The Grift That Keeps on Grifting

Last weekend marked the second anniversary of the Kelo decision. In Kelo, the US Supreme Court found that economic development was a legitimate government activity which justified the taking of property from one private party by eminent domain to sell or give to another private party. Ludicrously, the so-called conservative court seemed to agree that somehow “the economy” actually could be “developed” through such misadventures.

The entire premise behind the creation of a redevelopment agency is that the market does not work, and that a bunch of amateurs on city commissions, with little or no training in land use or economics, can do better than the market. That’s what happened in Costa Mesa. The existing small businesses were not thriving enough, in the eyes of some, so they were forced out, the buildings demolished, and the land sold at a discount to a developer who created that great success of a vacant white elephant, Triangle Square a.k.a. The Palace of Eminent Domain.

Where do the redevelopment agencies get the money to indulge in such folly? From the “tax increment” -- basically a shell game that reallocates property tax revenues from other agencies.

Property taxes are divvied up by several local agencies including city government, county government, school districts and other special districts. Typically, schools get at least half, the city and county each get around fifteen to twenty percent and other agencies get smaller portions. When a redevelopment area is established, revenues to all of those agencies are frozen, and any increase in property taxes goes to the redevelopment agency, whether or not the agency actually does anything productive.

In Costa Mesa, that means that the city general fund and other public agencies are getting just what they got from property in the redevelopment area in the early 1970s. Not a penny more. In Santa Ana it’s the same, while Huntington Beach established most of its redevelopment areas a few years later, in 1982. As property values and property taxes increase, all tax revenue above the decades-old baseline amount goes to the Redevelopment Agency.

Thus, these cities must pay 2007 salaries to police and fire personnel out of 1975 or 1982 revenues. They have to pay for utilities, fuel, and office supplies at 2007 prices out of revenues fixed at thirty-year-old levels. Non-redevelopment portions of these cities must make do with less.

Adding insult to injury, when property is taken by eminent domain, the property owner quite reasonably is permitted to transfer his or her Prop 13 tax limit to a new, similar property. This takes a bite out of local property tax revenues in the relocation area.

This is not chump change, either. In Costa Mesa , “tax increment” will amount to over $3 million this year. In Huntington , it will be a little under $14 million (which would go a long way toward paying for that levee in the Parkside/Wintersburg Channel area), while Santa Ana is anticipating $50 million in tax increment this year, still small potatoes compared to Los Angeles which will divert a whopping $215 million in tax increment to the city redevelopment agency. Statewide it adds up to BILLIONS every year, dwarfing the state infrastructure bonds passed by the voters last November.

That’s billions that could be going to schools, libraries, parks, police, paramedics, flood control and street maintenance -- every year. Instead, by law twenty percent must go for low and moderate income housing, which is a recognized need, and the rest goes for administration, consultant studies, handouts to developers, attorneys, tearing up streets to put in decorative pavement, consultant studies, more handouts to billionaires, attorneys, consultant studies, decorative lighting, and oh, did I mention attorneys and consultant studies?

Meanwhile, we are asked to pass bond issue after bond issue to raise funds for basic infrastructure, to raise taxes to pay for local roadways, while we scrimp by with less and less in non-redevelopment areas. But don’t you just love that decorative pavement?