Rumors of Redevelopment’s Resurrection Greatly Exaggerated

 

When Jerry Brown first proposed killing redevelopment -- back in January 2011, when he released his first budget -- he said he would replace it with some other economic development tool. After Brown succeeded -- when he released his second budget, in January 2012, just days after the Supreme Court killed redevelopment – his tune changed, ever so slightly. He said he would consider bringing redevelopment back if it didn't affect the state's general fund.

Fair enough.

Last month, however, Brown vetoed several bills that would have brought redevelopment back in some form but would not have taken any money from the general fund. 

What gives?

The answer is simple: Brown has decided that the gradually decomposing dead body of redevelopment isn't cold enough yet.

Despite his steadfast rhetorical support for the revival of some kind of redevelopment tool, Brown has pretty consistently sent the message that the body of redevelopment has to be cold, deep in the ground, and long turned to dust before he approves a replacement. He wants, essentially, for the former redevelopment apparatus to scatter and the old assumptions and habits to slip into the history books. The September vetoes simply reaffirm his position.

But it's hard to say how long we will all have to wait. Will he sign something in 2013? He might have that chance, since Senate leader Darrell Steinberg has already vowed to introduce a version of his SB 1156 – which amounted to a semi-revival of redevelopment, with a smart-growth twist – on Day One of the next legislative year. Or, will Brown wait until his second term, if there is one? Will California's cities have to wait until he's out of office altogether -- an event that is somewhere between two and six years away?

Nobody really knows. You'd think he's feeling some pressure to do something. After all, his determination to keep redevelopment underground for the foreseeable future is at odds with his own rhetoric about building a sustainable California.

Even Brown seems to recognize this. In his veto message for SB 1156 he wrote: "The planning and investment that is envisioned in this bill would help develop and redevelop a California that is thriving."

Not a surprising statement. After all, the bill explicitly tied new redevelopment efforts to implementation of SB 375, the 2008 regional planning law designed to implement the state's climate change law. Brown is passionate about the climate change issue and, in inheriting SB 375 from the Schwarzenegger years, he has made it a centerpiece of his growth policy, which is being implemented primarily through the efforts of his Strategic Growth Council. And although SB 1156 would have revived tax-increment financing in a limited way, the bill would not have included property taxes that flow to schools, meaning the state general fund would be held harmless.

Yet Brown vetoed the bill anyway. He said he wanted to wait until after the redevelopment wind-down process is complete before considering new approaches like that contained in SB 1156. Brown used similar reasoning in rejecting AB 2144 by Assembly Speaker John Perez, which would have made it easier for local jurisdictions to create infrastructure financing districts. He said he did not want the locals to "focus" on IFDs while winding down redevelopment.

It's hard to know whether Brown is using his veto power to punish California cities for their recalcitrant approach during the 2011 budget negotiations--but it’s possible. As you'll recall, he proposed killing redevelopment only two months after the cities won passage of Proposition 22, a constitutional amendment that prohibited the state from raiding redevelopment funds to balance the budget. The cities subsequently chose not to negotiate on redevelopment -- and eventually lost a big gamble when the Supreme Court ruled against them in a lawsuit they brought, citing Prop. 22's provisions in killing redevelopment altogether.

Punishment aside, there is a certain logic to Brown's approach -- if you accept the premise that the state's goal should be to protect the general fund at any cost. Cities engaged in the wind-down process are currently negotiating with their Oversight Committees to determine which old redevelopment projects should go forward -- and how much tax increment should continue to flow to those projects, as opposed to the general funds of local taxing entities. While cities and Oversight Committees are working well together throughout the state, the state Department of Finance is often using its power to hinder or block the resulting wind-down plan. 

Given DOF's hard-line approach, you can imagine how Steinberg's bills might look to the Brown administration: Say some city has successfully negotiated a wind-down plan that essentially keeps a redevelopment project afloat, at least in a limited way. Then the city negotiates with its county under SB 1156 to create a new tax-increment flow to further augment the project, and possibly takes an infrastructure financing district to a vote. Before you know it, the local redevelopment agency is back in business -- through a patchwork of wind-down money, SB 1156 increment, and possibly IFD funds. 

In and of itself, that's not something that would concern the state. But if this happens in enough cities, then redevelopment as an industry begins to emerge once again -- with the consultants, the lawyers, the developers, and maybe even a trade association. And before you know it, the redevelopment industry is lobbying to restore tax-increment financing on a larger scale -- even if it means grabbing a piece of the state's general fund.

OK, not likely. But this is clearly the scenario that the Brown administration wants to avoid. Which is why the death of redevelopment isn't enough and the carcass has to decompose before Brown will consider something new.

Cities would be in a stronger position to bring redevelopment back if they could argue that all entities that receive property taxes -- and the state itself -- would increase their coffers if tax-increment financing were revived. After all, that was the argument the redevelopment industry always made before. But there was always little hard evidence that the diversion of $6 billion in property tax funds generated a strong return on investment for local agencies; and the big drop in property values during the real estate bust has killed that argument altogether.

So maybe those interested in reviving redevelopment need to take a different, more comprehensive approach. The Brown Administration appears committed to the implementation of SB 375 and to a general strategy of encouraging compact development patterns, often around transit stops.

Maybe a limited revival of redevelopment -- meaning, yes, tax-increment financing -- should be viewed as part of a broader effort to implement SB 375, along with all those Proposition 84 planning grants, CEQA exemptions for infill development, housing elements that encourage upzoning around transit stations, the remaining infill funds from the 2006 housing bond, and a whole variety of other implementation tools. It might even turn out that redevelopment -- targeted properly to true infill locations, especially those that are transit rich -- will save the state enough money in other costs to please the beancounters and undertakers alike.