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 cities, counties and school districts that would normally receive them.
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 1997, this revenue diversion was just over $1.5 billion statewide. This means 8% of all property taxes was diverted from public services to redevelopment schemes. Even with modest inflation, the percent taken has roughly doubled every 15 years. At current trends, redevelopment agencies will consume 64% of all statewide property taxes by 2040!
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 359 redevelopment agencies created by cities statewide, only four have ever been disbanded.
Finally, 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 Dept. 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. That part of the tax increment that would have gone to the cities' general fund (averaging 11%) is lost, and can now be used only by redevelopment agencies. Thus, there is now money to build auto malls and hotels, but less for police, fire fighters and librarians. Cities cannot use redevelopment money to pay for operations, public safety or maintenance, which are by far the largest share of municipal budgets.
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