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Solimar Research

Redevelopment Debate Stirs Up 33 Years of Discontent

Apr 6, 2011

Since January we have witnessed the unusual spectacle of elected local officials throughout the state expressing intense and emotional anger and frustration about the possible end to redevelopment -- and no reaction at all from anybody else. 

Nothing from the people in blighted neighborhoods, who supposedly benefit from better housing and more jobs and more retail choices.

Nor from the environmentalists who are always calling for more infill development.

Nor even from the supposed fat-cat beneficiaries of the redevelopment system: the developers themselves.

What's going on? Why are local officials bleeding all over the sidewalk, as it were, while everybody else just sidesteps and walks on?

The answer is a long one but not surprising. What we are witnessing is the last act in an emotional drama that began 33 years ago, when the people of California, in their wisdom, approved Proposition 13 – which severed the connection between local property taxes and local spending by giving the state the power to decide who gets how much of the property tax.

No matter whether Howard Jarvis and the other authors of Proposition 13 meant to do this, the effect was to downgrade cities and counties from partners in governing to just another special interest group feeding at the trough in Sacramento.

Way back when, cities responded to this uncomfortable situation with three very understandable responses.

First, they became masters of the Prop 13 workaround – the most significant of which was redevelopment, which allowed them to unilaterally capture a greater share of the property tax. They were often able to use this tax increment to create projects in redevelopment areas that generated sales tax or bed tax that could go into their general fund. (Ironically, Proposition 13 was originally viewed as the end of redevelopment in California because it cut so much tax increment for then-existing projects.)

Second, they decided that if they were going to be a special interest group in Sacramento, they'd be as good a special interest group as they could be. The League of California Cities' rise as a lobbying force dates from this period.

And third, they seethed—with anger and resentment and humiliation—that they had been put in the position of having to politick in Sacramento just like everybody else. They found themselves considering that all of their carefully crafted efforts could be overpowered by a couple of carefully placed TV ads from the California Teachers Association featuring schoolchildren. Such a campaign has usually been good enough to trump all lobbying by cities (and counties, for that matter).

And then… our local government leaders lived with this seething resentment and this basic conflict inside them for more than 30 years.

Until January, when the governor found a very skillful way to call the question on redevelopment in spite of Proposition 22, which passed last November.

Proposition 22, of course, was designed to protect redevelopment revenue (as well as other local government revenue) by making it unconstitutional for the state to shift those funds away from redevelopment agencies "directly or indirectly."

The cities didn't think the state could balance the budget without taking more redevelopment money. After all, redevelopment funds have doubled in less than a decade, while state general fund revenues have declined. But at least Proposition 22 gave them more power in the eternal struggle over what money remained.

It was clear that the League of California Cities and the California Redevelopment Association expected to deal with this latest situation the same way they had dealt with every other attack on redevelopment over the past 35 years: They were prepared to up yardage in order to maintain possession of the ball. For the first half of that time – from the late '70s to the early '90s – they gave up power: on the definition of blight, the requirement to set aside money for affordable housing, and the like. For the second half – a time of chronic budget problems for the state – they gave up money.

The League and the CRA were clearly prepared to do this again, except the governor surprised them. He didn't want yardage. He wanted to call the game. To him, it was the only way around Proposition 22.

Can you imagine what it's like to carry all this conflict around inside you for 33 years? And then think you've finally won with Proposition 22? And then you get outfoxed by the governor – who, by the way, used to be a mayor and used redevelopment very effectively? And then discover that no one else cares and no one else comes to your defense?

No wonder there's been so much yelling and bleeding on the floor since January.

And no wonder the League and the CRA decided that the best strategy was simply to stonewall – to insist that they were going to hold their ground and not make a deal, until it was almost too late. It's an emotionally satisfying approach.

But it hasn't worked. Redevelopment isn't gone yet – at least not as of this writing – but it's doubtful that it will survive in anything like its current form. It may go away completely, or it be cut far more deeply than anyone previously imagined, or it may morph into something very different.  

So as California assesses what redevelopment might be in the future, it's probably a good idea to step back and remember what it is and what it is not.

First, it is not a job creation or economic development program, as the League and the CRA have insisted all year. In fact, whenever they have fallen back on the jobs/economic development argument – which is every time redevelopment is under attack – I've worried that it's just opening the whole system up for attack. Surely, sooner or later somebody in this town is going to say, "If we are going to spend $6 billion on economic development, would we do it this way?" (Meanwhile, the governor seems to have embraced the agenda of the Silicon Valley Leadership Group, which named education as an important economic development tool.)

What redevelopment is designed to do – and what it does well – is facilitate public infrastructure investment and private real estate development in particular geographical locations.

The need for that job has not gone away. In fact, with AB 32 and SB 375 in place, that job is probably more important than ever.

But one of the oldest lessons in construction is, don't confuse the job you are doing with the tool you are using. And that's what cities are doing right now.

Cities have used redevelopment so long for so many things – understandably, because what other options have they had? – that they have confused the job with the tool. Yes, infill development needs to proceed. Yes, tax-increment financing helps do that. But other cities around the country and around the world somehow get this done every day without TIF – or with limited access to it. In California, we are about to remember – for the first time in a long time – what it's like to bring an entire toolbox to the job of repairing our cities.