that city's entire downtown, leveling functioning businesses in historical buildings. Only a year after building its Fullerton location in 1984, the Price Club (now Costco) store threatened to move to Anaheim, unless it received more tax subsidies than the original deal provided. In the 1990's, Fullerton lost several auto dealerships to Buena Park, who lured them away to its new auto mall - at public expense.
Redevelopment has produced few benefits that private investors could not have done on their own. The Public Policy Institute's study "Subsidizing Redevelopment in California" compared 114 different redevelopment project areas statewide to similar areas without redevelopment. It concluded that redevelopment agencies were not responsible for any net economic growth and that they were being financed at the expense of local schools and public services.
A 2000 Los Angeles Times report compared differing neighborhoods in that city and found that redevelopment projects actually hindered development, as private owners waited for public assistance rather than investing on their own, and others - under threat of eminent domain - dared not invest at all.
Look at three commercial centers at the intersection of Orangethorpe and Harbor in Fullerton. The northeast and southwest corners received millions in public incentives, while the southeast corner was improved solely by private developers. There is little difference in vacancy rates.
Judge Connelly has a good grasp of state and local funding issues. He has served on the Sacramento City Council and the State Legislature. His ruling keeps these funds within the cities from which they came - to fund local schools. Funding education is a far more effective way to relieve blight than building more shopping centers.
Many city officials are understandably unhappy with the decision, as they find their redevelopment projects now in jeopardy. To the extent that these monies fund public improvements and infrastructure, they deserve protection. What cities really need is more general fund revenue that can be used for maintenance and public safety. I would support transferring remaining redevelopment monies into municipal general funds.
(Reprinted from Norby Notes 6; May, 2010, Issue 06; www.asm.ca.gov/Norby, Assemblymember.Norby@assembly.ca.gov)
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