Gov. Jay Nixon Should Take a Page From California’s Budget

I know, California is usually the last place policy wonks look for sound fiscal policy. But that doesn’t mean that the golden state doesn’t sometimes get it right.

California Gov. Jerry Brown proposed in mid-January for the state to phase out funding for its redevelopment agencies, which can dole out billions to subsidize private developments. The money would instead go to funding schools and other services, according to the San Diego News. California has 425 different redevelopment agencies that can divert property taxes in order to subsidize real estate development, and they haven’t been successful.

As we’ve seen in Saint Louis, local government has no special ability to predict success — as the latest report shows, the Saint Louis metro area has spent nearly $6 billion to subsidize development, with little results.

It looks like California government also has difficulty identifying successful future development. From Brown’s budget proposal:

Redevelopment projects divert property taxes from K-14 districts, increasing state education costs by billions of dollars annually. The state’s costs associated with redevelopment has grown markedly over the last couple decades, yet we find no reliable evidence that this program improves overall economic development in California.

Of course, such cuts do not mean that California is moving in an anti-development direction. Economic development can occur just as it always has in California, and everywhere else in the past: A person or company with a dream to remake something can take on the financial risk to make that dream a reality. And, if successful, that person or company can sit back and enjoy the profits.

Eliminating the ability of local government officials to play in the world of development financing will reduce some development. It will reduce development that had no chance of success — development backed by a person or company who knows there really isn’t a demand for a project, and so seeks out public subsidy to make that development possible. Saint Louis knows those developments all too well: Vacant office space and stalled large-scale projects are familiar examples.

If you think this characterization is an unfair one, take a look at our state statutes! The laws governing tax-increment financing
(TIF), a form of development subsidy, specifically note that an applicant for state-level subsidy must demonstrate that the project is otherwise not viable without public dollars (see 99.845.10(e)).

So, if California can take a hard look at its use of development incentives, why can’t Missouri? We’ve had a tax credit review commission, mixed messages from Gov. Jay Nixon, hard-hitting studies showing that local tax incentives for development are ineffective, and yet … we’re waiting on our elected officials to have a serious discussion about how to get rid of these unsuccessful programs. What are they waiting for? Even California can do it.