The Dangers of California’s ‘Investment Authority’ Bill

The Dangers of California’s ‘Investment Authority’ Bill
August 20, 2013

The big budget bills in California have been resolved for this legislative session but the public has good reason to remain on alert. Senate Bill 1, introduced by State Senator Darrell Steinberg (D–Sacramento), is so dangerous that the Assembly should swiftly kill it.

The measure would allow any California city or county to create a “Sustainable Communities Investment Authority,” governed by unelected bureaucrats selected by the city or county officials themselves. Each newly created Authority would build development projects in designated geographic areas. These would comply with SB 375, which connects California land use to the state’s climate change law, AB 32, which sets goals for the reduction of greenhouse gas emissions.

Unprecedented Powers

Each Authority would be granted powers to build “sustainable communities.” That means jamming people into dense, urban centers using high-density residential housing and high-intensity retail and commercial buildings near mass transit corridors. To that end, SB 1 would grant each Authority unprecedented powers.

In the past, California redevelopment agencies (dissolved on February 1, 2012) were required to determine an area was blighted before they could seize private land through eminent domain. Even with this requirement, abuse of private property rights was rampant. But SB 1 defines blight legislatively, eliminating the need for each Authority to make a separate finding.

Statewide ‘Blight’

SB 1 defines blight as statewide problems such as air pollution, high water consumption, high energy consumption, reduced farmland, habitat destruction, fewer affordable housing units, traffic congestion, and the high combined cost of housing and transportation. This ridiculously broad definition is a long way from the common sense understanding of blight as abandoned buildings in a local area.

SB 1 permits unchecked access to the power of eminent domain in every project area created under the bill without making any determination, or requiring any action, regarding blight. The measure thus threatens the property of every California resident and will lower property values. But there’s more.

Government Investment in Government

Each Authority would be allowed to issue bonds without voter approval to fund the redevelopment projects. Pension systems such as CalPERS and CalSTRS would be allowed to purchase these bonds, so essentially one government agency would be investing taxpayer dollars into another government agency’s projects that threaten people’s land and force residents continually to pay for new projects.

Worse, each Authority would also be allowed to increase local sales taxes within their geographic project area. They could also extract property taxes using property tax increment funding, which would divert property tax revenue within project areas to the new Authority and away from city or county general funds to pay for public services and away from special districts like fire and police, parks, and libraries.

High-Cost Construction Requirement

Further, 25 percent of tax increment revenue in a project area must be used for affordable housing units. But SB 1 also requires that these construction projects pay “prevailing-wage” rates, which the California Institute for County Government pegs at 36 to 55 percent higher than market wages. This requirement would increase the cost of building low-income housing and reduce supply.

SB 1 would not only take private land but would increase sales taxes and property taxes at a time when Californians are struggling to recover from the Great Recession. The measure would divert tax revenue from public services, increase debt, raise the cost of building affordable housing, and give more power to unelected bureaucrats.

Property Rights Abuses

Californians know from experience that government redevelopment leads to massive private property abuses and loss of tax revenue for public services. SB 1 is redevelopment on steroids and merits defeat.

The California Assembly’s Local Government Committee will consider SB 1 on August 14. Committee members should kill it. If the bill makes it to Gov. Jerry Brown, who understands the serious problems with government redevelopment authorities, he should swiftly veto it.

Lawrence J. McQuillan (lmcquillan@independent.org) is a Senior Fellow and Director of the Center on Entrepreneurial Innovation at the Independent Institute. Used with permission of The Lighthouse newsletter at www.independent.org.