How Cities Use Redevelopment

Redevelopment is a controversial tool allowing California cities to capture increased property tax revenues resulting from new development and use that money for purposes other than typical services like education and public safety.  

Created in the years after World War II, it is intended to allow cities to eradicate “blight” by placing rundown or vacant industrial neighborhoods in designated redevelopment tax areas and using eminent domain to acquire those areas through condemnation. The idea is that what comes after ought to be better and produce more tax revenue, jobs and affordable housing than what had come before.  

In practice, however, redevelopment agencies throughout the state have stretched the intent of the law, using a broad brush to paint areas as “blighted,” according to a March report by California State Controller John Chiang.  

“Coronado’s redevelopment area covers every privately owned parcel in the city, including multi-million dollar beachfront homes,” Chang said earlier this year. “In Palm Desert, redevelopment dollars are being used to renovate greens and bunkers at a 4.5-star golf resort.” 

The controller’s report , saying that its redevelopment agency had misused housing funds and that the review “raised numerous concerns that stemmed from financial dealings of several key former employees.” The report did not name anyone specifically, but it said the allegations were being “investigated at several levels.” 

When an area of a city is placed into a redevelopment zone, its tax collections are essentially frozen at a base level, and any tax increment that results from new development accrues not to the state but to the locality. In some cases, developers are awarded a portion of the new tax money as a payment. Hercules, for example, pays about $1.8 million a year in tax increment to the company that developed , an area of upscale homes on a former refinery site. 

In an attempt to eliminate redevelopment, California Gov. Jerry Brown and lawmakers struck a deal that would have required cities to dissolve their redevelopment agencies or to turn over a portion of their tax increment proceeds to the state. But the billion-dollar industry has powerful advocates, some of whom have sued to stop the plan. The California Supreme Court agreed last week to take up their arguments, and a ruling is expected by mid-January.