Ever since Gov. Jerry Brown first announced his intention to eliminate redevelopment agencies the redevelopment establishment – led by the California Redevelopment Association – has taken a hard line: no elimination, no compromise, no relinquishment of the tax increment. The CRA is even preparing for a legal battle based on its interpretation of both the State Constitution and Proposition 22.

Beyond these hard-line tactics, the threat of elimination has prompted a robust discussion of what form redevelopment might take once the dust settles. Almost everyone admits that reforms – such as greater accountability and oversight, especially of affordable housing funds – are warranted and necessary. They frequently warn that the state should not "throw the baby out with the bathwater."

Others, however, are calling for – and expecting – a rebirth. Even Brown, in his press conference introducing the budget, promised to create "a new tool" for local economic development. And while a $12 billion budget gap that threatens everyone from schoolchildren to senior citizens may not qualify as a blessing in disguise, many boosters and detractors alike see this as the ideal moment to reconsider the state's 60-year-old redevelopment system.

"It's good to reconsider things every generation or so," said Madeline Janis, boardmember of the Los Angeles Community Redevelopment Agency and executive director of the Los Angeles Alliance for a New Economy.

Redevelopment originally took a sledgehammer to communities that were considered blighted. It was the local tool that worked in conjunction with federal programs that leveled entire city blocks. It still rests on the fundamental mission of fighting blight and promoting economic development mainly as an ancillary benefit. Now the governor's proposal does essentially the same thing to redevelopment itself. And the proposal provides scant guidance for the future.

"The thing he didn't do, which is always a problem in these circumstances, is to put forward an alternative," said Michael Teitz, emeritus professor of planning at UC-Berkeley and former research director at the Public Policy Institute of California. "He just said, ‘let's get rid of them.'"

Then What?

Whether or not redevelopment and TIF financing survive intact, it appears increasingly likely that the scope, mission, and funding mechanisms will change dramatically. Those changes may entail an explicit focus on social goals such as fighting poverty, raising employment, and building sustainably rather than on a mandate to facilitate real estate deals.

"I think there will be some form of redevelopment," said Cecilia Estolano, former CEO of the CRA of the City of Los Angeles. "At the end of the day when the dust clears something will be left, but it will look completely different."

The governor's budget refers to "successor agencies," but even they are not defined. At the very least, it is likely that redevelopment agencies will end up quite a bit poorer. The so-called "SERAF" redevelopment funding transfer of 2009 and 2010 (as well as smaller transfers in the past) set a precedent by which the state could hobble, but not eliminate, agencies while still recapturing some tax revenue. It appears now that, when faced with possible elimination, the redevelopment community may be willing to discuss a compromise, even one that might violate Proposition 22, the voter-approved ballot measure that protects further redevelopment raids.

"We would be interested in any kind of reform conversation that places more restrictions on the amount of a city or county's geography that could be in a redevelopment area and the amount of tax revenue that gets generated in that jurisdiction that would go to redevelopment activities," said Fred Blackwell, Director of the San Francisco Redevelopment Agency.

"I think that any reform has to have two parts: there has to be some money that's given up this year to help balance the budget because we are in such a crisis. We have to recognize that we're citizens of the state too.  We depend on fire stations and schools," said Janis. "I know as an L.A. city commissioner I fully support doing something similar to what we did last year with the (SERAF) take."

Both activists and redevelopment officials are bracing for, and even welcoming, the elimination and contraction of many redevelopment project areas.

A New Mission

Many agencies, flush with tax increment monies, gain attention for attracting big-box retailers and even sports stadiums. The future of redevelopment may, however, lie in thinking small. Redevelopment might promote higher returns by focusing on smaller local ventures that create tighter multipliers.

"There's a lot of excitement in the economic development field about…doing more endogenous development: looking at the resources we already have within the community so we don't need to throw deep subsidies at the Best Buy to come to our community," said Karen Chapple, Associate Director of the Institute for Urban and Regional Development at UC-Berkeley. "We all know that's going to be a waste of money because it's a zero-sum game anyway."

According to Chapple, in many cases the obvious replacement for redevelopment agencies would be business improvement districts. Because they are locally organized, she said that they can often do much more for a neighborhood than can an agency that pursues initiatives from on high. And she said that BIDs can be much more than just boosters or beautification teams.

"It's astounding the amount of jobs created, the amount of tax revenue, decreases in crime lots of new sales, vacancy rates declining," said Chapple. "I think we've really underestimated these small-scale types of tools."

When Estolano headed LA/CRA, from 2005 to 2010, she made aggressive, though controversial, moves to expand the agency's reach into social issues. She said that burgeoning economic trends such as green technologies offer abundant opportunities for redevelopment agencies and other economic development agencies to think strategically about investments that will provide the greatest social and financial returns.

"Whatever economic development ends up being, it should be true economic development," said Estolano. "Study the clusters and the industries and the regions that have competitive advantages…what are the existing businesses doing?"

Although this change of mission would be a fairly radical departure from the ay that most redevelopment agencies currently do business, Estolano said that it would not necessarily require major surgery on redevelopment laws. 

"I don't think it requires a clean (legal) slate," said Estolano. "I think you can redefine blight or change the purpose a bit."

Others, however, insist that this moment provides the ideal opportunity for a radical restructuring, not just a redefinition.  Janis would like to see redevelopment formally decoupled from the condition of the built environment and instead focused on economic conditions.

"I'm suggesting that we rewrite state law," said Janis. "That we delete the whole section on the findings of physical blight.  Replace that with a standard precondition to redevelopment areas is high poverty and/or high unemployment."

Janis admitted that some communities – including small towns and suburbs – that do not meet these conditions might find themselves with no redevelopment at all.

"Suburban areas or areas that don't have high unemployment or high poverty, they would lose this as a tool," said Janis.  "I have no problem with that. I don't think that redevelopment in certain parts of the state that are doing pretty well anyway are that necessary."

Nuclear Option

Whether any of these even requires state sanction remains open to debate. The governor's budget cites research, including an oft-cited 1998 study by the Public Policy Institute of California, suggesting that locally directed TIF financing does little, if anything, for the state's overall economic condition. With redevelopment eliminated, the state government would then, presumably, reallocate the recovered funds and thus leave cities to fend for themselves.

This dire situation, against which the CRA is lobbying vigorously, would not be such a bad thing, according to Chapple. Indeed, without the crutch of redevelopment and the constraints of redevelopment law, cities could discover ways to create the net gain that is, according to the PPIC, currently eluding the state.

"But most redevelopment agencies are not creative and they look at, ‘here's what the law says we can do; we can eliminate blight and do bricks and mortar development' and that's what they do," said Chapple. "You take away redevelopment and you force cities to do more creative and effective ways of economic development.

"It's too bad that most planners have been just knee-jerk supporters trying to defend their redevelopment agencies," said Chappell.

This sort of locally grown creativity, which would, according to Estolano, work properly only if cities did intensive evaluations of their competitive advantages and growth industries, could eliminate the competition between cities for big-ticket redevelopment projects. As redevelopment agencies extend themselves to attract development, they create the zero-sum effect that has draw so much criticism.

Instead, Steven Levy, longtime economist at the Center for the Continuing Study of the California Economy, said that true economic development requires that localities stop competing with one another and instead recognize that their economic development strategies are all part of a greater whole.

"To avoid cities' competing against each other while the Chinese and Indians are laughing at stupid Americans, the tax laws should be changed to divorce local revenues from land use decisions," said Levy. "The best thing cities can do is make themselves great places to live and work while not transferring scarce taxpayer dollars in what can only end up as a race to the bottom."

Whither the TIF?

It is unlikely, however, that even the most successful BID or stripped-down successor agency would be able to accomplish much without funding. This is especially true of the production of affordable housing – which is almost universally embraced – as well as the funding of infrastructure improvements.

On these counts, the loss of state funding may leave cities with few options. 

"There are other types of ways to finance infrastructure or infrastructure financing districts in some areas, special districts in some, or impact fees," said Chapple. "They don't stretch very far, unfortunately. Then there's bonds, but there's a limit as to how much you can borrow against your general fund; that's why TIF has been so handy."

The governor's budget does mention that cities could float redevelopment bonds with a 55 percent popular vote. But cities' bonding capacity may be limited in the current economic climate, and it's unclear how voters would respond.

"There's nothing out there that would replace our ability to produce affordable housing and do the kind of infrastructure investments that we've been able to do in the past," said Blackwell.

Blackwell said that if the governor prevailed and the TIF was not replaced, it would reduce by half the amount of low- and moderate-income housing that would be produced in San Francisco. And, he said, it would threaten the city's ability to manage "tens of thousands" of units that it already has.

"This would be a massive hit unless there was some way to reconnect any use of TIFs back to housing," said Teitz.

While such a prospect might unsettle public officials and advocates, the discussion as a whole has jarred the redevelopment community into a new mode of thinking.

"It has been provocative and it has really made people think about the future of city-building," said Estolano. "We should take this opportunity to think about what are the core principles of city-building."

Contacts:

Fred Blackwell, Director, San Francisco Redevelopment Agency, (415) 749-2458

Karen Chapple, Associate Professor of City & Regional Planning, UC-Berkeley, (510) 642-1868

Cecilia Estolano, Chief Strategist on State and Local Initiatives, Green for All, (213) 977-1936

Madeline Janis, Boardmember, Los Angeles Community Redevelopment Agency; and Executive Director of the Los Angeles Alliance for a New Economy,  (213) 997-9400

Stephen Levy, Director and Senior Economist,  Center for the Continuing Study of the Calfornia Economy, (650) 321-8550

Michael Teitz, Emeritus Professor of City and Regional Planning, UC-Berkeley; former Research Director, Public Policy Institute of California