How Eliminating California’s Redevelopment Agencies Spurs Economic Growth

One of the most contentious parts of Governor Jerry Brown’s 2011-12 Proposed Budget, is his call for the elimination of 425 local redevelopment agencies (RDAs) and redirecting approximately one-third of their property tax revenues into other state and local services.

Since its inception in 1945, California’s redevelopment agencies have been touted as an effective tool allowing communities to address issues of physical deterioration, revitalize downtrodden business climates, and add to California’s affordable housing stock.

Places such as Pasadena’s Old Town, Stockton’s water front plaza and San Diego’s Gaslamp Quarter have rightfully been touted as models of success. Yet those success stories are often overshadowed by similar tales marked by corruption, cronyism and either an inability or unwillingness to follow state law.

Many local officials have argued against the elimination of RDAs saying the move would cripple efforts to create jobs and revitalize blighted blocks in a struggling economy. According to the California Redevelopment Association, the state’s active redevelopment authorities supported 304,000 full- and part-time local jobs annually.

However, many of the agencies’ own filings with the State Controller’s Office – who keeps track of redevelopment financial reports – failed to show such achievements. Take for example the time frame from 2004-05 through 2008-09, about 300 redevelopment agencies did not list any jobs created. Of those, more than 250 agencies also did not list any new construction or rehabilitation.

And while the jobs discussion has dominated much of the redevelopment conversation, citizens and lawmakers alike have seemingly glossed over what is perhaps the most controversial aspect of redevelopment: eminent domain.

California’s redevelopment agencies are virtually the only government entity authorized with the power to seize private property for the purpose of redevelopment.

Eminent domain is the power governments have to confiscate, or take, private property as long as it is for a legitimate “public use”. Whereas eminent domain was initially intended to ensure that public services, such as roads and highways, were available to the public, local and state governments often use eminent domain for any project that is considered economically beneficial. Public use, as a practical matter, has morphed into a more ambiguous “public benefit.”

In the Golden State property rights are highly vulnerable to infringement by government control in several forms: excessive taxation, regulation, and the process of takings (ie eminent domain) for centrally planned economic development.

Across the country cities have used eminent domain to force people off their land (remember the infamous Kelo case) so private developers can build more expensive homes and offices that will pay more in property taxes than the buildings they’re replacing.

These governmental forces (excessive taxation, regulation, and strong eminent domain powers) make property rights less secure, increasing owner uncertainty. Greater uncertainty decreases the willingness to undertake capital investment and accumulation thereby reducing the productivity of labor and depressing wages. Greater uncertainty also curtails transactions transferring property to new owners who discover more valuable uses. Ultimately, economic growth stagnates. When government undermines private property rights, the economy suffers and this thwarts prosperity for California’s future.

Yet this is difficult to see when after a nearly seven decade existence redevelopment has simply become the primary method of “doing business” for local governments. As such it is understandably difficult for many local leaders to perceive another way to effectively encourage private sector development in cities and counties.

While economic redevelopment is a complex issue, it need not always be conducted via the heavy arm of government. There are several alternatives to redeveloping communities, all of which can be successful if local governments follow a model that protects property rights, deregulates land uses, promotes competition, loosens business restrictions and lowers taxes.

Well-defined and enforced private property rights are the cornerstone of a capitalist economy. The positive economic effects of private property are widespread. Secure property rights promote specialization and exchange, provide incentives for conservation and preservation of resources, and promote technological innovation, entrepreneurship, capital accumulation, and investment. In essence, secure property rights underlie economic growth.

This relationship is confirmed in The Heritage Foundation’s Index of Economic Freedom. As shown in the chart, property rights and economic prosperity go hand in hand. On average, GDP per capita is over 10 times higher in nations with the strongest property rights than in those with the weakest property rights. The same is true for California’s local governments.

Simply put, private property is necessary for economic growth and to achieve prosperity. Government infringement through redevelopment’s use of eminent domain powers undermines private property rights in California. This distorts incentives, discourages the use of assets as collateral, and forfeits the benefits of capitalism. By eliminating redevelopment and the use of eminent domain, municipal leaders will witness the economic growth they so desperately desire.

Whether or not Governor Brown’s budget proposal to eliminate California’s RDA’s is accepted has yet to be seen. However the moment offers lawmakers an opportunity to strengthen the property rights of all Californian’s thereby spurring economic growth from the bottom up.

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