Governor Jerry Brown Proposes Elimination of Redevelopment Agencies

Governor Brown details the budget at State Capitol today. Photo: Governor's Press Office
Governor Brown details the budget today at the State Capitol. Photo: Justin Short

The following story is republished with permission from the California Planning and Development Report. Streetsblog SF will be following this story in the coming weeks as it develops.

As expected, the budget proposed today by Governor Jerry Brown budget calls for the wholesale elimination of redevelopment agencies.  This dramatic move would free up roughly $5 billion in annual tax increments that redevelopment agencies control and would redirect those increments to fund a range of local services.

The proposal has set off what will likely be an ongoing debate over the value of redevelopment as it has been implemented in the 59 years since California voters approved a constitutional amendment allowing the use of tax increment financing to combat blight. While the governor described the proposed budget as “a tough budget for tough times,” redevelopment officials have already launched their counter-offensive.

John Shirey, executive director of the California Redevelopment Association, called the proposal ” smoke and mirrors that will bring little financial gain for the State, but will cause widespread and significant economic pain in communities throughout California.”

The proposed budget’s chapter on Tax Relief and Local Government includes a wide-ranging indictment of redevelopment. The budget offers the following reasons, among others, why redevelopment fails to live up to its promise:

  • Because redevelopment agencies keep the incremental monies that are generated within redevelopment, even tax increases that stem simply from inflation or property value increases–rather than direct agency intervention–end up in agency coffers. Meanwhile, the base tax that is distributed to other recipients remains the same and loses real value over time. The budget claims that over time, the increment kept by agencies can “dwarf” the base tax revenue that goes to local services like schools.
  • According to a 1988 study by the Public Policy Institute of California,  “fewer than one‑quarter of the (redevelopment) projects came close to being responsible for the property taxes they received. These projects were also the ones with the most vacant land.”
  • Redevelopment agencies have failed to develop affordable housing, which is supposed to consume 20 percent of agencies’ income. Instead, many agencies have built up large balances.
  • In the aggregate, redevelopment agencies do not create a net increase in development. Development that occurs in redevelopment project areas would have occurred elsewhere in the state.

The budget lists the following relative detriments of diverting the tax increment:

  • Diversion of tax increment not only diverts a total of $5 billion from other taxing agencies but also creates a complicated system by which the state must “backfill” and compensate K-14 schools at a cost of approximately $1.8 billion annually.
  • Local services such as law enforcement and emergency response rely largely on property taxes and local sales taxes. While the former is expected to stabilize, the latter is expected to take years before returning to pre-recession levels.

The budget proposes the following steps to disbanding redevelopment agencies and redistributing their tax increments:

  • By July, existing agencies would be disbanded and their debts would be gradually retired by local successor agencies.
  • Starting in 2012-13, the amount of tax increment remaining after paying pre-existing debts and contractual obligation would be distributed to cities, counties, and K-14 schools in amounts proportionate to their share of the base countywide property tax. The net gain for these entites is estimated to be $3 billion annually.
  • Monies left in agencies’ coffers that are earmarked for low- and moderate-income housing would be shifted to local housing authorities for the same purpose.
  • Fund future local economic development projects via a 55-percent voter approval for limited tax increases and bonding against local revenues for projects that are currently done by redevelopment agencies.

This announcement comes on the heels of what redevelopment officials considered a disastrous year. In May, a judge upheld a 2009 law ordering the transfer of $2.01 billion in tax increment from agencies statewide to help fund schools.

Agencies were then ordered to pay $1.7 billion of that payment, with the rest due this year. “Without decisive action, the state’s severe budget problems will persist, threatening economic recovery, job growth, public education and the quality of life in California,” Brown said in a statement. “The adoption of this budget will position the state to lead the country as it slowly recovers from the Great Recession.”

Redevelopment officials contend, however, that the current system and the use of tax increments can stoke that recovery. ”The state and local governments have very few tools to stimulate the economy, but redevelopment is the exception,” the CRA’s Shirey said in a statement.  “Redevelopment is already a locally-governed service which generates hundreds of thousands of jobs.”

The governor’s spending plan assumes that all statutory changes to implement budget actions will be adopted by the Legislature in March, allowing the necessary ballot measures to be put before the people in a June special election.

  • susan

    Good move, Mr. Governor!
    I hope that he keeps this trend up and eliminates other wasteful and redundant state agencies, institutions and commissions. On the commissions issue: why are commissioners to these appointed bodies earning more than a full time salary to sit on a board that meets less than once per month? Rhetorical question, we know why: political patronage to provide soft landings for termed out politicians to keep their fat salaries and bloated benefits. A move to dissolve all commissions- or reduce compensation to a small stipend- would not represent a significant savings but would put out a message that the days of the days of fat cat, highly paid patronage ‘jobs’ are over and that Governor Brown is serious about putting sacred cows on the chopping block.

  • Whenever the best an advocate of a program can say is that it “generates jobs,” you know more scrutiny is needed. By this logic a program that paid every unemployed Californian to go dig a hole in their back yard eight hours a day would be the panacea for any unemployment crisis.

  • Jeffrey W. Baker

    Does this have any bearing on project like, say, the TJPB?

  • Janet

    @Susan you obviously dont know much about the Redevelopment Commission,because they do not earn a full-time salary…so check your facts before you start blabbing. Also, did you know the Redevelopment Agency invested in Yerba Buena Center and Mission Bay? For years these areas sat as vacant blighted areas, redevelopment incentives helped catalyze these development and created business opportunities (bio-tech hub) in Yerba Buena Center, Mission Bay and also provided much needed workforce housing so that teachers and police could actually live in SF. More recently, the Redevelopment Agency facilitated the clean-up of volatile organic compounds at the former Schlage Lock site, when no one else was interested in the environmental clean up. Also, the Agency is responsible for creating the Transbay project.

  • The Transbay Terminal is running on Pure Pork.

    Never fear.

    The $4 billion Big Bus Station In the Sky — pity about that whole train business being un unmitigated and unworkable clusterfuck, but that’s what you get when you have Americans design public transportation infrastructure — will go ahead regardless. The copnsultant/construction mafioso are far too powerful and there’s way too much money at stake for that not to happen.

    All the other stuff in the Redevelopment Area — the affordable housing, the streetlamps, the daycare staffed by unicorns, the park — is a little more dubious.

    Of course the best thing that could happen, from a public transportation and a public policy perspective, would be for the project to implode financially and for everybody in any way associated with the “design” to be terminated with extreme prejudice, but when was the last time you remember any desirable public policy outcome winning out?

  • The one redevelopment project which has been an unqualified success is Mission Bay, and its success can be traced basically to the payroll tax exemption and ease of building, which have lured back employers from the Peninsula and East Bay previously put off by the city’s unequaled tax and endless bureaucracy.

    The lesson from this is to repeal the payroll tax citywide and streamline the permitting process. Then the entire city can be prosperous, not just the areas politicians deign to pump money into.

    Looking at other redevelopment projects around the city and state, you see that the norm ranges more from projects like Transbay (which produce infrastructure that is genuinely needed, but at double, triple, quadruple or more what they should have cost, and with endless delays, bad decision making and politcal squabbling) to the endless string of failures by the Community Redevelopment Agency of Los Angeles, which has spent billions of dollars turning businesses and homes into vacant lots.

  • Some of the more recent San Francisco Redevelopment Agency projects may have been a net positive for the city, but I think it’s fair to say that the Agency was actually the cause, as well as the eventual cure, of the vacant lots that filled the Yerba Buena Redevelopment Area for years. At the time the redevelopment project began (sorry for the lousy scan), nearly the entire area was still intact, run down but home to a lot of people and small businesses. If the Redevelopment Agency hadn’t torn the whole thing down, those blocks of 3rd and 4th streets would probably be lined with charming restored buildings by now instead of block-long driveways.