One of the most contentious parts of the Governor’s 2011-12 Proposed Budget, is his call for dissolving California’s 425 redevelopment agencies and distributing their funds to other local agencies. The Governor’s proposal to end redevelopment raises fundamental questions regarding the extent to which this program benefits the state.
To assist California’s lawmakers in reviewing this proposal, the state’s non-partisan legislative analyst released a policy brief on Tuesday afternoon entitled Should California End Redevelopment Agencies? The sixteen page report explains how redevelopment redistributes and uses property tax revenues. The Legislative Analysts Office then evaluates redevelopment, summarizes and assesses the Governor’s proposal, and offers suggestions for legislative consideration.
The reports release comes several days after the Senate Budget Subcommittee No. 4 discussed the budget proposal, and one day prior to a hearing on the topic by the Senate’s new Governance and Finance Committee.
One of the primary arguments forwarded by redevelopment proponents throughout the debate has hinged on redevelopment’s purported ability to contribute jobs to California’s economy. Local officials have argued against the elimination of redevelopment agencies (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, it is this number that the LAO report takes issue with in their report.
California’s Legislative Analyst suggests that the California Redevelopment Association has inaccurately calculated the employment effects of redevelopment. Following is the relevant portion of the LAO report:
CRA Report Inaccurately Calculates Employment Effects of Redevelopment
The California Redevelopment Association (CRA) recently circulated a document asserting that eliminating redevelopment agencies would result in the loss of 304,000 jobs in California. We find the methodology and conclusion of CRA’s report to be seriously flawed. In our view, it vastly overstates the economic effects of eliminating redevelopment and ignores the positive economic effects of shifting property taxes to schools and other local agencies.
The CRA’s job loss estimate is based on a consultant’s report using data from 2006‑07. To estimate the number of jobs resulting from redevelopment agencies, the report calculated the total expenditures on construction projects completed within a sample of redevelopment areas for 2006‑07, as well as for any projects completed outside the area with agency participation. Based upon that sample, the report then estimated the total construction expenditures for redevelopment agencies statewide in 2006‑07 and used a computer model to calculate through various multipliers the total effect of those expenditures on the state’s economy and employment. The report concluded that redevelopment was responsible for the creation of about 304,000 full and part-time jobs in 2006‑07. Therefore, the CRA asserts that the elimination of redevelopment would result in the loss of 304,000 jobs.
To our knowledge, the consultant’s study has never been subjected to any independent or academic scrutiny. Our review indicates that the report has three significant flaws that cause it to vastly overstate the net economic and employment effects of redevelopment agencies.
Assumes Redevelopment Agencies Participate in All Project Area Construction. The study’s calculation of construction expenditures includes all construction completed in a redevelopment project area in 2006‑07, even if the redevelopment agency was not a participant. We find implausible the report’s implicit assumption that no construction with solely private financing would have occurred within a redevelopment area in the absence of the redevelopment agency. This is particularly true, given the large geographic scale of California redevelopment project areas. In our view, it is likely that much of the new business or residential construction (and the associated jobs) would have occurred independently of the redevelopment agency.
Assumes Private and Public Entities Participating in Redevelopment Agency Projects Would Not Invest in Other Projects. Most redevelopment agency projects include significant financing from private investors or other public agencies. By asserting that all of the jobs associated with redevelopment construction would be lost if redevelopment agencies were eliminated, the CRA implicitly assumes that these private and public partners would not invest in other economic activities in the state. The report provided no explanation for this assumption that the existing private capital and public agency grants would remain unused without redevelopment agency participation.
In most cases, we would expect developers, investors, and public agencies to find alternative projects to pursue—either within the redevelopment area or elsewhere in the state.
Assumes Other Local Agencies’ Use of Property Tax Revenues Would Not Yield Economic Benefits. Under the Governor’s proposal, the property tax revenues that currently support redevelopment would flow over time to schools and other local agencies in the county. By asserting that all of the jobs associated with redevelopment construction would be lost if redevelopment agencies were eliminated, the CRA implicitly assumes that these other local agencies’ use of property tax revenues would not result in any economic activity. The report provided no explanation for this assumption.
In our view, spending by school districts, counties, and other local agencies also would yield significant economic and employment benefits.
Almost every city official can point to a project helped by redevelopment money. But with current financial circumstances so dire each leader must ask whether that was the only way to fund the project, and whether it is worth the money taken away from other vital services. The LAO’s evaluation that California’s Redevelopment Agencies have vastly overstated the economic and employment beneifts of redevelopment seems to further prove that redevelopment agencies have yet to make their case.