Will redevelopment mean anything once the dust settles on California's budget crisis?
Last month's state budget deal attempts to whack redevelopment agencies to the tune of $2.05 billion. The redevelopment agencies are suing, claiming it's an unconstitutional shift of funds. This is nothing new; last year, the state attempted to take $350 million, and the redevelopment agencies successfully sued to block the revenue shift.
In fact, this is merely the latest skirmish in a decades-long fight over redevelopment funds. Redevelopment is one of the few ways that local governments – especially cities – can unilaterally gain control over tax revenue. By declaring an area blighted, a city can capture 60-70% of the increases in property tax revenue from that area in the future. By comparison, cities typically receive about 15% of the property tax revenue inside their borders absent redevelopment. Statewide, redevelopment agencies capture close to $5 billion a year in property tax revenue, which is nearly 10% of the statewide property tax total.
The problem, of course, is that there is a fixed amount of property tax, so money that flows to redevelopment agencies flows away from somebody else – principally counties and schools. That's why the state always goes after redevelopment funds in bad times. Half of the property tax in the state goes to school districts, so every time a dollar flows to redevelopment agencies that means the state must backfill 50 cents to school districts.
Whatever you think of redevelopment agencies – and there are strong feelings on both sides – they have far less money than they used to. Over the last 30 years, the state has gradually boxed redevelopment agencies in and diverted more and more tax increment revenue away from them, either directly or indirectly. The latest tax transfer is far more massive than anything we have seen before. It's more than worth it to keep existing project areas going; but we may soon be to the point where creating new ones doesn't pay off.
– Bill Fulton
