Redevelopment? They Can’t Give It Away

Back in the olden days proponents of redevelopment used to argue that the funds expended on it were “free money.” They came from incremental tax financing and in the really old days from federal block grants, so — went the argument — the cities running redevelopment agencies would suffer no net expenditures. And since redevelopment would increase tax revenues, it would be all gain. This, of course was nonsense because in order to get that incremental tax cash flow going, redevelopment agencies first had to acquire the to-be-redeveloped land. And to do that they had to pay for it, even if the the constitutionally promised “just compensation” payable to comdemnees displaced by eminent domain actions, fell short of compensating them for all economic losses inflicted on them. See generally, Sonya Bekoff Molho and Gideon Kanner, Urban Renewal: Laissez-Faire for the Poor, Welfare for the Rich, 8 Pac. L. Jour. 627 (1977).

So it follows that when those incremental tax revenues start coming in, they have to be diverted to payment of interest on redevelopment agency bonds, and eventually to repayment of the principal. In the meantime, while the redevelopment projects are being created, the taken land just sits there, producing no revenue and building up  public bonded indebtedness which in California soared from $5 billion in 1985 to over $80 billion in 2006 — and counting.

As Marc Mihaly, a former otspoken pro-government California lawyer and now a professor of law in New England, put it in a law review article, cities rarely make money from redevelopment because they have to divert incoming funds to servicing those bonds. Just so.

Still, all that did not deter redevelopment enthusiasts from touting their nostrums as net revenue-generating, city-reviving and job-creating machines that would bring prosperity to all. As Justice Macklin Fleming put it in one of his opinions, redevelopment agencies argued that they would bake a bigger economc pie that would produce more generous shares to all, but in reality they frequently produced pie in ths sky. The proof of the pudding is that if all that “free money” stuff were there, cash-strapped cities would now fight over the chance to take over redevelopment projects and get their hands on it. Right? Wrong. Why wrong? Because there is no net cash flow. We learn from the aftermath of the legislature’s elimination of redevelopment in California, that all those redevelopment projects in various stages of completion are generating bobkes and cities want no part of them.

And so, the Los Angeles City Council said “Thanks, but no thanks,” to the former L.A. Redevelopment Agency when it was offered those ongoing projects. The L.A. City Council voted 9 to 3 against it, noting that the city simply could not afford to employ the 192 employees of the L.A. redevelopment agency (being paid on average over $120,000 a year, as opposed to $72,000 per year paid to other city employees). Ditto for Los Angeles County which promptly decided that it didn’t want to take over local redevelopment either, being as a city official warned that that the city could face $109 million in costs if it took on redevelopment activities.

“The liabilities associated with redevelopment in the city of Los Angeles are just too big for the county to absorb,” said [County] Supervisor Mark Ridley-Thomas, a former L.A. city councilman.”  Julie Cart, L.A. Won’t Absorb Redevelopment, L.A. Times, January 12, 2012, at p. AA1.

So it turns out that during all those years during which redvelopment bulldozers ravaged American cities, our glorious leaders have been careless with the truth. Redevelopment, it turns out, is not a municipal cornucopia, and it does not revive cities as human habitats, even if it perks up occasional neighborhoods that are of interest primarily to empty-nester boomers, and yuppies in search of a “hip” neighborhood to live in. Rather, redevelopment is pipeline that diverts public funds from the usual taxing agencies  into the pockets of redevelopers and holders of tax-free redevelopment bonds, even as cities continue losing population and are struggling with budget shortfalls — not exactly what one would call a “public benefit.”

Bottom line: Los Angeles County Supervisor Zev Yaroslavsky who is quoted in the Los Angeles Times, said it all when he said in a speech to lawyers representing redevelopment agencies: “You had a good thing going for a long time,  and you got greedy.” Click here.

Follow up. For a pungent comment on the unraveling of the Los Angeles Redevelopment Agency, check out Reason On Line – click here.