Wednesday, January 04, 2012

California's Redevelopment Agencies: Another Example of Government Run Amok

California is a funny state. It is overwhelmingly Democratic, but there are old-school Republicans hidden about here and there, and the usual few Libertarians. Over the last twenty-five years, it has had both Republican and Democrat Governors, but since Reagan left the State, it has become the standard-bearer for progressive legislation.

Some years ago the legislature happily gave city bureaucrats the budgetary wherewithal to take over control of inner downtown areas through an institution called the Redevelopment Agency. The Agencies began a campaign to renovate downtown areas that had become run down due to landowner neglect.

Instead of looking for the twisted economic incentive that spurs otherwise intelligent people to allow their buildings and neighborhoods to fall apart, the politicians decided simply to override property rights by making deals with favored land developers. These professionals, backed by City Hall, proceeded to rid the city streets of the eyesores and reap huge profits in the process. The Supreme Court decision in Kelo v. the City of New London buttressed their actions.

By a strange quirk of nature, Governor Jerry Brown, who is about as progressive as they come, decided to cut the budget for the redevelopment agencies. Of course, the slighted bureaucrats howled and even took him to court. They lost.

What they don't realize is that there are other ways to combat downtown blight, as I point out in a short Letter to the Editor at the Los Angeles Daily News.

[Thanks to the Daily News.]

Quoting loosely but also filling out the shorter letter, I told them that people like Nancy Sweeney, the President of Revitalize Reseda, who defend the redevelopment agencies against Brown's budget cuts must not realize that California has come very close to bankruptcy. The agencies' pet projects may be nice on their face, but (1) they are likely to be projects that would not be completed without taxpayer subsidy, and (2) at the moment taxpayers have more important things to do with their money.

Instead, let's take away the incentive to abandon property. To avoid allowing city blocks to fall into the same blighted state again, I suggest that Californian cities and towns implement Henry George's Land-Value Taxation (LVT) scheme. According to this policy, agglomerations are, by definition, the creators of a good measure of the value of a particular central street address. Therefore they (i.e. the local taxpayers) should reap the rewards. George's taxation scheme places all the tax burden on the land and none on the improvements, while lightening or even eliminating the taxes for other things (sales tax, license fees, income tax, and oh-so-many others).

The proven results--already obtained by some communities around the country and the world--are a downtown where blight is "taxed away." Owners of valuable property cannot just sit on centrally located but deteriorating land and buildings, just to speculate in future gains. Why? Because the taxes are too high to make it worth their while. It's "either crap or get off the pot": build something useful, or sell the spot and let someone else do it.

California is special because Proposition 13 protects commercial property owners as well as residential owners from reassessments as long as they hold onto their land. They can even exchange a plot with another like landowner and retain the lower taxation rate. A change in the law for these businesspeople would force them back into a more fair taxation schedule. (After all, they are not little retired grandmas who risk losing their home in an episode of runaway inflation, like the individuals who inspired Proposition 13 in the first place.)

Then, once the LVT is in place, developers will flock downtown to buy properties from former speculators and turn valuable spaces into income sources for those who created that value, i.e. the taxpayers. To each his just desserts. And the professional developers will not install just any income source, as the redevelopment agencies tend to do (behold the restaurant over-development in Old Pasadena). These new owners have every incentive to find the ones that will be the most successful.

Although Governor Brown may not know why, he has done the right thing. Now the people of the State should take it one step further.

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