Redevelopment: The Unknown Government Corporate Welfare Chapter 5
The consultant has found the blight. The lawyers have drawn up the papers and defended the agency from suits. The bond brokers have created the debt, to be paid by the tax increment that will surely flow. Now should be the time to begin eliminating "blight," as required by state law.
In reality, very little is ever heard again about blight. Redevelopment agencies are driven primarily by creating new revenue. Since most cities with redevelopment have little or no real blight anyway, creating new government revenues becomes their prime goal. They do so in two ways:
Debt: As we have seen, an agency incurs debt to be paid by future property tax diversions. In this way, it can perpetuate its own activities indefinitely by continuing to borrow.
Sales tax: By promoting commercial development, a redevelopment agency can claim to be stimulating new sales taxes that benefit the city's general fund. In this way, it tries to justify itself to the citizenry and council members who usually double as agency directors.
By state law, a city's sales tax share is 1% of all taxable purchases. Sales taxes are site-based. If you live in Sacramento and buy a car in Folsom, all of the sales tax share from the car will go to Folsom, none to Sacramento.
Cities have long been motivated to attract sales tax generators. City officials and chambers of commerce have touted their location, city services, and access to markets. New department stores and auto dealers have long been greeted with ribbon cuttings and proud announcements in the local paper. Redevelopment has escalated this to a new level.
With redevelopment, cities have the power to directly subsidize commercial development through cash grants, tax rebates, or free land. Spelled out in a "Disposition and Development Agreement" (DDA) a developer receives lucrative public funding for projects the agency favors. Some receive cash up front from the sale of bonds they will never have to repay. Others receive raw acreage or land already cleared of inconvenient small businesses and homes. They purchase the land at substantial discount from the agency. Sometimes it is free. Redevelopment subsidies are not distributed evenly. Favored developers, giant discount stores, hotels and auto dealers receive most of the money. Small business owners, already burdened by regulations and taxes, now must face giant new competitors funded by their own government.
Redevelopment has accelerated the centralization of economic power among ever-fewer corporate chains at the expense of locally-based independent businesses. Certain large retailers such as Costco, Home Depot, and Walmart provide valuable service and have every right to compete. But are they entitled to government subsidies?
This costly distortion of the free enterprise system is justified as the only way to boost local sales taxes (ending "blight" has, by now, been long forgotten). Yet, if new developments are justified by market demand, they will be built anyway. If not, they will fail, regardless of the subsidies. Redevelopment has resulted in a vast over building of vacant commercial space stimulated more by tax subsidies that by actual consumer demand. As cities become more predatory, financial "incentives" are needed not just to attract new businesses, but to keep long-time retailers from moving away to neighboring cities. Large retailers routinely play one city off against another for the greatest pay-off. Wasteful bidding wars among cities escalate.
Redevelopment has become a massive wealth-transfer machine. Cash and land go to powerful developers and corporate retailers while small business owners and taxpayers must pay the bill. ”
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