Chap 19 Policy Cut
The Sacramento Plan
Stripped down to its barest essentials, federal urban renewal legislation (1949, 1954, 1959) marked the first time “direct” federal dollars potentially could be available to a municipality (by-passing the state) for non-housing physical redevelopment of cities. Putting aside for the moment the uproar/politics and the consequences/benefits of the use of such dollars, 1950’s federal legislation the municipal reaction to these two legislative enactments revolved around two issues: (1) to what degree (how much) could be used for physical (think CBD mostly) redevelopment as opposed to housing-related redevelopment; and, (2) how much local match for the federal dollars was required.[1]. Up to this point the history has concentrated on the first issue, but it was the second that generated a legislative response in California which set in motion one of the more significant economic development tools in the history of our profession: tax increment financing[2].
In 1945 California authorized the creation of local quasi-government redevelopment authorities (RDA) “to eliminate blight through development, reconstruction and rehabilitation of residential, commercial, industrial and retail districts”. This 1945 definition of blight was broad, especially considering the controversy over that matter which polarized the then on-going federal debate over the definition of urban renewal. Blight in 1945 California was not restricted to housing-related development; even the 1949 federal Housing Act was more restrictive than the 1945 California Community Redevelopment Act. In most states, urban renewal powers/funds up to 1949 were lodged in redevelopment agencies which primarily pursued slum clearance for housing-related projects only. In any case, given voter reluctance to approve bond referendums critical to urban renewal projects, the state legislature in 1950 assembled a team of seven experts to devise legislative recommendations for alternatives to finance the local match of urban renewal projects. The team, of which Lyle Stewart[3] was an important member, devised TIF as a concept and prepared necessary legislation. The first step was a state constitutional amendment, which successfully was approved in 1951, followed by, in1952, California’s passage of the nation’s first TIF enabling legislation. TIF was grafted onto the RDA and, since it did not require voter approval by referendum, offered a viable local match alternative.
California linked the use of TIF to areas characterized by “urban blight” but in its first years only a few communities took advantage of the law by “establish(ing) redevelopment project areas and most project areas were small–typically ten acres”. Sacramento, however, was the pioneer. In 1950 it had started its urban renewal involvement by declaring a sixty block part of its downtown as ‘blighted’. When TIF became available as a local match financing tool, the City embraced it and used it throughout the fifties. Urban renewal whose local match was financed by TIF was the distinctive aspect of the “Sacramento Plan” which became heralded far and wide across California and neighboring states.
To some degree Sacramento captured the headlines because, being as it was the state capital, it became Governor Pat Brown’s “I can build bigger than you” counterpoint to Nelson Rockefeller’s Empire Plaza which broke ground in 1959. Despite some horrendous displacement caused by Sacramento’s earlier 1950’s urban renewal projects (the downtown and freeways), Brown and the state legislature established a state commission in 1959 charged with producing a master plan for building future state buildings in the Capitol area of the City of Sacramento. The Commission’s consultants got to work and in December 1960 they published the California State Capitol Plan (CAP). The CAP recommended the state buy forty-two blighted blocks, demolish the existing buildings (much of which was multi-ethnic low income residential) and construct a Beaux-Arts state super campus.
While some of the project was contracted to the Sacramento Urban Renewal Authority, the State Public Works Board did much of the eminent domain—ostensibly because private developers were hesitant to get involved until land title was certain. The overall CAP did also include development of residential apartment complexes, the Capitol Towers and Gardens, for example. The Capitol Towers, a four block area, is alleged to be the first privately-sponsored urban renewal project in Sacramento and California (1960). That project opened in 1960. Much of the CAP used TIF to finance the various improvements. Sacramento had on its own initiative, supplemented by the Pat Brown and the CAP, had launched itself as California’s pioneering urban renewal municipality.
To put perspective on Sacramento’s pioneering embrace of urban renewal and TIF, San Francisco’s urban renewal experience was just beginning. While the San Francisco Redevelopment Agency has hesitantly started its first projects in 1951, they came to naught by 1960-delayed by incompetence, politics, litigation, and a decade long feud with the branch office of the federal urban renewal program, headed by regional administrator Justin Herman. The mess began to be straightened out in 1959 when Justin Herman in 1959 was appointed to the San Francisco Redevelopment Agency by a new mayor. In short order the Golden Gateway and Western Addition A-1 Projects (early 60’s) became San Francisco’s first real urban renewal projects.
Still by 1966 there were only twenty-seven project areas state-wide–largely because use of TIF in that period deprived other school and service districts of property tax receipts. TIF was perceived by many Californians as anti-education. [4] In 1972 TIF was “reformed” and required to share taxes with schools and districts. Yet the use of TIF grew in California. Again in 1976, the state legislature required at least 20% of TIF revenue from redevelopment areas be put aside for affordable housing for low and moderate income residents—but that didn’t slow down use of TIF local match for urban renewal. By 1976 there were 226 districts, some exceeded two thousand acres. By 1977, TIF RDAs collected 2% of the state-wide property tax.[5]
By 1970 TIF, whose prime function to 1968 had been as a accompanying tool with urban renewal, had been adopted by only six other states (Minnesota, Nevada, Ohio, Oregon, Washington and Wyoming)[6]. But after 1980, TIF spread rapidly on its way to be eventually approved in some form by forty eight states. Something had happened—and that something was California’s Proposition 13.
California TIF legislation was page-turning in several respects. First, the core of TIF was financial, combining a complex and future-based tax abatement program with taxable and tax exempt bond issuance. Second, the real-estate development project was the responsibility of a private sector partner (as was, of course, traditional urban renewal). Thirdly, anticipating a transformation which we will shortly discuss, TIF made considerable sense to a network of newly forming jurisdictions on the borders of California’s central cities: the suburbs. While urban renewal primarily addressed central city problems (or older street car suburbs to some extent), TIF would inherit an entirely unanticipated constituency and an entirely new meaning.
[1] Ashley Ford and Hilbert Fefferman, “Federal Urban Renewal Legislation” in James Q. Wilson (Ed), Urban Renewal: the Record and the Controversy (The M.I.T. Press, Cambridge, MA, 1966), pp. 71-125.
[2] I shall defer description of TIF to another chapter (Chapter 18: the Eighties). Briefly, TIF authorizes the issue of debt (project bonds) for a project improvements in a defined geographic “district” which is secured by the growth/increase of sales and/or property taxes from a base period (the “increment”) over the life of the project bond. It is usually accompanied by property/sales tax abatement/PILOT.
[3] Colorado-born Stewart, at the time of the commission, was an architect, teaching urban design at USC. He later moved to Oregon (1964) and became a major proponent of TIF in Oregon cities (Oregon approved TIF in 1960). See Nina Johnson and Jeffrey Tashman “Urban Renewal in Oregon: History, Case Studies, Policy Issues and Latest Developments” a report prepared by Tashman Johnson LLC. for the Portland Development Commission on behalf of Association of Oregon (Redevelopment Agencies, 2002.
[4] Marianne O’Malley, California Legislative Advisory Office, “Unwinding Redevelopment”, February, 2012, p.3.
[5] Marianne O’Malley, California Legislative Advisory Office, “Unwinding Redevelopment”, February, 2012, p.3.
[6] “Learning from Experience: A Primer on Tax Increment Financing”, Fiscal Brief, New York City Independent Budget Office, September, 2002, p. 2
End Chapt 19 Policy Cut
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Ron W. Coan 