Loss of $1.7 Billion Leaves All Californians Richer

At the Orange County Register, Steven Greenhut finds yet another piece of good news in the recession: California's budget crunch has forced the state to cut $1.7 billion from its so-called redevelopment agencies. Greenhut suggests using that $1.7 billion as a reverse down payment on getting rid of the redevelopment agencies altogether:

Before you start accusing me of being callous, let's remind ourselves what redevelopment agencies are all about. Originally, redevelopment law was created to help cities clean up blighted areas. But urban renewal doesn't work, and cities have long ceased targeting truly blighted neighborhoods. They instead use redevelopment as a tax-generation mechanism and a means to subsidize new shopping centers, auto malls and big-box stores.

The way it works: A redevelopment agency conducts a blight finding proving that the targeted area is, indeed, blighted. It then creates a "redevelopment area." The agency floats bonds and uses that money to subsidize developers to build new projects within the specified area. The new property tax dollars—called tax increment—pay off the bonds. The new projects provide sales and hotel taxes, which the cities use to enhance their general funds. (In reality, cities often give away so much to developers that they end up losing on the deal.)

While Greenhut gives redevelopment agencies some well deserved blame for helping create the big-box patchwork that dims the already limited visual appeal of Southern California, there's another side to the story. In many cases—unsurprisingly, in the very underserved areas community revelopment was supposed to help—the redevelopment agencies' use of tax increments, "New Market Tax Credits" and other incentives actually prevents deals from happening.

In south Los Angeles, the Community Redevelopment Agency's Marlton Square project and Broadway/Manchester project—two massive, costly, high-end retail ambitions—have gone where the woodbine twineth. (You can never truly die as long as you've got a government agency web page.) My favorite South Central white whale, the Vermont/Manchester project, remains in the eminent domain hell I wrote about more than a year ago.

In at least two of these cases, the developer screwed up the deal in part by planning much larger-scale projects than the local market could sustain. As a result, large parcels of land that could support modest commercial and residential buildings lie fallow, while a rogues gallery of community activists, government flunkies, gadflies, absentee landlords with bickering family members, architects, labor leaders, public policy majors and reverends gather every fiscal quarter or so to debate projects that never pencil out. (I have not looked closely into the third case: the Broadway/Manchester project currently led by developer AMCAL Multi-Housing, where "'affordable' never means less." But I see the CRA's most recent Broadway/Manchester report [pdf] has the developer "applying for Prop 1C funds for estimated project gap.")

I repeat the "in part" in the above paragraph. Chris Hammond and Eli Sasson—the major players, respectively, at Marlton Square and Vermont/Manchester—have personality issues, and in Hammond's case there are serious legal and ethical questions about his behavior. And with the boom long over, it will be many, many years before anybody wants to take a gamble on the site of what one of my community activist friends calls the "economic referendum" of 1992. (The voters win again!)

But those factors don't explain how centrally located real estate in one of America's most crowded cities can continue to generate no value for nearly two decades. To make that happen you need magic: a heroically corrupt agency beholden to union thugs; authorities determined to get "buy-in" from all "stakeholders"; and the monkey's-paw promise of free money from the government.