THE SACRAMENTO BEE - JANUARY 6, 2003

"Davis' redevelopment tax grab would be rough justice"

- Dan Walters

When Gov. Gray Davis unveiled his $10.2 billion down payment on closing the state's immense budget deficit, now calculated at about $35 billion, a significant chunk was grabbing the estimated $500 million in housing money that local redevelopment agencies have accumulated but not spent.

Redevelopment officials are howling about the proposed shift of their housing money into the state's general fund, saying it may be unconstitutional, and the exact amount of money that might be expropriated are debatable.

The funds that are supposed to be spent on housing the poor are often stockpiled because, in fact, there's little political support for building such housing. And often, the housing money is lavished on high-end developments.

That said, if the redevelopment agencies were forced to send the money to Sacramento, it would represent a form of rough justice that those agencies brought onto themselves. It's high time that the agencies, mostly controlled by city governments, are held accountable for the arrogant manner in which they have operated.

In theory, redevelopment agencies clean up "blighted" urban areas by creating special zones in which land is acquired and repackaged for private investment, often with subsidies. The agencies can retain the increased property taxes from the redevelopment projects but are required to spend much of the tax windfall on low and moderate-incoming housing.

In practice, redevelopment is often applied to areas that are blighted only in the creative imaginations of city officials and used as a vehicle to subsidize retail development -- auto malls and big box retailers especially -- that will generate bounties of sales taxes for the sponsoring governments. The funds that are supposed to be spent on housing the poor are often stockpiled because, in fact, there's little political support for building such housing. And often, the housing money is lavished on high-end developments, such as the proposed luxury apartments in downtown Sacramento near City Hall whose developer wants a whopping $75,000-per-unit subsidy from the city redevelopment agency.

Some low and moderate-incoming housing is being built with "tax increment" money, but the overall tendency of the agencies is to do only the minimum necessary to keep the redevelopment machine oiled. And, of course, the unspent housing money represents property taxes that in the absence of redevelopment would be shared with county governments, special districts and schools. Often, in effect, the state is backfilling the loss of property taxes to schools and counties. And that is the legitimate rationale for the state taking away the unspent housing funds, in whatever amounts they may exist.

Redevelopment officials had a warning that the state might be enviously looking at their surpluses. The 2002-03 state budget includes a proviso requiring that a share of those property taxes be sent directly to schools, thus subjecting redevelopment agencies to the same tax shift that was imposed on other local government a decade ago. And if direct expropriation turns out to violate the state constitution, the state could simply ratchet up the redevelopment tax shift to schools, which would have the same effect.

Davis' proposed redevelopment tax grab has been inspired by the state's desperate fiscal situation, not any reformist intention. But it could, and should, generate a closer look at the redevelopment industry -- because that's what it is -- by the Legislature.

Periodically, the Legislature enacts a redevelopment reform, but local officials, developers, lawyers and bond underwriters who promote redevelopment as an economic tool have consistently taken a "catch-me-if-you-can" attitude. They dream up new ways to use redevelopment agencies' powers to acquire land, borrow money and collect the incremental tax funds and then, in effect, dare anyone to challenge their schemes in court.

One of many examples was the scheme by the tiny city of Mammoth Lakes on the eastern slope of the Sierra to declare virtually the entire community a redevelopment zone so that it could do a deal with a developer to create a luxury ski resort.

The courts finally slapped down the Mammoth Lakes project, saying it violated the standards of "blight" that the Legislature had imposed, but that decision has not deterred city redevelopment agencies throughout the state from going ahead with their own creative uses of the process, often in cahoots with subsidy-hungry developers.