California Without Redevelopment Monies: The Ethical Issues

For 60 years, municipalities and counties in the state of California were the recipients of redevelopment money to combat blight. As explained by Kendall Taggert of California Watch,

• Redevelopment agencies gave local governments – usually cities, but sometimes counties – the ability to capture a greater share of property taxes. After an area was declared a redevelopment project area, the share of property taxes went goes to schools and other local agencies was frozen. All of the growth in property taxes from that point until the redevelopment area expired – usually 50 years – went back to the redevelopment agency.

Through redevelopment funds, cities cleaned up blighted areas, developed affordable housing, improved aging infrastructure, and built public facilities. In San Jose, for example, the agency generated $3 billion in investments and built 21,662 affordable housing units over its lifetime, according to Richard Keit, managing director of the Successor Agency to the San Jose RDA.

Along the way, there were periodic charges that the RDAs were exceeding their mandates. A 2011 report from the State Controller's Office found:

• While run-down sections of Los Angeles with abandoned buildings show obvious need for redevelopment, other cities were far broader in their declaration of blight. Coronado's redevelopment area covers every privately-owned parcel in the city, including multi-million dollar beachfront homes. In Palm Desert, redevelopment dollars are being used to renovate greens and bunkers at a 4.5 star golf resort.

All that changed in February 2012, when the California Supreme Court upheld state legislation to abolish the redevelopment agencies. The demise of the RDAs has left cities and counties—both those that adhered to the spirit of the program and those that did not—with a major problem. Aside from the immediate loss of funds ($5.5 billion in 2011), many localities were the in process of implementing projects that now must either find other sources of funding or be abandoned.

The ethical challenges that flow from the demise of the RDAs were the focus of attention at the August 2012 meeting of the Ethics Center's Public Sector Roundtable. Keit and Bert Robinson, managing editor for content of the Bay Area News Group, kicked off the discussion.

Keit predicted that the end of RDA will result in the loss of "local control of taxes that support local economic development projects in order to stimulate local economies." San Jose, for example, will lose 20 percent of the funds available for affordable housing. The contraction in redevelopment projects will also lead to a contraction in local infrastructure, public facilities, private development incentives such as loans, grants, and facades, affordable housing developments, and planning projects.

Reviewing the RDA's impact on San Jose, Robinson said that the transformation of downtown was "astounding." The definition of blight "might not have been what was expected to be paid for by redevelopment funds," but the result, he said, "was a very positive thing."

On the other hand, Robinson suggested that some of the RDA's missteps became a convenient way to undermine the program. "When state swooped in and took the money, opponents could make a vigorous and legitimate argument that the RDA had overstepped," he said.

The city councilmembers, mayors, and other public officials in attendance outlined some of their major ethical questions in the wake of the RDA's disappearance:

• • How do we continue to meet our affordable housing needs?
• • Do we move forward with projects we promised even though the funds are no longer there, and how should we balance that against accomplishing the tasks we are expected to do every day?
• • Levels of government are now put into competition with each other for more limited funds. Counties and cities are finding themselves as adversaries, and their willingness to negotiate is affected by their perceptions about how RDA funds were originally used. As one participant put it, " The county officials' blood would turn cold when they heard about the projects the city decided to do."
• • Is the current crisis a deserved punishment for ways in which cities sometimes stretched or ignored the intended uses of RDA monies? "What got us in trouble was the city's own behavior," one roundtable member said. "If we found a broken pipe somewhere, we used RDA money to fix the road for 10 miles in every direction."
• • Can we get through this transition without spending more public funds in fighting among ourselves over what money is left? "Give the people on the other side of the table some credit," Robinson suggested. "Treat them as though they're also trying to do the right thing from the point of view of their responsibilities.