California Lawmakers Continue to Undermine Property Rights

Urban renewal rears its ugly head again in the Golden State.

California's 1940s-era urban-renewal policy, "redevelopment," is coming back — only less so in some ways but more so in others.

California's redevelopment law was designed to revive inner-city neighborhoods by giving city planners extra powers to invest tax dollars and direct development decisions in areas that were deemed to be blighted. It morphed into a financial sleight of hand, whereby officials subsidized auto malls and hotels to divert tax revenues that would go elsewhere.

Property-rights activists loathed redevelopment because it gave cities an excuse to take property via eminent domain and give it to developers who had "better" plans for the property. Anything eyed by these agencies, critics said, became "blight."

Even many redevelopment supporters — who point to the revival of San Diego's Gaslamp Quarter and other projects as proof of its success — admit that agencies sometimes abused their power. But in the end, their financial approach was their undoing.

In 2011, a state budget crisis that prompted the new governor to look for ways to fill a budget gap led to the end of redevelopment, given that agencies ended up grabbing about 12 percent of state property tax revenues. Sure enough, these agencies have dissolved and new successor agencies can't start new projects, but can only pay off the debt on old ones.

Redevelopment's advocates, including the developers, bond dealers, consultants and government planners involved in it, tried to revive redevelopment last year, but the governor vetoed the bills. They are back again, and SB 1 by Senate President Pro Tempore Darrell Steinberg, D-Sacramento, passed a key committee on Wednesday.
Called the "Sustainable Communities Investment Plan," it's basically the same process but with a new environmentally oriented twist.

In the old redevelopment, agencies targeted an area that was deemed "blighted" based on a wide range of mostly subjective factors. All new property tax revenues above the level when the project area was created, called "tax increment," went to the agency, which floated bonds and subsidized developers.

The new redevelopment is pretty much the same thing except that instead of targeting urban blight it targets urban sprawl. Supporters believe that new developments should be built in existing urban areas to reduce global warming. Redevelopment redux is a mechanism for providing fiscal incentives to spark the construction of apartments, high rises and stadiums, with "blight" defined as anything that doesn't fit the infill vision.

Marko Mlikotin, president of the Folsom-based California Alliance to Protect Private Property Rights, believes eminent domain could be more easily invoked under SB 1 than before given the broad blight definition.

From a financial perspective, however, SB 1 is a kinder-gentler approach. Before, city agencies could create project areas and unilaterally grab tax revenues that would have gone to counties, school districts and special districts. The state reimbursed the schools, which is why Brown put an end to it.

The new legislation requires the districts and cities to work together to create the project, so it can no longer be a mechanism for taking others' revenue. That greatly reduces the incentive to create project areas and stems the money flow. For that reason, the state's best-known anti-redevelopment crusader, former Assemblyman Chris Norby of Orange County, sees it as a far cry from the bad old days, even though he is opposed to redevelopment's return. "Once Frankenstein is dead, it's very hard to rebuild him," he said.

Steinberg's policy advisor on the issue, Steve Shea, reminded me that the new redevelopment will start the base year for calculating tax increment in 2014, so it will take many years before it can accumulate the kind of tax revenue that old redevelopment agencies had amassed. It is redevelopment on a much smaller scale, something he said is necessary to help ameliorate the higher costs of building projects in urban areas.

But like his boss, Steinberg, Shea strongly defended the use of eminent domain as an urban-planning tool. So it might not be long before Californians see some of the property-rights controversies that gave redevelopment a black eye, even if it takes years before the agencies become the fiscal sinkholes that led to their demise.