Rebuilding America's blighted cities, but at what cost?

Local redevelopment agencies can help, but they also keep a big shareof the tax proceeds.

When the local redevelopment agency recently announced that it wanted to build a $750 million film studio here, city leaders were overjoyed.

Mildred Weller, however, went for her lawyer.

"They are using public funds to benefit a private studio," says Ms. Weller, who owns a building that may be bulldozed if the plans go through. "The city is using a law that was put there to build public highways, and schools, and courts, and parks - not to condemn my property to turn over to a developer."

Like a growing number of California residents, Weller is fighting the rising influence of redevelopment agencies - controversial city agencies that use local property taxes to lure business to depressed areas. And with similar redevelopment efforts under way in 47 other states, California's debate over the agencies' benefits and drawbacks is attracting interest across America.

Proponents say redevelopment agencies (RDAs) invigorate blighted cities by revamping downtowns and decaying warehouse districts. Critics counter that once these agencies are created, they take billions of tax dollars and spend them at will, displacing home and business owners without citizen oversight.

"More and more states have been catching on to the attractiveness of redevelopment financing," says Richard Dye, a professor of economics at Lake Forest College in Illinois, who studies redevelopment law. "But I think it's fair to say the idea has winners and losers, and the losers - those who are paying the cost with reduced schools, parks, or development somewhere else - are beginning to catch on."

California's model

Following the California example, RDAs in other states fund themselves through tax-increment financing (TIF). Although written differently in different states, TIFs allow local governments to stimulate economic growth by giving tax and financial incentives to businesses that locate in rundown areas. However, once a project area has been declared, all subsequent increases in property taxes (above a 2 percent annual increase) flow directly to the city's RDA - not to the county or the city - to help it pay off any debts.

California was first to use the funding technique in 1952, but it was not used widely elsewhere until the tax reforms of the 1970s. Now nearly every state in the country has similar laws.

"TIF programs encourage cities, towns, and counties to initiate developments that might not have otherwise been undertaken," says Joyce Man, a researcher at Indiana University who tracks TIFs. Just five years ago, 35 states had such tax programs; today it's 48. "California has been the model, but unfortunately, there has been little testing of their effectiveness until now."

Here in California, four groups have recently examined the state's redevelopment laws and activities in past years. All four call for changes and a need for better oversight. The Public Policy Institute of California, for instance, found that during the 1994-95 fiscal year, the state's 351 RDAs received 8 percent of total property taxes collected statewide - roughly $1.5 billion. Without RDAs, half of that sum would have gone to cities and counties.

"That is a staggering amount of money that, without RDAs, would have gone to other public agencies," says Michael Dardia, author of the study. "Some of them have unquestionably done many good things, but what makes this a reason for concern is that what the local redevelopment agencies do may not line up with broader public goals."

That was among the findings of a 1993-94 report by a Los Angeles grand jury looking into alleged abuses by RDAs. Among other things, it concluded that RDAs used too broad a definition of "blight" when establishing project areas and that it created layers of bureaucracy which extend the life of projects beyond time limits. "Redevelopment may be the single most powerful planning tool available to local governments," said the report. "It is also perhaps the most widely abused and twisted tool available to [them]."

Grass-roots outrage

Using the Internet as well as pamphlets and mailers, several grass-roots organizations - such as Californians United for Redevelopment Education and Municipal Officials for Redevelopment Reform - are broadcasting these findings. They want to educate the public on what they see as the downside of redevelopment.

"Redevelopment law did what it was supposed to do in the '50s and '60s, which was to clean up the cities that went into disrepair when everyone left for the suburbs," says Debra Hand, a member of one such group in Tehachapi, Calif. "Now they are being abused by cities who see RDAs as a source of easy money."

Critics also cite a host of examples where cities have used their redevelopment incentives to lure businesses from nearby towns, merely improving one local economy at the expense of another.

Other states have tried to learn from the California example. A recent study by Mr. Dye in Illinois shows that redevelopment there has not helped local communities achieve their goals - an increase in property values.

And Ms. Man of Indiana says her state has had mixed results. "There have been some very successful cases but also many instances in which money has been wasted," she says. "It really varies from city to city."

Success stories

RDA supporters counter naysayers by listing California's successful city projects: Old Pasadena, the gaslight district of San Diego, resorts in Palm Springs, and shopping districts in Long Beach and Santa Monica.

"Frankly, the rest of the country has not been as fortunate because it has lacked the aggressive redevelopment statutes that California has long used," says Jeff Finkle, head of the Council for Urban Economic Development in Washington.

State and local officials in California have also sought to offset discontent with RDAs by showing that they are willing to reform. William Carlson, head of the California Redevelopment Association, notes a 1993 law that eliminated some development loopholes and a law passed recently will eliminate the problem of competing with nearby cities by allowing them to share the same sales tax.

"So much of the attack on redevelopment is on procedure and not results," he says. "We get strong public support when people see what we have accomplished."

For her part, Weller, who also heads the North Hollywood Concerned Citizens, is pushing the local RDA for new laws requiring voter approval of all development bonds, full disclosure of redevelopment debt, and a promise that it will force out only tenants of public buildings. Says Weller: "I don't think we should be giving away tax money needed for streets, schools, police, and fire for use by Hollywood movie moguls who are already rich."