Posts Tagged ‘property taxes’



The Case for Why Redevelopment Must Go

Monday, February 21st, 2011

To hear mayors, council members and bureaucrats from throughout California screech and squeal about Gov. Jerry Brown’s call to shut down redevelopment agencies in favor of schools, the elderly and disabled, you’d think Krusty had proposed bulldozing Main Street.

As John Shirey, executive director of the California Redevelopment Association, put it the other day:  “I must be clear: we are stridently (sic) opposed to the governor’s proposal to abolish redevelopment and our singular goal is to defeat this proposal that will destroy hundreds of thousands of jobs and billions in economic activity.”

Strident, indeed. Hysterical, overwrought and hyperbolic, too. Seldom have we witnessed such widespread, collective urban self-centeredness coupled with apparent disregard for the social fabric.

There’s no way to know for sure, but it appears redevelopment agencies have already done what they can to hoard their loot by slapping together and hastily approving projects that would consume the same $1.7 billion in property taxes that Brown’s budget would use to keep from having to make further cutbacks to schools and social services as the state struggles with a $27 billion deficit.

San Diego officials are cooking up a plan to sequester $4 billion for a Charger’s football stadium and Los Angeles is trying to lock up $1 billion and other panicky RDAs are scheming to do the same.

Their bet is that Brown won’t sue them to recover those funds (even if the agencies are on shaky legal ground) because he won’t want all of those mayors and city officials opposing a June ballot measure to approve his budget by extending $12 billion in taxes and fees adopted two years ago.

How that will play out politically remains to be seen. But we don’t have to wait to understand the debate.

Needs in conflict: As long-ago urban affairs reporters, Calbuzz saw the powers of redevelopment used positively, to help revitalize urban areas in desperate need of infusions of investment. So we get that there are good arguments for the continuation of redevelopment, which are being blasted out to media and policy makers by the coalition to “Stop the State’s Redevelopment Proposal” (although we do wonder how much redevelopment money they’re spending on lobbying).

But California is facing a budget crisis of historic proportions that at least two and possibly three previous governors and their concurrent legislatures refused to own. And Brown has concluded that the interests of schools, widows and the disabled should have first call on funds that – according to the best, most objective studies – do little to expand California’s collective economic health when they are funneled into redevelopment agencies.

He’s right.

Redevelopment law allows cities (and counties, but they use it less) to declare a geographic area “blighted” and in need to revitalization. The property taxes in that redevelopment area are frozen and any new property taxes generated above that base may be used to purchase land, build streets and sewers and subsidize development in the project area.

The tax increment above the frozen base can be guaranteed as a source of funds to pay interest on bonds sold on the open market. This is called tax increment financing and it is a hugely powerful tool for urban investment because of its ability to leverage vastly more money at one time than is generated by the flow of property taxes annually.

There are some 400 active redevelopment agencies throughout California diverting more than $5 billion a year away from schools, counties and special districts and into the coffers of those agencies. The economic theory that argues for the process echoes Reaganesque trickle-down: by generating construction jobs, sales taxes and other activity in the redevelopment area, the rising tide is said to lift all boats and the region around the project area is expected to benefit. Like giving tax breaks to the wealthy is supposed to help the middle class.

Spinners for the RDAs argue that redevelopment activities support 304,000 jobs annually, including 170,600 construction jobs; contribute over $40 billion annually to California’s economy in the generation of goods and services, and generate more than $2 billion in state and local taxes in a typical year.

Moreover, since the law requires 20% of the tax increment to be dedicated for low- and moderate-income housing, the RDAs argue that eliminating redevelopment will significantly undermine efforts to provide homes for those who otherwise cannot afford it.

A close look at the numbers: But the most thorough and academically sound study of redevelopment we’re aware of, by Michael Dardia of the Public Policy Institute of California, found in 1998:

After correcting for local real estate trends, the author finds that redevelopment projects do not increase property values by enough to account for the tax increment revenues they receive. Overall, the agencies stimulated enough growth to cover just above half of those tax revenues. The rest resulted from local trends and would have gone to other jurisdictions in the absence of redevelopment.

A study by the non-partisan Legislative Analyst’s Office recently concluded as much and more.

While redevelopment leads to economic development within project areas, there is no reliable evidence that it attracts businesses to the state or increases overall regional economic development. Instead, the limited academic literature on this topic finds that—viewed from the perspective of an entire city or region—the effect of this program on property values is minimal. That is, redevelopment may cause some geographic shifts in economic development, but does not increase the overall amount of economic activity in a region. [emphasis added]

The independent research we reviewed found little evidence that redevelopment increases jobs. That is—similar to the analyses of property values—the research typically finds that any employment gains in the project areas are offset by losses in other parts of the region. We note that one study, commissioned by the California Redevelopment Association, vastly overstates the employment effects of redevelopment areas.

Redevelopment agencies receive over $5 billion of tax increment revenues annually. Lacking any reliable evidence that the agencies’ activities increase statewide tax revenues, we assume that a substantial portion of these revenues would have been generated anyway elsewhere in the region or state.

For example, a redevelopment agency might attract to a project area businesses that previously were located in other California cities, or that were planning to expand elsewhere in the region. In either of these cases, property taxes paid in the project area would increase, but there would be no change in statewide property tax revenues.

To the extent that a redevelopment agency receives property tax revenues without generating an overall increase in taxes paid in the state, the agency reduces revenues that otherwise would be available for local agencies to spend on non-redevelopment programs, including law enforcement, fire protection, road maintenance, libraries, and parks. [emphasis added]

The bottom line: In other words, despite the good arguments that RDAs make about the enormously positive local impacts of redevelopment – San Jose’s downtown and its northern industrial area are excellent examples – the evidence suggests that there’s a huge cost to the state (which has to back-fill funds that otherwise would have gone to schools) and little benefit or a substantial cost to counties and special districts.

We’re not even getting to other issues, like the fact that the only “blight” a lot of redevelopment areas had before they were made projects was pear blight, and the fact that there’s virtually no oversight of how redevelopment funds are spent (and millions is spent outside the law’s intent  to subsidize flagging city budgets and improve stable neighborhoods). That’s just piling on.

Gov. Brown’s budget would ensure that RDAs will receive enough money to cover the debt service on bonds they have already issued  (although the structure of the agencies that will make those payments still must be worked out).

But in an era when California is faced with draconian cutbacks to higher education, schools, parks and public safety, the diversion of property taxes to redevelopment agencies is a luxury the state can no longer afford.

13: What Reform Plans Would & Wouldn’t Do

Tuesday, December 8th, 2009

JarvisFinal-200Our three-day series of guest op-eds about major proposals for political reform last week here, here and here, generated a wave of thoughtful Calbuzzer comments, many focused on Prop. 13.

Several progressives expressed concern that neither the set of initiatives put forth by California Forward, nor the constitutional convention package sponsored by Repair California, would amend the Prop. 13 framework on taxation in a way that would allow dramatic political change.

The issue was raised most directly by Calbuzzer “David” who wrote:

The heart of the state’s dysfunction is the ability of simple majorities of voters to impose supermajority requirements in perpetuity. For instance, Prop 13’s 2/3 requirement on taxes was itself imposed by less than a 2/3 majority. Any “constitutional reform” which leaves this atrocity in place is not a true reform, but simply rearranging the deck chairs on the Titanic. Since the current con-con proposals explicitly prohibit changing the 2/3 rule, they are yet another waste of time for a state that is rapidly running out of it.

Amid considerable debate and discussion on the site, however, a key difference emerged between the two sets of reforms:

The ballot measures submitted by California Forward would specifically  prohibit changing the Prop. 13 requirement for a two-thirds vote needed to raise taxes, either in the Legislature or locally. But the convention agenda outlined in the Repair California initiative expressly would allow delegates to study and, if they saw fit, to propose to voters a reduction of the supermajority requirement.

Alert Calbuzzer Adrian Covert was the first to call attention to this little-calbuzzernoticed element of the convention initiatives. Covert, who blogs over at pacificvs.com wrote:

The Constitutional Convention proposals…specifically put all vote thresholds on the table. By voting in favor of a convention, voters will in-fact be giving convention delegates a clear mandate to do so.

The guy’s right on a very important point.

The concon package includes two proposed initiatives; the first seeks voter authorization to convene a convention, while the second broadly defines the issues to be considered by the delegates. In the second initiative, Section 83130 (a) (3) states that the convention is authorized to address:

Spending and Budgeting, including the budget process and related requirements, the term and balancing of a budget, voting thresholds, mandated spending and ways to increase fiscal accountability and efficiency.

In other words, the convention could, if it so chose, propose an amendment to alter the two-thirds rules on raising taxes. This reading of the measure was confirmed for us by Clint Reilly, who’s running the Repair California campaign. The group is a political spin-off of the Bay Area Council, whose CEO, Jim Wunderman, got the convention idea started.

To be clear, this is the only element of Prop. 13 that would be in play in either reform package. The convention specifically cannot deal with the Prop. 13 system for determining property taxes:

Section 83130 (b) The convention may also propose to change any statutory provision directly related to the proposed constitutional revision or amendment. The revision, any amendment, or any related statutory provision proposed by the convention may not include new language, or alter existing language, that (1) directly imposes or reduces any taxes or fees; (2) sets the frequency at which real property is assessed or re-assessed; or (3) defines “change in ownership” as it relates to any tax or fee . . .

con_conWhen we first read this, it seemed to us that it left room to allow convention delegates to propose amending Prop 13 to put in place a split roll system, which would assess commercial property at a different (higher) rate than residential.

We thought the language on this was unclear so we interviewed Steve Miller of Hanson Bridgett who drafted the section. He told us it was worded to keep the convention from taking up the split roll.  So that’s the word from the horse’s mouth.

Bottom line: As written, neither of the major reform packages aimed at the 2010 ballot leave much room for changing Prop. 13, but the constitutional convention leaves the door open for one major amendment that could have widespread political impact.