It generates few headlines, so many taxpayers are unaware that local
governments continue to pump millions of dollars of tax increments —
property tax revenue usually withheld from schools and other essential
services — to fund pet projects that may not be in the public
interest. This is all done under the guise of "Community
Redevelopment."
One of the most common misuses of redevelopment funds is to bribe
businesses, like auto malls or big box stores, to relocate in a
particular community. The result is often a bidding war between
cities, each trying to outdo the others to provide the most generous
subsidies and tax breaks to land a favored business. Reforms enacted
in 1994 which permit tax sharing designed to address this problem have
only been partially successful.
It is hard to find a taxpayer who thinks that government should be in
the business of using taxpayer dollars to pick winners and losers in
the private sector economy, and this is why local officials try to
operate their redevelopment schemes with as little notice as possible.
However, when the deals go sour, it is hard to keep these expensive
failures under wraps.
The city of Downey in Southern California represents just the most
recent case of redevelopment gone haywire. Downey was attempting to
lure Tesla, a green car manufacturer famous for an all-electric
roadster, in the hopes of adding 1200 new jobs. The city wanted to add
two parcels to a redevelopment project area, and then intended to use
the tax increment revenue – the amount of the new higher property tax –
generated by the addition to subsidize Tesla’s rent and site
improvements. Downey had pledged $14.8 million of taxpayer dollars,
some of which it had no doubt already spent on city staff time to
prepare the project. Further, in a nod to good fiscal accountability
practices, Downey allegedly committed some of its reserve fund to
support the redevelopment expansion. At a time when local governments
are dealing with declining sales and static property tax revenue, this
was far from a wise move. The project also ignored the main point of a
redevelopment proj ect area, which is to eliminate blight, not
subsidize private industry.
The city was so anxious to get its redevelopment plan passed quickly in
an effort to get millions worth of federal stimulus money, that it was
willing to cut corners to do it. Downey counted on a bill by
Assemblyman Charles Calderon that would have eliminated the mandatory
hearing that cities must have in order to add parcels to redevelopment
districts, and also would prohibit citizens from filing a referendum on
a redevelopment project. By supporting legislation that would have
stripped people of the right to vote, especially when $14.8 million is
at stake, Downey’s actions were an insult to its own citizens.
Now that Downey has sacrificed city staff time, money and its dignity,
it appears that the whole plan has collapsed. Tesla has found an even
better deal. They have reached agreement with Toyota to form a joint
collaboration 400 miles away in the Bay Area. The good news for
taxpayers is that now that it’s no longer needed to force the Downey
deal down taxpayers’ throats, the Calderon legislation appears dead.
The bad news for Downey taxpayers is that at a time when nearly every
community is short on funds, their city has already invested resources
gambling on a project which is now defunct.