As California lawmakers struggle to respond to the dire economy, one way they have tried to raise revenue is by eliminating an economic tool that helps spur development — but withholds some taxes from the state and is susceptible to abuse. Last week, the California Supreme Court upheld legislation that ended redevelopment agencies; now, lawmakers should find ways to build a better method of encouraging development without the problems that undermined the former system.
Redevelopment came to California in 1945, and it proved a useful device for eliminating blight. It did so by creating agencies that could identify troubled areas and then allow taxes generated by development in those areas to be cycled back into repaying the debt used to finance those projects. That lowered the cost of construction and encouraged developers to invest in communities that otherwise would have seemed unpromising. The result was jobs, growth and transformation of downtrodden areas into vibrant centers — Old Pasadena, for instance, or L.A. Live.
But redevelopment had its downsides. By allowing so-called tax increment money to finance projects, it blocked that money from going to the state government or schools. And the lure of redevelopment was such that private developers sometimes got deals that smacked of favoritism rather than sound government policy. As Los Angeles County Supervisor Zev Yaroslavsky said, redevelopment "evolved into a honey pot that was tapped to underwrite billions of dollars' worth of commercial and other for-profit projects."