Thursday, February 10, 2011

California's Redevelopment Agencies: A Compromise?

Recently, new California Governor Jerry Brown suggested gutting the state's 400 Community Redevelopment Agencies in a bid to help balance the yawning budget deficit. One reason for that is because these agencies don't pay property taxes on their holdings, which adds up to billions on lost revenue each year. On the other hand, were it not for the incentives made possible by these agencies, many urban infill projects would be made impossible. Two colleagues of mine, Christopher Thornberg of Beacon Economics and G.U. Krueger of HousingEcon.com, argue that there should be a compromise for this very important -- and controversial - issue. From the Sacramento Bee:

On the pro-redevelopment side, there is a legitimate claim that these agencies have played an important role in helping to build California.

Developers wanting to invest in urban communities, particularly areas that are underdeveloped and need it the most, face daunting challenges. There are fights with local zoning boards, a potential lack of appropriate infrastructure for a specific project, and huge environmental remediation costs for urban land. Having a local redevelopment agency behind the effort can be an enormous help, as can the right to declare an area blighted, something a redevelopment agency has the power to do.

Some developers go so far as to say that the soft money from redevelopment agencies is the "make or break" difference in a project. This is especially true for affordable housing projects, which California desperately needs.

Redevelopment agencies also bring much-needed organizational principles to the table. A fancy entertainment zone will not be profitable without local draws such as sports venues and hotels. No single developer will be willing to make an investment unless others are willing to make them as well.

Redevelopment agencies act to coordinate these efforts. They guide the collective actions of multiple developers, provide technical expertise and take risks where local bureaucrats won't. Without this kind of central, guiding force, many profitable projects might never start at all. This is particularly true for very large projects – think Downtown Los Angeles Live.

There are also serious cons to the redevelopment argument. Brown and his supporters make valid points. Most basically, the idea that redevelopment must be funded during this period of intense fiscal crisis is simply wrong. Pick your standard clich̩ here Рrearranging the deck chairs on the Titanic, or fiddling while Rome is burning. Clearly there are more pressing uses for the state's funds in the short run...

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