California Might Resurrect Redevelopment Agencies That Were Wasteful Exercises in Corporate Welfare

Milton Friedman famously observed that "nothing is so permanent as a temporary government program." The rare demise of a government program, it seems, is temporary too.

It's time for your weekend trivia contest. Name one government agency that went out of business. It's pretty tough without using Google. The Board of Tea Appeals, which mediated disputes from tea importers who were denied access to U.S. markets by federal tea tasters, was shuttered in 1996 after nearly a century-long existence.

Most agencies that dissolve are miniscule. Or they go away in name only, like when the General Accounting Office was renamed the Government Accountability Office. This brings to mind economist Milton Friedman's quip: "Nothing is so permanent as a temporary government program."

Friedman wrote that in 1984, so he couldn't have foreseen my favorite exception. In 2011, California—which seems to specialize in expanding state bureaucracies—eliminated all 400-plus redevelopment agencies in one fell swoop. This was a major deal given that the agencies laid claim to 12 percent of the state's general-fund revenue.

The redevelopment process was the product of 1940s-era urban-renewal policies. To revive blighted inner cities, state officials came up with a well-intentioned idea that ended up like most well-intentioned ideas that expand government power and spending. It often resulted in the opposite of its intentions. Instead of helping the poor, it hurt them. Instead of revitalizing urban cores, it promoted suburbanization. Instead of providing more housing, it discouraged new housing tracts.

Under redevelopment, city-run agencies would target a project area for renewal. They would hire consultants to produce a report that found "blight." Blight is in quotations because virtually anything qualified as blight. A rural mountain town was deemed blighted because of excess urbanization. An upscale suburb used chipping paint on some houses as its rationale. Some agencies declared that their entire cities were blighted.

The agency would then float debt (without a vote of the people) and fund infrastructure improvements in the targeted area. Those improvements often amounted to direct subsidies for private development projects. The rise in property taxes after the project area was approved—called the "tax increment"—would pay off the bonds.

Although agencies set aside 20 percent of the tax proceeds to build subsidized housing, cities mainly used redevelopment to incentivize shopping centers and auto malls as they sought discretionary sales-tax dollars. By "fiscalizing" land use in a way that elevated retail over housing, redevelopment sowed the seeds of the current housing crisis.

Redevelopment agencies used the power of eminent domain to take properties from private owners—primarily homeowners and small businesses—and sell it on the cheap to developers. In 2005, the U.S. Supreme Court, in its notorious Kelo decision, gave its imprimatur to the use of eminent domain in this distorted way.

But former Justice Sandra Day O'Connor's dissent encapsulated the evils of the redevelopment process in a way that we should all keep in mind, as state lawmakers try to bring these agencies back to life. "Under the banner of economic development, all private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded," she wrote. "The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process," while the "victims" will be those "with fewer resources."

Unfortunately, former Gov. Jerry Brown and state lawmakers didn't dismantle the agencies because they abused property rights and shifted development decisions to government planners. They shut them down because they needed the money during a budget crisis. For instance, the state backfilled the dollars that were diverted from public schools.

Legislators have revived different elements of redevelopment, through various programs such as "infrastructure finance districts." These have been more limited than the original redevelopment concept, but state Assemblyman David Chiu (D-San Francisco) this year pushed a bill that would have brought back full-scale redevelopment.

Fortunately, Gov. Gavin Newsom showed little interest in Assembly Bill 11, and it was shelved. But something similar will be re-emerge. And there's one redevelopment-related measure that's alive as the Legislature heads toward final weeks of session. Senate Bill 5 creates a new State Affordable Housing and Community Development Investment Committee, which would spend up to $2 billion annually over 30 years.

It's a different take on redevelopment, but it lets politicians and bureaucrats funnel subsidies into economic development. Agencies would have to power to implement "any other act that is necessary to carry out a project." That presumably means the use of eminent domain, given that California has refused to seriously reform its eminent-domain statutes, as other states have done following Kelo.

California thinks it can afford this nonsense now that it has a surplus (provided one ignores its massive unfunded liabilities). But redevelopment agencies should remain shuttered because it's a bad idea to give government the power to disburse corporate welfare and run roughshod over property rights. Agencies rarely die, and even when they do they come back like those whack-a-mole arcade games. We need to keep whacking.

This column was first published by the Orange County Register.