Redevelopment is dead, long live revitalization!

Following Governor Brown’s recommendation, the Legislature’s joint legislative committee has voted to eliminate redevelopment in California.  Without redevelopment, planners lose a key tool to revitalize cities by targeting investment to disadvantaged neighborhoods, creating jobs and building affordable housing.  Yet, eliminating the policy also creates an opportunity for California to think much bigger about how to revitalize our cities.

Redevelopment is a legacy policy; the California Community Redevelopment Act of 1945 was enacted in the post-World War II climate of white flight to the suburbs and gradual devastation of the central city tax base.  Much has changed: a back-to-the-city movement has dramatically increased property values in the urban core while problems such as crime and foreclosure have found a new home in the suburbs.  Although disinvestment and poverty remain critical urban issues, they are no longer as concentrated.  Changed times call for new policies.

Though politics (and budget desperation) killed redevelopment, it could just have easily been axed on the grounds of effectiveness.  In theory, even if redevelopment is not delivering on its promises to help revitalize neighborhoods, create affordable housing, and employ disadvantaged residents, it could still be a worthwhile policy if the redevelopment areas generated so much new growth that they more than repaid the public investment, including the increment diverted away from schools and cities. But as found by a Public Policy Institute of California study, most do not, so we are subsidizing the program with public money.

Academic studies have found that redevelopment programs do not create any net new growth at the regional or state level, simply shifting economic growth from one neighborhood to another. This becomes critical to a state in the midst of a jobless recovery, because redevelopment funds have opportunity costs, and we could be creating net new jobs instead.  Shifting growth from one place to another CAN have a public purpose, helping disadvantaged residents access opportunity.  But only in rare cases, like San Francisco’s local hire program, has redevelopment clearly benefited locals.  And in any case, there are less expensive ways to do it.

Affordable housing advocates have marched on Sacramento to save the program.  But it’s not clear that redevelopment – which sets aside 20% of its funding for affordable housing – is the best way to deliver affordable housing.  Local redevelopment agencies with little initiative to build affordable units have sat on billions of dollars of funding, and a larger share of money is being spent on planning and administration than actual construction of new units.

Many have advocated potentially valuable reforms, such as narrowing the definition of blight so that only the most distressed areas qualify; reducing the size of project areas; and limiting the life of redevelopment areas.  But reform is not enough.  Here are four ways in which the demise of redevelopment will help us meet its goals more effectively.

Increased local flexibility.  Beginning in 2012, much redevelopment agency revenue will be redirected to cities and counties, which will decide how to spend the money.  Some will choose redevelopment, but others might improve their services instead – and either path can create economic development. Redevelopment traditionally led cities and counties to favor big-box chain retail for its jobs and sales tax generation, but now they might invest in social programs like Healthy Families which can generate higher local spending multipliers (as UC-Berkeley’s Labor Center has shown). Or, they can attract new middle-class families by investing in their schools. Redevelopment turns disinvestment into a real estate problem, when it may be a more complicated set of social problems that take leadership and coalition-building to solve.  Likewise, redevelopment is too blunt a tool to deal with the problems such as foreclosure that are creating a new wave of suburban blight.

Better regional collaboration. At present, cities next door to each other, like Emeryville and Berkeley, have different redevelopment powers.  Wouldn’t it make more sense to share resources regionally?  Without redevelopment incentives to skew the decision, businesses can choose their optimal location to maximize revenues within a sub-region such as the East Bay Green Corridor Partnership. As a result, cities will not experience such great disparity in life chances for their residents.

More affordable housing. The affordable housing industry is in crisis and must continue to receive its 20% share of tax increment.  But only agencies with affordable housing as their core mission – such as the city and county housing authorities – will manage the funding effectively.  The state should condition the funding, and related infrastructure funding, on cities building their fair share of affordable housing under the Regional Housing Needs Assessment program, in order to create a real incentive for compliance.  Entrusting affordable housing funding to the regional councils of government (like the Association of Bay Area Governments), as proposed by State Senator Mark DeSaulnier, is an effective way to ensure that more of this housing gets built.

Effective economic development. Studies have shown that tax incentives like those provided by redevelopment agencies to attract jobs from elsewhere cost about $100,000 per job.  There are more cost-effective programs.  Clean energy investments can create new jobs at about $50,000 per job.  A recent evaluation showed that the commercial corridor program in San Francisco – a program that focuses on quality of life and marketing in low-income retail areas – created jobs at a cost of less than $10,000 per job. Many small business development programs are equally effective. Though model redevelopment agencies (such as San Francisco’s) have funneled token support to such programs, why not make them the cornerstone of every city’s economic development strategy?

Redevelopment is dead, long live revitalization!