In 1952, California instituted a revolutionary program to their state legislature - tax increment financing. The idea of re-appropriating certain revenues in order to develop urban communities is probably a good idea, and it sure seemed to work for a while. Like all things controlled by the government, certain features of the programs were soon extremely political, and these revenue re-appropriations got out of control. Finally, California saw fit to end the program that they introduced. One of the first acts that California governor Jerry Brown took to change in his second term was to abolish the urban redevelopment agencies throughout California. These agencies took funding from TIF and appropriated them as the agency saw fit. His idea was to take the five billion dollars that the agencies receive and appropriate the funding to deserving public services.
On December 29 2011, Assembly Bill 1X26 was upheld by the California Supreme Court. This bill effectively eliminated all redevelopment agencies. The bill was upheld on the terms that the California legislature has the authority to create and abolish all state and local governmental authoritative agencies. A related second bill, Assembly Bill 1x27, was also introduced, this one to regulate any existing redevelopment agencies. The bill contained language that would permit redevelopment agencies to exist, with a significant fee to be paid to the state. The bill was deemed unconstitutional on the grounds that a separate statute permitted these agencies to retain their revenues. Obviously, redevelopment agencies protested the bill and challenged it, but the bill was effectively upheld.
Why would Jerry Brown, reputed as a fiscal liberal, want to repeal such a generous program as TIF? Much of his reasoning was said to do with the revenue generated from incremental tax increases going to these redevelopment agencies. Generally, all tax increases are voter-approved. Yet, if these redevelopment agencies exist, all of that incremental tax revenue could be captured by the redevelopment agencies from TIF. That means that the funding that should be going to schools and civic services would now be distributed to public and private capital investments. At the surface, this idea for community investment does not seem entirely flawed. Of course like many municipal programs, that explanation would only represent the tip of the iceberg.
Many opinions have presented the argument that TIF only removes the funding that civic services and public education deserves. Instead of being furnished with their respective tax dollars, redevelopment agencies are granted the power to take the tax revenue and appropriate them as they see fit. Much of this re-appropriation is a political game, with tax dollars going to the private institutions that lobby with redevelopment agencies.
California is not the only state or jurisdiction to repeal TIF, and precedent may be taken from a number of different cases. For now, a solid foundation can be drawn from the state that first introduced TIF, and subsequently repealed its authority.
Volunteer Staff Member