Whither Redevelopment?

With the recent judicial decision that the State of California has the legal right to end the redevelopment program as currently structured, a debate has begun about what, if anything, should replace it.

I’m not a redevelopment expert.  There are many folks who can speak with more knowledge on this topic than me.  However, perhaps I can add a bit of lay perspective.  And I can also speak with passion because redevelopment is often the route to new urbanism.

To me, there are two key aspects to California redevelopment, TIF and backfill.

Tax increment financing (TIF) is the most common funding mechanism for redevelopment.  When new improvements are expected to result in higher property taxes, bonds can be issued that are secured by the increased property tax revenue.  The bond proceeds are then are used to pay for the improvements.  It’s a logical way to bootstrap ourselves into public improvements.

But there’s a shortcoming.  With the incremental property tax revenue going to the bondholders, there are no funds to cover the new services that may be required by the new improvements, particularly the costs to educate the additional children who may live in residential developments created by with the aid of TIF.  The state filled this gap by agreeing to reimburse municipalities for those educational expenses.  This is often called “backfill”.

The state has a legitimate interest in redevelopment, so backfilling was a reasonable solution during better times.   During revenue-challenged times, it became a problem.  Adding to the problem was that municipalities had great latitude in declaring areas of “blight” where redevelopment was justified.  Personally, I believe that most development projects were legitimate and appropriate.  But even a few redevelopment projects that involved golf course improvements or other works that didn’t meet the intuitive concept of redevelopment were sufficient to give ammunition to redevelopment opponents.

There may be a day when the state can again agree to backfill educational expenses for TIF projects.  For now however, their best place seems to be on the sideline.

However, TIF remains a reasonable financing mechanism.  As much as some people may argue that “we shouldn’t build something until we can pay for it”, the fact is that most of us use mortgages to acquire homes.  Bonds, including TIF bonds, are the functional equivalent of mortgages for public entities.   And woe be to the politician who suggests that we should pay an additional $100 per month so our descendents in 2040 have the funds to pay for a new wastewater treatment plan with cash.  It would be bad public policy and worse election strategy.

So, TIF should have an ongoing place among the tools available to cities.  However, with the backfill concept gone, at least for now, the incremental property tax revenues will need to be allocated differently.  They will need to divided between bondholders and paying for the services required to support the new improvements.  And if there’s not enough incremental tax revenue to cover both needs, then the project can’t proceed, which may be a very reasonable decision in tough economic times.

Getting to a new organizational structure for TIF will be a source of ongoing and urgent public discussion.

The Petaluma City Council will consider their initial move toward a new redevelopment strategy at this evening’s meeting, Monday, January 9.  At this time, the primary decision is whether the City will be become a “Successor Agency”, which means they would be responsible for winding up the affairs of the city’s redevelopment agency, the Petaluma Community Development Commission.  The City Attorney has advised the Council that becoming the Successor Agency is a signal that the City has an ongoing interest in redevelopment.  The position paper by City staff can be read here.

Unfortunately, I’m committed to another public meeting this evening, a session conducted by the Metropolitan Transportation Commission on long-range transit strategies.  However, if the MTC folks aren’t too-long-winded, I’ll head afterwards to the Petaluma City Council meeting.  Perhaps I’ll see some of you there.

(How is that not one but two public meetings are scheduled on the same evening as the BCS championship football game?  And that I expect to attend both meetings rather than watching the game with my visiting brother-in-law?  Of course, after the initial defensive struggle between Alabama and LSU, there may be more fireworks at the meetings than at the game.)

As always, and especially on this topic, your questions or comments will be appreciated.  Please comment below or email me.  And thanks for reading. - Dave Alden (davealden53@comcast.net)