Crony Capitalism

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.

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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.

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  1. Yeah, but what about How Managed Lanes Act as a Viable Solution to Combat Metropolitan Congestion?

    That’s what we really want to know.

    1. I thought the link said it all. There is nothing to know.

    2. Is this a sponsored post?

  2. This isn’t all that complicated: The left has gotten unchallenged control of California, and now it’s on the same road Venezuela took, headed to the same destination.

    If it doesn’t get all the way there, it will only be because the rest of the country stops them, not for lack of trying.

    This sort of corruption isn’t an accidental byproduct of socialism. It’s the purpose of socialism. Socialism is a con job, and the people who think it’s done with good intent are just marks.

    1. If the Feds have to step in then their intervention should include martial law. I love the idea of Donald Trump dictating to those idiots. They clearly can’t run their own state.

  3. Who cares? It’s California, after all.

  4. “It’s time for your weekend trivia contest. Name one government agency that went out of business.”

    The Supreme Court abolished the National Raisin Reserve in 2015.

    1. Are we forgetting about the abolition of the Civil Aeronautics Board and Interstate Commerce Commission? Killing both of those was a pretty big deal.

      1. While ending the CAB ended regulation of air fares (that is, setting minimums), most of the CAB’s functions had been transferred to the FAA and NTSB long before it was abolished. That netted out as 2 new agencies in place of one. Likewise, most of the ICC’s functions were transferred to other, newer agencies.

  5. “Milton Friedman famously observed that “nothing is so permanent as a temporary government program.” ”

    The fact that Reason supports coercive monopolies like the state maybe one reason that above is true.

  6. While it’s true that California has terrible roads and some of worse schools in the nation, at least we have some of the highest sales tax. Also we are about to ban natural gas use. We are so far ahead. I mean high taxes and no natural gas, just windmills, solar panels and a lot of out of state energy purchase. Soon we will have some of the highest energy rates for consumers in the nation.

    What could possibly go wrong?

  7. Unfortunately all that whacking a mole begins to look a lot like masturbation after a bit. Sure, it feels good now but it really isn’t very productive. Maybe getting a voter initiative could finally kill them off for good.

  8. “Milton Friedman famously observed that “nothing is so permanent as a temporary government program.” ”

    The fact “libertarians” like Reason magazine support coercive monopoly states only makes that far more like;ly.

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