California’s 1940s-era urban-renewal policy, “redevelopment,” is
coming back — only less so in some ways but more so in others.

California’s redevelopment law was designed to revive inner-city
neighborhoods by giving city planners extra powers to invest tax
dollars and direct development decisions in areas that were deemed
to be blighted. It morphed into a financial sleight of hand,
whereby officials subsidized auto malls and hotels to divert tax
revenues that would go elsewhere.

Property-rights activists loathed redevelopment because it gave
cities an excuse to take property via eminent domain and give it to
developers who had “better” plans for the property. Anything eyed
by these agencies, critics said, became “blight.”

Even many redevelopment supporters — who point to the revival of
San Diego’s Gaslamp Quarter and other projects as proof of its
success — admit that agencies sometimes abused their power. But in
the end, their financial approach was their undoing.

In 2011, a state budget crisis that prompted the new governor to
look for ways to fill a budget gap led to the end of redevelopment,
given that agencies ended up grabbing about 12 percent of state
property tax revenues. Sure enough, these agencies have dissolved
and new successor agencies can’t start new projects, but can only
pay off the debt on old ones.

Redevelopment’s advocates, including the developers, bond
dealers, consultants and government planners involved in it, tried
to revive redevelopment last year, but the governor vetoed the
bills. They are back again, and SB 1 by Senate President Pro
Tempore Darrell Steinberg, D-Sacramento, passed a key committee on
Wednesday.
Called the “Sustainable Communities Investment Plan,” it’s
basically the same process but with a new environmentally oriented
twist.

In the old redevelopment, agencies targeted an area that was
deemed “blighted” based on a wide range of mostly subjective
factors. All new property tax revenues above the level when the
project area was created, called “tax increment,” went to the
agency, which floated bonds and subsidized developers.

The new redevelopment is pretty much the same thing except that
instead of targeting urban blight it targets urban sprawl.
Supporters believe that new developments should be built in
existing urban areas to reduce global warming. Redevelopment redux
is a mechanism for providing fiscal incentives to spark the
construction of apartments, high rises and stadiums, with “blight”
defined as anything that doesn’t fit the infill vision.

Marko Mlikotin, president of the Folsom-based California
Alliance to Protect Private Property Rights, believes eminent
domain could be more easily invoked under SB 1 than before given
the broad blight definition.

From a financial perspective, however, SB 1 is a kinder-gentler
approach. Before, city agencies could create project areas and
unilaterally grab tax revenues that would have gone to counties,
school districts and special districts. The state reimbursed the
schools, which is why Brown put an end to it.

The new legislation requires the districts and cities to work
together to create the project, so it can no longer be a mechanism
for taking others’ revenue. That greatly reduces the incentive to
create project areas and stems the money flow. For that reason, the
state’s best-known anti-redevelopment crusader, former Assemblyman
Chris Norby of Orange County, sees it as a far cry from the bad old
days, even though he is opposed to redevelopment’s return. “Once
Frankenstein is dead, it’s very hard to rebuild him,” he said.

Steinberg’s policy advisor on the issue, Steve Shea, reminded me
that the new redevelopment will start the base year for calculating
tax increment in 2014, so it will take many years before it can
accumulate the kind of tax revenue that old redevelopment agencies
had amassed. It is redevelopment on a much smaller scale, something
he said is necessary to help ameliorate the higher costs of
building projects in urban areas.

But like his boss, Steinberg, Shea strongly defended the use of
eminent domain as an urban-planning tool. So it might not be long
before Californians see some of the property-rights controversies
that gave redevelopment a black eye, even if it takes years before
the agencies become the fiscal sinkholes that led to their
demise.