Government Picking Winners and Losers at Taxpayers’ Expense

It generates few headlines so many taxpayers are unaware that local governments continue to pump millions of dollars of tax increments — property tax revenue usually withheld from schools and other essential services — to fund pet projects that may not be in the public interest. This is all done under the guise of “Community Redevelopment.”

One of the most common misuses of redevelopment funds is to bribe businesses like auto malls or big box stores to relocate in a particular community. The result is often a bidding war between cities each trying to outdo the others to provide the most generous subsidies and tax breaks to land a favored business. Reforms enacted in 1994 which permit tax sharing designed to address this problem have only been partially successful.

It is hard to find a taxpayer who thinks that government should be in the business of using taxpayer dollars to pick winners and losers in the private sector economy and this is why local officials try to operate their redevelopment schemes with as little notice as possible. However when the deals go sour it is hard to keep these expensive failures under wraps.

The city of Downey in Southern California represents just the most recent case of redevelopment gone haywire. Downey was attempting to lure Tesla a green car manufacturer famous for an all-electric roadster in the hopes of adding 1200 new jobs. The city wanted to add two parcels to a redevelopment project area and then intended to use the tax increment revenue — the amount of the new higher property tax — generated by the addition to subsidize Tesla’s rent and site improvements. Downey had pledged $14.8 million of taxpayer dollars some of which it had no doubt already spent on city staff time to prepare the project. Further in a nod to good fiscal accountability practices Downey allegedly committed some of its reserve fund to support the redevelopment expansion. At a time when local governments are dealing with declining sales and static property tax revenue this was far from a wise move. The project also ignored the main point of a redevelopment project area which is to eliminate blight not subsidize private industry.

The city was so anxious to get its redevelopment plan passed quickly in an effort to get millions worth of federal stimulus money that it was willing to cut corners to do it. Downey counted on a bill by Assemblyman Charles Calderon that would have eliminated the mandatory hearing that cities must have in order to add parcels to redevelopment districts and also would prohibit citizens from filing a referendum on a redevelopment project. By supporting legislation that would have stripped people of the right to vote especially when $14.8 million is at stake Downey’s actions were an insult to its own citizens.

Now that Downey has sacrificed city staff time money and its dignity it appears that the whole plan has collapsed. Tesla has found an even better deal. They have reached agreement with Toyota to form a joint collaboration 400 miles away in the Bay Area. The good news for taxpayers is that now that it’s no longer needed to force the Downey deal down taxpayers’ throats the Calderon legislation appears dead. The bad news for Downey taxpayers is that at a time when nearly every community is short on funds their city has already invested resources gambling on a project which is now defunct.

Jon Coupal is president of the Howard Jarvis Taxpayers Association — California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.