Testimony in opposition to legislation to revive crony capitalist redevelopment agencies
Testimony from:
Steven Greenhut, Western Region Director, R Street Institute
In OPPOSITION to Assembly Bill 2945, related to redevelopment
April 24, 2024
Assembly Committee on Housing and Community Development
Dear Chair Ward and Members of the Committee,
My name is Steven Greenhut, and I am Western region director at the R Street Institute. R Street is a nonprofit, nonpartisan think tank that advances free markets and limited but effective government in a variety of policy areas, including housing and urban development.
We’ve long been opposed to efforts to revive California’s shuttered redevelopment agencies, which routinely abused eminent domain on behalf of developers, ran up local debt and diverted state tax revenue from traditional public services and directed them toward corporate subsidies and city-directed development projects. By “fiscalizing” land-use decisions, these agencies also exacerbated the state’s housing crisis despite the 20-percent set asides for affordable-housing projects. We oppose their return.
In the face of a budget deficit in 2011 – one that pales in comparison to the deficit California current faces – the Legislature and Gov. Jerry Brown eliminated the agencies. Because redevelopment’s tax increment came largely at the expense of public schools, the state backfilled those revenues. Redevelopment ultimately grabbed around 13 percent of the state’s property taxes. Myriad attempts to revive the agencies have failed and for good reason.
Assembly Bill 2945 would bring them back to life largely as they had existed, albeit with a few changes here and there. This bill is almost identical to last year’s attempt, except with a new name: the Reconnecting Communities Redevelopment Act. As The Orange County Register opined, “Whatever one calls it, it’s one of the worst bills to pop up this session.” We concur with that assessment.
The redevelopment process was created in the 1940s with good intentions – to fund projects that upgraded urban slums. But it morphed into a property-rights-eroding sales-tax grab that did more to fund auto malls and shopping centers than to upgrade downtrodden communities. By subsidizing suburban retail projects, it often did more to harm rather than help inner cities.
Most problematic, neither this year’s nor last year’s bill included any limits on agencies from using eminent domain to acquire properties for the new projects. The U.S. Constitution allows the use of eminent domain for public uses, such as freeways, courthouses and public schools. However, the U.S. Supreme Court’s Kelo decision in 2005 gave the city of New London, Conn., approval to bulldoze a settled neighborhood and provide the land to a large pharmaceutical company to build a new headquarters and related developments – none of which materialized.
By allowing such takings for a public “benefit” rather than the traditional public “use,” the court essentially gave the greenlight to cities to take private property for almost any reason – provided it resulted in some broad public benefit. That undermined everyone’s property rights given that anything from a big-box store to a corporate headquarters would provide greater tax revenues to a city than a single-family home or small business. The “blight” definitions used by agencies were so broad as to be nearly meaningless.
The late Supreme Court Justice Sandra Day O’Connor offered a terse rebuke in her dissenting opinion in Kelo: “Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms. As for the victims, the government now has license to transfer property from those with fewer resources to those with more.”
California lawmakers recently have acknowledged the degree to which city officials can abuse such a fearsome power. In 2021, Gov. Gavin Newsom signed Senate Bill 796, which facilitated the return of Bruce’s Beach to the owners’ heirs. In the 1920s, the city of Manhattan Beach had taken the property ostensibly to build a public park – but the apparent actual reason was to remove a beachfront resort that catered to a Black clientele. Although that unjust taking predated redevelopment agencies, it spotlights the degree to which eminent domain can be abused. As a newspaper columnist, I’ve written about many redevelopment takings that had particularly unjust outcomes, especially for poor and minority land owners.
Redevelopment agencies cause problems beyond the erosion of property rights. They give City Hall the power to direct development decisions. They typically encouraged cities to incentivize projects that offered a generous tax windfall for cities. As a result, cities promoted commercial development at the expense of housing given that housing projects impose higher infrastructure costs and fewer tax benefits for cities.
The California Teachers’ Association opposed last year’s similar bill because of the potential diversion of revenues from public schools. But all lawmakers ought to worry about any diversions of property tax at a time when California faces a deficit that’s estimated between $38 billion and $73 billion. In my view, there’s never a good time to revive redevelopment agencies – but this would be the worst possible time to do so.
Cities already have plenty of tools available to them to help facilitate the construction of affordable-housing projects and downtown revitalization projects. I’d argue that the best approach remains reducing regulations and allowing the market to work. A recent Wall Street Journal report found that many affordable-housing developers are eschewing public subsidies because they can build projects at a lower cost without all the resulting red tape. Redevelopment promotes crony capitalism rather than real market-based solutions.
Redevelopment attempts to address a reasonable desire by cities to incentivize needed projects, but its history is littered with victims of eminent-domain abuse, of neighborhoods and downtowns obliterated by the wrecking ball, and of excess debt borne by the public and higher taxes. I’d urge the committee to reject this new-and-not-so-improved attempt to revive a failed and often abusive government program.
Sincerely,
Steven Greenhut
Steven Greenhut
Western Region Director
R Street Institute
[email protected]