Redevelopment: The Unknown Government A Report to the People of California, August, 1998 [ch03] 3 - Tax Increment Diversion Once a redevelopment project area is created, all property tax increment within it goes directly to the agency. This means all increases in property tax revenues are diverted to the redevelopment agency and away from the state, counties and school districts that would normally receive them. [Ed. Note: State law was recently changed and it now requires a 30% "pass-through" back to local gov't - the CRA's cut is now set at 70%] While inflation naturally forces up expenses for public services such as education and police, their property tax revenues within a redevelopment area are thus frozen. All new revenues beyond the base year can be spent only for redevelopment purposes. In 1995, this revenue diversion was just over $1.5 billion statewide. This means 8.5% of all property taxes were diverted from public services to redevelopment schemes. Even with modest inflation the percent taken has roughly doubled every decade. At current trends, redevelopment agencies will consume 68% of all statewide property taxes by 2025! (See Table I at bottom of page). If redevelopment were a temporary measure, as advocates once claimed, this diversion might be sustainable. Once an agency is disbanded, all the new property tax revenues would be restored to local governments. Legally, agencies are supposed to sunset after 40 years, but the law contains many exceptions and is easily circumvented. Of 362 redevelopment agencies created by cities statewide, none have ever voluntarily disbanded themselves. Financially hard-pressed counties are well aware of the cost of this diversion, and often go to court to challenge new redevelopment areas. In 1994, the Los Angeles County Grand Jury released its exhaustive report on redevelopment, calling for more public accountability and citing its negative effects on county services. The Los Angeles County Fire Department stated that it lost $16 million to redevelopment diversions In 1994 alone. School districts have also responded with lawsuits, sometimes forcing "pass-through" agreements to restore part of their lost revenue. They have levied new builder fees on residential development, thus passing the burden of redevelopment on to new renters and homeowners. Cities themselves are impacted by redevelopment diversions. While their redevelopment agencies are the beneficiaries, that part of the tax increment that would have gone to the cities' general funds (17%) are lost, and can now be used only for redevelopment purposes. Thus, there is now money to build auto malls and hotels, but less for police, fire and libraries. Cities cannot use redevelopment money to pay for operations, public safety and maintenance, which are by far the largest share of municipal budgets.

Graph Source: State Controller's Office.

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