The California Redevelopment Association

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Redevelopment agencies work by declaring a community “blighted” (run down, unattractive, and incapable of economic expansion on its own). Once so defined, the property taxes in the community, or “project area,” are capped at their present amount and any future increases in property tax, due to inflation or improvement, are considered “tax increment.” That tax increment goes to the redevelopment agency for redevelopment projects or to service the RDA bureaucracy.

The capped property tax revenues continue to go directly to the general fund for essential city services: Police, fire protection, public works, schools, parks and recreation, etc., while the tax increment is added to the RDA’s funding and capital acquisition resources, which include eminent domain and bonds. These bonds, unlike most bonds intended for capital improvement in a community, are floated without a public vote.

Do redevelopment agencies live up to their promises? If not, why not? When they don’t–Kelo vs New London is a famous example–there are a number of reasons why, but most boil down to interference with the free market. The free market, or capitalism, depends on incentive–there has to be some potential reward for any expenditure. Business A competes with business B for consumer X by trying to produce a better product/service and, if necessary, at a better price.

Redevelopment Agencies Abuse Eminent Domain

When businesses find themselves in a redevelopment project area, the mere possibility of eminent domain, the primary land claiming tool of the agency, can discourage owners from investing heavily in their businesses. (Greenhut, Steven, Abuse of Power: How the Government Misuses Eminent Domain, Seven Locks Press, Santa Ana, CA 2004). What incentive is there to invest and expand when an eminent domain notice could arrive at any time? Fledgling businesses are less likely to establish themselves in project areas for the same reason. Add to that the stigma of “blight” that is permanently affixed to a project area. Blight doesn’t sound good to a prospective shop owner whether or not the condition actually exists. Perception becomes reality.

When a city, through their redevelopment agency, acquires property by eminent domain, or merely threatens eminent domain, the discouraged owner will often settle with the city without legal action. In the event that the RDA acquires the property through eminent domain and subsequently sells it to a developer, the RDA has clearly violated the “public use” clause of the Fifth Amendment to the United States Constitution:

“Nor shall private property be taken for public use without just compensation.”

The city then sells the property to a private developer who, in turn, might build an admittedly attractive strip mall, possibly with a multiplex cinema, restaurants and various small shops. Half, or more, of those businesses are likely to fail. So instead of businesses failing in older buildings, they fail in new ones. Who benefits from that? The RDA.

Redevelopment Agencies Displace Small Business

Newer buildings mean higher property taxes. This tax increment goes to the RDA, not the general fund. Moreover, the sense of community that was once established has collapsed since the uprooted businesses relied on relationships they had established with their customers for their success. The city may offer to help relocate them, but usually folks just take their settlement and walk away.

The sentiment “Location! Location! Location!” describing one of the more critical elements of business success, applies here. Once that essential element is removed, most shop owners know that it’s a losing proposition to try and find it elsewhere in the city. It’s easier to simply take the settlement money.

“Redevelopment means the bulldozers are coming,” said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., (January 30, 2000, LA Times). “A lot of time you displace business. Once you do that it’s tough to replace them.”

Who Do Redevelopment Agencies Benefit

According to Municipal Officials for Redevelopment Reform, the principal beneficiaries are:

City Council members who promise new buildings to an uninformed public, then use those buildings as re-election props. The more they can get built between election cycles, whether occupied or not, the better for them.

The RDA, by diverting tax increment money back to itself.

Bond agents, who collect interest on bonds that the RDA issues without giving citizens the opportunity to vote on them. Yet, it is the citizens who have to pay for these bonds.

The California Redevelopment Agency, who receives membership dues from the over 300 Agencies in the state. The CRA is one of the more powerful political lobbying entities in the state.

Large developers, who get preferential treatment from City Council/RDA members. This is what’s known as “developer welfare.”

Large corporate chains, who get sweet deals on development property at the expense of displacing local small business. This is what’s known as “corporate welfare.”

The bottom line, according to RDA opponents? The RDA is bad for business, it’s bad for the long-term economic prospects of California’s cities, and it dissolves communities. Property tax money that should go to public works, police, fire dept., infrastructure, and parks and recreation, gets siphoned to the RDA instead.