California's Crony Capitalism Problem

Gov. Jerry Brown and the redevelopment scam


In much of the country, the mere mention of the name, Jerry Brown, signifies the otherworldly nature of California politics. Many people in other states have come up to me and said something to this effect: "You Californians are so weird that, in tough economic times, you re-elected that retread from the 1970s."

Yet in this season of bill signings, vetoes, and elections, Gov. Brown has remained the last bulwark against the truly crazy left-wingers who run the Capitol. Brown has rejected union enrichment schemes, illegal-immigrant "rights" measures, and other nonsense. And, despite his troubling push for higher taxes, the governor vetoed all six bills that were designed to resurrect, in one way or another, the redevelopment process he killed last year.

Redevelopment is a land-use and tax scheme that blends Eastern-European-style central planning with American-style crony capitalism.

Started in the 1940s to provide local governments with a "tool" to fight urban blight, redevelopment morphed into a centralized planning system that obliterated property rights by giving City Hall expanded eminent-domain powers. Instead of fighting blight, city officials used the system to finance sales-tax-generating car dealerships, shopping malls, big-box stores, and hotels by showering subsidies on influential developers.

City councils, via their local redevelopment bureaucracies, gained the power to declare large areas of their cities "blighted" based on the widest-ranging set of criteria. Once blighted, a redevelopment project area was formed and all the "tax increment"—i.e., the growth in property tax revenue in that specific area—flowed to the locality rather than the county and state. Redevelopment agencies would float debt and use the added property tax money to pay off the bonds that financed the subsidies that were provided to developers, who built projects directed from City Hall.

The cities loved it because they would gain the sales taxes and bed taxes from the new projects and could micromanage development decisions. Developers profited by manipulating City Hall. Property owners got bulldozed and all the government intervention distorted the market, but since when has government ever cared about that?

I wrote about efforts to take church property and give it to Costco, plans to demolish an entire neighborhood of middle-class homes so that the city could market the land to a theme-park developer, and plans to give massive subsidies to billionaire developers. These were typical events, not aberrations. The subsidies led to the overdevelopment of shopping centers and other commercial projects.

After the U.S. Supreme Court's Kelo decision in 2005 allowing cities to use eminent domain on behalf of private developers, many states passed serious reforms that cracked down on the abuses. Not California, which eventually passed a fake reform sponsored by the League of California Cities and the California Redevelopment Association—the equivalent of allowing the lunatics to set the rules within the asylum.

But a funny thing happened. The economy soured and the redevelopment fiscal promises turned into fiscal liabilities. The state ran out of cash. Gov. Brown realized that he could find several billion dollars by shutting down these agencies, which operate locally but are creations of the state.

Ironically, Republican legislators who claim to care about free markets fought the governor on this one, addicted as their cities had become to redevelopment cash and as addicted as they had become to campaign contributions from subsidy-seeking developers. Democrats, who love the central planning aspects of RDAs, went along for the wrong reasons (more money for the state and to be loyal to their governor).

Victories are never permanent in government—especially a government run by people who recognize no limits on their taxing and regulating powers. The most brazen attempt to resurrect redevelopment was SB 1156, by Senate President Pro Tem Darrell Steinberg (D-Sacramento): "In order to more effectively address blight, the program shall be established to support development in transit priority project areas and small walkable communities and to support clean energy manufacturing through tax increment revenue. …"

Basically, it was redevelopment with a more limited focus and a few more safeguards. But Gov. Brown nixed this, and said in his veto statement: "This measure would likely cause cities to focus their efforts on using new tools provided by the measure instead of winding down redevelopment." He also pointed to the need for continued general-fund savings.

The governor remains focused on the money rather than the abuses, but a veto is a veto. The redevelopment community was livid. One pro-redevelopment writer argued that Brown's vetoes "add insult to injury," but the folks insulted and injured by the governor richly deserve this outcome. Small property owners—the victims of insult and injury at the hands of RDAs—should be happy.

Even when it looked like the new agencies would be resurrected, Assemblyman Chris Norby, the Fullerton Republican and longtime redevelopment foe, argued in a letter to RDA opponents that the new agencies would be a far cry from the old RDAs: "These IFDs [Infrastructure Finance Districts] have no power to forcibly take property tax increment from counties, schools or special districts."

In his view, there would be no "free money" for cities. They could use tax increment, but that money would come from their own general fund—an unlikely development.

Nevertheless, the new IFDs would have had eminent-domain powers and would have given new life to the redevelopment industry. No doubt, next year the same officials would be back again expanding the use of tax increment. It's far better to keep the lid on redevelopment and encourage these privilege-seekers to move on to other scams.

Brown is no dummy. He wasn't about to resurrect something he used so much political capital to kill. Obviously, he is no believer in limited government, so our victories this year may be fleeting. But things could be worse and the governor deserves great credit for standing his ground against the kings of corporate welfare.

NEXT: Clashes Erupt in Tahrir Square

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  1. When Jerry Brown is your last bulwark against insanity, you truly, truly have troubles.

    1. The lunatic is in charge of the asylum… and thank God he is.

  2. I live in Santa Cruz, CA, and have participated in local “planning” meetings. It really DOES seem as if one walks through the door through a time-space warp into the Soviet Union, so the mention of “eastern-european central planning” is quite apt.

    1. Hey James… good to see another Santa Cruzian on the boards. While I haven’t been to the meetings, just the conversations on the street make you think that no one believes that anything has ever been done without a ‘bureau of awesomeness’ directing it.

  3. I guess that’s the best part of the economy. It’s no longer profitable to bribe the state into taking private property from people and giving it to other (richer) people.

  4. But you NEED redevelopment agencies when you make it impossible to do business in a state without being given special privileges and breaks.

    If we can’t give our friends special privileges and breaks, new economic activity will completely stop!

  5. Every decision must be subjected to the scrutiny and potential veto of the vast mob of collectivist busybodies; otherwise, some malefactor of great wealth might perpetrate a Crime Against the People.

  6. Brown has been more effective at controlling spending and corruption than our last Republican governor ever was.

    This state needs a third party, and badly.

    1. Appalachian Australian| 10.12.12 @ 4:19PM |#
      “Brown has been more effective at controlling spending and corruption than our last Republican governor ever was.”

      In Arnie’s defense, he tried to reign in the unions and was promptly beaten severely by the voters.

    2. Don’t blame me. I voted for Steve Kubby, Art Olivier, and Dale Ogden. I still think that the results of ANY of these guys getting into office would have been more palatable than what we have experienced since the Gray Davis administration.

  7. It may be hard to believe, but Jerry Brown was a good mayor. I even voted for him twice. He may have an outmoded philosophy and surround himself with lunatics (we had a bizarre run-in with his “exterior facade” consultant), but he is mostly not corrupt — in Oakland that’s a rare event.

    Of course I didn’t vote for him for AG or Gov., because I’m not stupid. And he is an asshole in person, but coming from me that’s pot/kettle.

    1. I have a lot of respect for Brown’s intellect, and appreciated his insights about the political mindset, during the years he had a radio talk show. But I didn’t like (or vote for) him for Governor (either in the 1970s or in 2010), or for AG. In 2010, my argument against him was that he had his chance to screw up the State in the 1970s, and he took the best advantage of it possible; someone else should get a turn. Sadly, this argument appears not to have persuaded many…

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