The Future of Redevelopment in California

I want to be the second to welcome (Matt was first) our new guest-blogger, Stephen Miller. I appreciate Stephen's recent post on the future of redevelopment in California, following my initial post on the subject. I would like to pick up where Stephen left off, highlighting some areas where we agree and disagree.

I take Stephen's main point to be that given the fiscal environment in California (bad), cities desperately need redevelopment, specifically TIF, in order to finance just about any significant development. I agree with that premise, and I'll even add to it. The state of California is notorious for sticking cities with unfunded mandates, the most recent and significant of which is the landmark climate change legislation, SB 375. This legislation requires cities to take steps to address climate change, but doesn't give them any money to do this. And, of course, after Proposition 13, cities don't have any money lying around for this purpose either. Redevelopment seems nicely tailored for SB 375  (as the excellent CP&DR argues) because (a) TIF is one of the few sources of money cities do (or did) have and (b) eminent domain is thought to be an effective tool for "infill development" that can combat sprawl, reduce vehicle miles travelled and, thus, abate climate change.  The second point is debatable and I've seen evidence both ways, so I'll leave it for now and focus on the first, which is really the gist of Stephen's post.

In my view, the fact that TIF is one of the few sources of revenue California cities have to address unfunded mandates and/or undertake significant development projects is an indictment of California's present system of municipal finance, not a justification for TIF. It is true that TIF allows cities to assume debt to finance redevelopment, but any type of bonded indebtedness would do the same. What makes TIF different are the following: (1) it is the only type of debt California cities can incur without voter authorization; (2) it directs the incremental tax revenue to the redevelopment district, thus depriving other local governments of their share; and (3) it needs only a flimsy "blight" justification to be used. I elaborated on these latter two points in my previous post. This combination of factors, coupled with Prop 13, practically assures that TIF will be abused.  Surely this cannot be the best way to finance needed development in California.

Redevelopment agencies have gotten away with this because TIF rests on two fictions, both of which should be seriously questioned.   The first is that a city should not have to share the incremental tax revenue with other jurisdictions because that revenue is all attributable to the redevelopment itself having increasing local property values.  This fiction has obviously been proven false by the recent real estate downturn.  If redevelopment projects account for all the incremental increase in property values in a given area, can we also blame those projects when property values collapse?  The reality is that while improvements are certainly capitalized to some degree in local property values, other factors also affect changes in property value.  Thus, when we authorize local governments to use TIF, we are really making a policy decision that local governments should be able to funnel money away from schools, highways, affordable housing, etc and toward redevelopment, that redevelopment is a bigger priority than these other things.  California is contemplating a lot of hard choices right now, including releasing scores of inmates from prisons, deeper cuts to public schools, and laying off cops and firefighters.  TIF should not be immune from that discussion.

Ths second fiction is this "blight" idea.  The focus on blight is a throwback to the era of urban renewal, when it was thought, at least initially, that redevelopment was such a radical tool that it could only be used when a neighborhood was so economically depressed that it could not be saved by conventional means. Blight quickly evolved into rationalization that was used to justify the condemnation of viable but poor areas ("stable, low-rent neighborhoods" in Herbert Gans's formulation,) to turn them into something deemed more desirable (convention centers, stadiums, highways, etc.) Although the failures of urban renewal caused it to be repackaged as "redevelopment," little has really changed. Blight is still a vague, manipulable, and arguably culturally biased standard. States like it, and courts like it, because it gives the appearance that redevelopment actually has some limitations (This may explain some of the outrage over the Kelo decision, which refused to place any substantive limitations on the use of eminent domain). But blight isn't a real limitation. 

Even if blight were a meaningful limitation on TIF, it's not the right limitation.  If TIF's best use is either to finance development that could not be financed by other means or to implement unfunded mandates like SB 375, then those should be the criteria for its use, not blight.  Of course, with any standard there is the danger of it being manipulated.  I can just imagine Robert Moses justifying Lincoln Center as "infill development."  Hopefully the legislature will think through these issues when it considers whether to revive redevelopment. 

Ken Stahl