Depending on whom you ask, Governor Jerry Brown’s plan to shutter California’s redevelopment agencies (RDAs) would return billions to local governments and schools, or stifle the economy because redevelopment is California’s most – some would say its only – significant economic development program.
One attraction of redevelopment for cities is undeniable: local RDAs receive 100 percent of tax revenue increases – the “tax increment” – that RDA projects generate and keeps whatever isn’t needed for paying off bonds.* Further, RDAs can extend project debt – called SB211 amendments – extending tax increments even longer.
By contrast, a small fraction of regular property tax finds its way into municipal treasuries – between 5 and 20 percent, depending on the city.
Beyond this, nobody really knows whether redevelopment delivers lasting economic results – including the state Legislative Analyst’s Office (LAO), which recently said there was “no reliable evidence that redevelopment projects attract businesses…or increase overall economic development in California.” The LAO cited no supporting data for this conclusion.
The only extensive study of RDA performance is the Public Policy Institute’s (PPI) 1998 report. Their findings? Fewer than 25 percent of the projects studied could be clearly identified as directly responsible for the property tax increments they received. (These projects were also the ones starting with more than 50 percent vacant land – a feature of Santa Clara’s RDA projects.) However, this data is more than 15 years old.
One challenge of evaluating RDA performance is that of measuring indirect economic impact. How do you simulate tax revenues without the project? How do you measure job growth – by counting direct construction jobs or by including jobs created by ongoing business activity?
In coming months, better answers will come from State Controller John Chiang’s audit of 18 California RDAs. In the meantime, there’s plenty of partisan and anecdotal evidence for both sides of the argument.
If you think redevelopment is a public official/developer gravy train, you’ll point to California’s poster child for municipal malfeasance, the City of Bell. Last year, the State Controller lambasted Bell’s RDA for “lax” financial controls, raising taxes illegally, mismanaging bond funds, entering into questionable contracts and land purchases, and misusing RDA funds as a “slush fund” for “excessive salaries, perks, and …unlawful expenses.”
On the other hand, if you think redevelopment jet-propels California’s economy, then you’ll back up your opinion with California Redevelopment Association’s (CRA) findings. In 2006-2007, according to the CRA, California’s RDAs generated $40.8 billion in economic activity and $2 billion in tax revenue, supported 304,000 new jobs, and, in general, yields $13 in annual economic activity for each dollar spent.
This information comes from CRA-sponsored studies by Time Structures, Inc., a Sacramento-based consulting firm that uses statistical and mathematical modeling to answer public policy questions.
Redevelopment Growth Easier to Track in Santa Clara
In Santa Clara it’s somewhat easier to clearly identify growth directly due to redevelopment because the City’s two redevelopment areas were previously undeveloped. From 2004 to 2009, Santa Clara’s RDA generated a $23 million surplus (on $232 million in total revenue) for other city projects.
One of Santa Clara’s most notable RDA projects is its convention center complex, which has created many permanent jobs at events held at the convention center, and the hotels, restaurants and businesses that serve it, says City Manager Jennifer Sparacino.
The convention center has driven economic growth on the north side of the city, including the Hyatt hotel and Techmart, whose development, Sparacino says, was a direct outcome of the convention center development.
“Shows such as the recent Home Show, conferences, meetings – all bring in business, hotel taxes, and jobs in an area that had no economic activity,” she says. This revenue, in turn, has funded services that city residents value – from basics such as public safety and street maintenance, to public spaces such as the youth soccer park and Ulistac natural area.
RDA revenue has also been key to Santa Clara’s commitment to affordable housing.
Since 1990 the city has invested $143 million in affordable housing programs including Habitat for Humanity’s sweat-equity home building projects, senior housing, first-time homebuyers assistance, and domestic violence shelters, Sparacino says. In fact, the City allocates 10 percent more RDA funding to affordable housing than the legally required 20 percent.
Brown’s Proposal Not Necessarily a Local Windfall
As a depressed economy starves local budgets, public sentiment may be to sacrifice redevelopment programs to properly fund core municipal activities such as public safety.
But don’t jump to conclusions. In its current form, the governor’s proposal won’t be the windfall some anticipate.
Of $5.2 billion forecast in 2011-2012 RDA revenue, the state estimates that $3.3 billion will go to debt service and pre-agreed “pass-throughs” to schools and other public agencies. The state would retain $1.7 billion of the balance, returning $210 million to regional county and municipal agencies per the current property tax distribution formula. In subsequent years the entire surplus – revenue not needed for debt service – would be distributed.
By this formula Santa Clara’s 2009 operating fund would have lost $4.5 million (based on a $5 million RDA surplus). In contrast, Santa Clara County and Santa Clara Unified School District would, respectively, potentially have gained $900,000 and $1.7 million respectively.
Those gains, of course, depend on the state actually returning the money. Recent history suggests otherwise. Since 2008, Sacramento has taken $11 million of Santa Clara’s redevelopment funds to balance the state budget.
*Large redevelopment areas can effectively make an RDA a city’s principal revenue source – for example, 70 percent of Fontana, CA is under redevelopment.
RDA Information Resources
- The state Legislative Analyst’s Office 2010 report on RDAs: lao.ca.gov/handouts/state_admin/2011/Redevelopment_1_19_11.pdf.
- The state Legislative Analyst’s Office 2000 report on property tax distribution: www.lao.ca.gov/2000/020300_ab8/020300_ab8.pdf
- California Redevelopment Agencies Annual Report: www.sco.ca.gov/ard_locrep_redevelop.html
- Inland Press-Enterprise interactive summary chart of RDA financial data 2004-2009: www.pe.com/localnews/politics/stories/PE_News_Local_D_redevelopment27.20ca17e.html
- California Redevelopment Association: www.calredevelop.org
- California Budget Project: californiabudgetbites.org
- Public Policy Institute 1998 RDA study: www.ppic.org/content/pubs/report/R_298MDR.pdf
DID YOU KNOW?
How contentious is the Governor Jerry Brown’s plan to close down the state’s redevelopment agencies (RDAs)? One measure is that about half of the Google’s 2.1 million entries for “California redevelopment” were generated in the last three months.