Daniel Borenstein: Brown is right to disband redevelopment agencies

The following is an editorial printed in the Argus on 1/22/11. It is a succinct and informative piece illustrating the need and reason for supporting Gov. Brown’s decision to dissolve redevelopment agencies. It certainly opens debate on the merits of spending our limited funds on another BART station vs. schools, hospitals and other basic services.

Kathy

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By Daniel Borenstein

Staff columnist

Posted: 01/22/2011 09:00:00 PM PST

THE SCREAMS from cities about Gov. Jerry Brown's plans to disband about 400 redevelopment agencies across the state are shameful and hypocritical.

While city officials claim the state is trying to raid their funds, it's actually the cities, using their redevelopment agencies, that have been siphoning billions of dollars from badly needed government services and spending the money on projects that often have little to do with cleaning up blight.

The redevelopment scam, which has turned into a windfall for developers, bond marketers, planning consultants and professional sports teams, has racked up $88 billion in public debt statewide -- without voter approval. It should have been ended decades ago. Kudos to the governor for finally taking it on.

What was presented to voters in the 1950s as a plan to finance new construction in some of the worst slums in the state has morphed into a scheme to indirectly subsidize city budgets. In the East Bay, communities like Oakland, Clayton, San Pablo, Pittsburg, Hercules, Pinole and Emeryville are hogging huge sums of property tax money that should be shared with the county, special districts and schools.

Communities like San Diego and Los Angeles have used the money to fund sports complexes, while Santa Clara is planning to do the same. In Hercules, millions of dollars of redevelopment funds went to consultants who have almost no construction to show for it, and to a company owned by the city manager's daughters that, among other things, provided mortgage loans for city employees and a member of the firm.

Indeed, an analysis released in September by a watchdog office of the state Senate found redevelopment agencies around the state that used their money primarily to pay salaries and administrative costs. Worse, a Los Angeles Times investigation published in October found that, "at least 120 municipalities -- nearly one in three with active redevelopment agencies -- spent a combined $700 million in housing funds from 2000 to 2008 without constructing a single new unit ... . Nor did most of them add to the housing stock by rehabilitating existing units."

While advocates claim that redevelopment agencies help bolster the California economy, the nonpartisan state Legislative Analyst's Office reported last week that "there is no reliable evidence that redevelopment projects attract businesses to the state or increase overall economic development in California. The presence of a redevelopment area might shift development from one location to another, but does not significantly increase economic activity statewide."

To be sure, redevelopment has helped produce low- and moderate-income housing in many communities, but at a tremendous cost. If the goal is more affordable housing, a more efficient way must be found. Redevelopment agencies as they are currently constructed and funded are not the answer.

Throughout California, property taxes are usually split among schools, counties, special districts and cities. But when a city forms a redevelopment agency, it can capture all the tax growth from that designated blighted area. Gradually, they have to start sharing some of it again with the other local governments. But most of that money goes to the redevelopment agency and can be leveraged to fund improvements within the area and offset city costs for projects there.

Without the redevelopment agencies, advocates claim, there would be little increase in property values and taxes in those areas. It's a bogus argument. According to a 1998 study by the nonpartisan Public Policy Institute of California, about half of tax increases in redevelopment areas would have happened anyhow.

Thus, redevelopment agencies are collecting money that would have otherwise gone for other critical government services. Currently, redevelopment agencies capture nearly 12 percent of property tax revenues across the state, or about $5 billion a year.

The single biggest chunk of that money, about $2 billion, would have otherwise gone to schools. But since the state is responsible for funding schools, it's the state that loses that money. That's why the governor is so concerned about redevelopment agencies. With California facing huge cuts in social and health services and the higher education system, it makes no sense for the state to continue subsidizing redevelopment.

Counties are the next big losers, at about $1.4 billion a year -- money that would otherwise go to help provide social services, health care and public protection. Cities lose about $1 billion, but don't look for them to complain because they run most of the redevelopment agencies and subsidize their budgets with some of the money.

Indeed, since the passage of Proposition 13, the 1978 property tax-cutting initiative, cities have rapidly increased their use of redevelopment agencies to grab a bigger portion of the pie.

In 1982-83, redevelopment agencies received 3.6 percent of property tax revenues statewide. Today's it's 11.9 percent.

The distribution is wildly uneven. In Contra Costa and Alameda counties, about 12 percent and 13 percent, respectively, of property tax revenues went to redevelopment agencies in 2008-09, according to the state Controller's Office. Santa Clara and San Mateo counties were below average at 9 percent and 10 percent. But, in San Bernardino County, redevelopment agencies siphoned off 31 percent, followed by Riverside County at 27 percent.

Within Contra Costa, San Pablo's redevelopment agency this year will grab 77 percent of the property taxes collected in that city. Other hogs are Pittsburg (67 percent); Pinole (50 percent); Hercules (37 percent) and Clayton (30 percent). In Alameda County, Union City grabs 25 percent, Oakland siphons off 26 percent and Emeryville captures 77 percent.

With the promised streams of tax revenues as security, redevelopment agencies have borrowed money for their projects. As of 2008-09, they had run up a collective $88 billion in debt, including $35 billion in bonds.

It's an easy way for a local agency to borrow money. Unlike bonds for parkland, school construction or, say, a marina improvement, redevelopment bonds don't require voter approval.

It's time to put an end to all this. Money must be set aside to pay off the debts. But, beyond that, the property tax money should go elsewhere. Brown is right: California cannot afford its redevelopment agencies.

Daniel Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or dborenstein@bayareanewsgroup.com.

Tags: BART, RDA, Redevelopment Agency, brown, funding, redevelopment, school

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Replies to This Discussion

Permalink Reply by bbox231 on February 1, 2011 at 2:02pm

Bill Marshak has tried diligently to challenge the dubious "investments" made by the Fremont RDA.

His coverage and concern over this matter goes back many, many years -

http://www.tricityvoice.com/articledisplay.php?a=2570

http://www.tricityvoice.com/articledisplay.php?a=3553

http://www.tricityvoice.com/articlefiledisplay.php?issue=2007-08-28...

http://www.tricityvoice.com/articlefiledisplay.php?issue=2008-05-14...

http://www.tricityvoice.com/articlefiledisplay.php?issue=2007-09-25...

This kind of critical Fremont coverage is entirely absent from the minds of Argus reporter(s).

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Permalink Reply by Jo on February 8, 2011 at 1:18pm

We need to watch how local governments are issuing bonds or we could be left holding the bag. Hope Fremont don't follow these examples:

http://online.wsj.com/article/SB10001424052748704013604576104490177...

bbox231 said:

Bill Marshak has tried diligently to challenge the dubious "investments" made by the Fremont RDA.

His coverage and concern over this matter goes back many, many years -

http://www.tricityvoice.com/articledisplay.php?a=2570

http://www.tricityvoice.com/articledisplay.php?a=3553

http://www.tricityvoice.com/articlefiledisplay.php?issue=2007-08-28...

http://www.tricityvoice.com/articlefiledisplay.php?issue=2008-05-14...

http://www.tricityvoice.com/articlefiledisplay.php?issue=2007-09-25...

This kind of critical Fremont coverage is entirely absent from the minds of Argus reporter(s).