June 4, 2008 > Redevelopment - boom or bust?
Redevelopment - boom or bust?
This is the eighth chapter reprinted with permission from Redevelopment: The Unknown Government, A Report to the People of California published by Municipal Officials for Redevelopment Reform (MORR). Ninth Edition, September 2007.
Redevelopment agencies are debt machines that have amassed nearly $81 billion in statewide bonded indebtedness.
By law, a redevelopment agency can receive property taxes only after it has first incurred debt. Property tax increment revenues may only be used to pay off outstanding debt. Debts may be in the form of bonds, accounts payable to developers or reimbursements to cities for operating expenses.
Part VIII: The Myth of Economic Development
"Economic Development" is a common clichˇ among city governments and redevelopment agencies.
It refers to a belief that tax subsidies to selected private businesses can stimulate the local economy. It assumes that the free enterprise system alone is inadequate. It presumes that government planners can allocate resources more efficiently than can the free market.
The legal purpose for redevelopment remains the elimination of blight. All economic development activities must pay lip service toward that goal. Behind this fa¨ade, redevelopment has subsidized giant retailers, luxury hotels, golf courses, stadiums and even gambling casinos.
Is there any evidence that redevelopment has promoted economic development in blighted areas?
The first systematic statewide analysis of redevelopment agencies was published by the prestigious Public Policy Institute of California in 1998, entitled Subsidizing Redevelopment in California. Veteran researcher Michael Dardia compared 114 different redevelopment project areas to similar neighborhoods outside of redevelopment areas, from 1983 to 1996.
The report concluded that redevelopment agencies were not responsible for any net economic growth or increase in property taxes, and that they were a net drain on public resources. As the report's title suggests, Dardia concluded that redevelopment was being subsidized by taxes drained from the schools, the state and special districts.
In his research, Dardia had the full cooperation of the California Redevelopment Association, which approved his methodology and confirmed his data. When his conclusion was reached, however, the CRA blasted the report and tried to have it buried. Yet it cannot refute the emerging truth: redevelopment does not work.
Similarly, the Los Angeles Times (January 30, 2000) published a detailed study showing the North Hollywood Redevelopment Project Area's 20-year, $117 million effort had produced no net benefits for the community.
The Times compared North Hollywood to ten other socio-economically comparable areas in Los Angeles that had no redevelopment, including Van Nuys, Mar Vista and Venice. "Although they received no redevelopment money, most of the comparison areas registered improvements in income and poverty rates equal or better than the heavily funded North Hollywood project area," the report concluded.
Census data confirm the conclusions of the Public Policy Institute and Los Angeles Times. A 10-year comparison (1979-1989) of redevelopment and non-redevelopment cities shows no net per-capita income gains due to redevelopment activity.
Pairing similar cities by area, size and income, shows that cities without redevelopment posted greater gains in living standards than those with redevelopment.
Redevelopment's extreme bias in favor of retail and against industry has created low wage jobs at the expense of skilled workers. It subsidizes big box stores selling largely imported goods at the expense of American manufacturing jobs.
Especially hit are minority communities. Historically black Inglewood lost nearly $1 million in annual tax revenues when it lost the Kings and Lakers to the redevelopment-subsidized Staples Center. City staff tried to bar a Latino-oriented Gigante supermarket from an Anaheim redevelopment zone because it was "too ethnic". Largely Hispanic and Black cities have been big losers in the struggle for equitable sales taxes.
Redevelopment apologists and lobbyists counter with pretty pictures of new stadiums and shopping malls. Surely, with all the money spent, some nice new buildings have been completed. But their evidence of success is purely anecdotal. The evidence of failure is in the numbers. All objective comparison studies have shown that aggregate statewide redevelopment activity does NOT generate economic development and does NOT eliminate blight.
State auditors have also shown that California's enterprise zone program gave $262 million (FY 2003-04) in business tax breaks to connected corporations without any appreciable economic benefit to depressed areas.
This should come as no surprise even to the most ardent redevelopment boosters. Everywhere in the world those countries that respect property rights and free consumer choice outperform those that place economic decisions in the hands of bureaucrats and politicians.