Last week the California Supreme Court effectively killed redevelopment agencies in the state of California. I won’t bore you with the legal niceties and the hand wringing. For a good summary go HERE. But what it definitely is is a tax and finance grab by the state (with court support), as if these agencies have bags of money stuffed in mattresses across the state. The future development activities and partnerships of over 400 cities and counties, through their use of these agencies, is now effectively dead. Billions of dollars and thousands of projects are up in the air, some well along toward approval and some even completion. Merry Christmas and Happy New Year!
The insatiable maw of the state government needs feeding, no New Year’s diet resolution here, no cutting back now. Let’s just pull up to the Redevelopment table and feast well on the beast. Empty their bags of money on the table, push the dollars here (schools) and there (pet projects). But this largess will run out; then what?
The liberals point to the new dollars going to schools, but at the same time are concerned over the loss of money for affordable housing (and if the agency is dead – what money then?). The few Republicans in Sacramento may even be delighted that this evil tool of rapacious government is gone, no more taking homes for private development with the wink of the Redevelopment agency. Quite a quandary: Damned if you do and damned if you don’t. Seems everyone is happy, I guess.
But one function of these agencies was the ability, like the traditional shadchan (Jewish marriage broker); to put land and builders together. Sometimes these marriages failed other times they were wildly successful. How else could you assemble tens if not hundreds of disparate private properties into a whole that is developable? How else could you find lost land owners and, with a strong vision, assemble these properties into a project that the city would greatly benefit from? Sure the developer could spend millions doing it but there was no promise of a successful outcome. One or two properties could kill the opportunity.
Remember that these agencies paid market rate prices for the land through appraisals. I know there were excesses and frauds, but for the great majority these projects were successes. I remember working in Stockton, on its immediate south side, where hundreds of properties and buildings were derelicts, each was a separate purchase. The Stockton Redevelopment Agency helped to assemble and evaluate these buildings. It was a monumental task, ultimately nothing happened; the assemblage would cost more than it would be worth, especially in Stockton. But the agency was there to help.
All sorts of fictions are created to support one’s own viewpoint. In this morning’s Wall Street Journal there was such an editorial (HERE). After a cute beginning they jump and down with excitement that there is “a rare note of economic sanity in this overtaxed, overregulated state.” That’s easy to say from their perch in New York City. Which pot is calling which pot what? They swing for the political fences with the old canard of eminent domain takings for such developments as stadiums and shopping centers. A search of reality is in order, there were thousands of successful projects across the state, I can only think of a few stadiums and other projects that fit their examples. I worked on a blighted and toxic site (extremely toxic) in Union City that, through the efforts of a great many people, turned into a wonderful, market driven, housing project that won the Award for Excellence for Community Revitalization. Without the Union City Redevelopment Agency it would still be a toxic hole in the ground. There wasn’t a shopping center or stadium in sight. And remember that many of these sites generated little or no taxes before their redevelopment.
How cities move forward with redevelopment and replacing aging infrastructure, outmoded buildings, and land uses remains to be seen. No statewide alternatives were put in place before the hand grenade was pitched into the room. Every city, county, and agency is holding meetings trying to figure out what to do. Most if not all redevelopment personnel will be out of a job. How's that for job creation? and I'm a damn believer in Austrian economics.
These are some of the worse times in real estate and development. The collapse of the capital markets and the failure of businesses (and the loss of employees) has decimated many downtowns and counties. We will work through this but the loss of an experienced urban agency leaves much in the air. And instability at this time does not help the marketplace either.
This destruction may have impacts on the funding for affordable housing and the creation of jobs. But these arguments are touchy-feelies and hand wringing. For my part, governments should stay out of housing, it’s their policies that created the problem. It’s the cost of government that now is fouling the bond market creating a lack of development capital. Sadly, for better or worse, the Redevelopment Agencies helped to build California’s great cities, large and small. Now we will have to leave it to the politicians. Politicians and money, what a wondrous vision! Don’t you feel all cozy about that?
Stay tuned . . . .