One of Jerry Brown’s first acts after taking office as California’s new/old governor was to propose to eliminate the state’s 425 urban redevelopment agencies. These agencies spend more than $5 billion a year on urban renewal subsidies that are largely unnecessary, and Brown hopes he can somehow tap into that money to help the state cover its financial deficit, currently estimated to be about $28 billion.
The redevelopment agencies are mostly funded out of tax-increment financing (TIF), which means the money they spend would otherwise go to schools and other services, many of which also receive state funding. Every dollar that schools get that would otherwise go to urban renewal is a dollar that the state doesn’t have to spend to fund the schools.
TIF was invented in California in 1952, and is big business today. Although 48 other states also allow cities and (in some states) counties to use TIF, California remains responsible for the lion’s share of the nation’s TIF. In the early 1990s, more than 80 percent of TIF bond sales were made by California cities; in the late 2000s, California’s share was down to 60 percent. This means other states could help close their deficits by repealing TIF laws: as the table below shows, 16 states in addition to California sold more than $100 million worth of TIF bonds in the last six years.
TIF Bond Sales in Millions of Dollars, 2005-2010
Urban-renewal advocates claim that TIF is “free” money because the developments wouldn’t take place without it. In fact, studies have shown that TIF is, at best, a zero-sum game: without the TIF, the development would have happened somewhere in the same urban area, though perhaps not at precisely the same location. At least one study suggests that TIF is a negative-sum game: cities that don’t use TIF actually grow faster than ones that do, possibly because of the tax burden places on communities or possibly because developers decide they don’t want to compete with subsidized developments and so turn their attention elsewhere.
Unfortunately, eliminating TIF wouldn’t immediately save California $5 billion a year, as most agencies sold bonds backed by their TIF revenues and it will take years, and in some cases decades, to repay those bonds. The immediate result of eliminating the agencies would be to stop the problem from growing worse by preventing the redevelopment agencies from going further into debt and capturing even more tax dollars that should be going to schools and other programs.
As Portland residents are realizing, TIF is profoundly undemocratic. Both California and Oregon have laws requiring voter approval for any tax increases. But TIF is exempt from these laws, meaning voters could approve a tax increase for schools or fire districts, and the redevelopment agencies could swoop in and capture much of that money, leaving the schools or other districts as poor as they were before.
It might be surprising that Brown, who has a reputation as a fiscal liberal, would seek to end TIF, especially since a lot of TIF dollars are going to support the kind of smart-growth projects that Brown endorsed when he was mayor of Oakland. But California’s fiscal crisis is pretty serious. As the Vulcans say, “Only Nixon can go to China.”
The only disappointing thing about Brown’s proposal is that the Antiplanner is working on a report that recommends that states do exactly what Brown is proposing. It would have been nice if Brown had waited to make his proposal until after my report was published.