The Blight Fight

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Wednesday, Aug. 20, 2008 | The recent media coverage and ensuing commentary about the city's efforts to turn Grantville into a designated redevelopment project area have raised important questions about the needs of the city, its Redevelopment Agency, other local governments, and -- of course -- the Grantville community. The problem is that the discussion has not allowed us to address these interrelated questions one at a time, in a rational way that allows all of us to understand the many complicated tradeoffs involved.

"Roughly half of the property tax revenue that goes to redevelopment agencies is really the result of natural appreciation and not the product of redevelopment activities"

By my count, the controversy can be broken down in four distinct categories:

Vladimir Kogan

Let me consider all of these questions, briefly, in turn:

No. 1: This seems to be the easy one. Few people seem to disagree that Grantville's future development needs a master plan. However, note that answering this question does not help us answer any of the remaining three, as some folks have suggested.

No. 2: Whether Grantville is indeed blighted is a subjective question, one that our vague state law does not shine much light on. For example, under the state's broad definition of blight, an area with subdivided lots of "irregular shapes and inadequate sizes," and a "serious lack" of commercial facilities like grocery stores, banks and other lending institutions or an "excess" of bars and liquor stores can be considered blighted.

Of course, someone must make the final determination, including what constitutes an "irregular" or "inadequate" lot or an "excess" of liquor stores. In California, we have decided that local legislators or the redevelopment commissioners they choose are best placed to do so. Because in San Diego, the City Council is the board of the Redevelopment Agency. It's our elected officials -- held accountable to voters through elections -- who make the judgment. And it's hard to think of a better choice -- after all, who is more qualified to make these subjective decisions? Judges or an appointed committee of local wise men? The voters of the potentially blighted area, who could put their narrow self-interest ahead of the best course for the city as a whole?

Of course, we do allow courts to review the city council's decisions when challenged, though they have to uphold the blight determination as long as local officials present "substantial evidence" for their judgment.

No. 3: The threat of eminent domain seems to be the main concern of the Grantville Action Group. And indeed, though a blight finding opens the door for eminent domain to be used as part of the Grantville redevelopment efforts, one must not always follow the other. At the end, the decision to take property via eminent domain is a decision to be made by the city council (subject to a few legal constraints). And we get the city council members we elect.

No. 4: The issue of tax increment financing seems to be least understood part of the redevelopment process. Put simply, creating a redevelopment area allows the property taxes inside the project area to be capped. If the property values grow, and property tax receipts go up, the increase is kept by the Redevelopment Agency (based on the idea that the growth was due to the redevelopment activity, so the proceeds from the growth should be used by the agency to repay the loans that funded that redevelopment activity in the first place).

The main question here is, would property values (and thus property tax receipts) in Grantville continue to grow absent redevelopment? Outside a redevelopment zone, these increased receipts would be shared by various local government agencies, including the city’s general fund, local school districts, and the county, just as they share the rest of the property taxes collected by the county. Yet if Grantville is a redevelopment area, and the property tax cap is in place, the regular, expected increase would be "diverted" into Redevelopment Agency coffers.

In effect, taxpayers would be subsidizing redevelopment, shifting funds that would otherwise be put to different uses by setting them aside for redevelopment. (However, it is important to note that the Redevelopment Agency does "pass through" a percentage of the new tax increment to those other agencies.)

Fortunately, this is an easy empirical question to answer: Pick a few properties in the project area, and see if their property tax bills have been going up over the last few years. If so, we can be pretty sure that they would grow naturally without redevelopment, resulting in the subsidy described above.

The only large scale analysis that has attempted to quantify this subsidy was published by the Public Policy Institute of California in 1998. That paper essentially matched up neighborhoods in redevelopment areas to similar neighborhoods in the same cities, and tracked housing prices over time. It found that roughly half of the property tax revenue that goes to redevelopment agencies is really the result of natural appreciation and not the product of redevelopment activities, meaning that California taxpayers have provided a major subsidy for redevelopment.

It is important to note that state law does not require property taxes to be capped in redevelopment areas. Instead, that is a choice left up to the City Council in creating the Grantville redevelopment plan.

And it's pretty clear our City Council wants the money. In Kelly Bennett's recent story on Grantville, the city's deputy executive director of redevelopment, Janice Weinrick, argues that redevelopment is good for Grantville because "none of that money (tax increment) would be available if the project area is not a redevelopment area." What she meant, of course, is that none of that money would be available for Grantville redevelopment; in fact, some of that money would most likely be available for other important government uses.

Alternatively, we can put this another way and ask: Would Grantville (and the rest of the city) be better off if we didn't divert some of the tax increment from county social services, public programs funded by the city's general fund, and state coffers?

As with most of the other parts of this debate, that is a difficult question to answer.

Vladimir Kogan is a doctoral student at UCSD's Department of Political Science. His e-mail address is vkogan@ucsd.edu.