San Jose Offers an Example of How Redevelopment Agencies Waste Money

It's still not clear whether Jerry Brown will ultimately get his way and see the end of California's 425 redevelopment agencies. While the state clearly needs to stop wasting money on local-level political graft, the RDAs have proven remarkably resilient in the face of scandal after scandal. If you needed another reminder of why the RDAs need to go, fortunately we have one this week in the city of San Jose.

The San Jose Mercury News reports that Zanotto's market in downtown San Jose will be closing next month. Back in 1996, the San Jose RDA gave Zanotto's a $1.65 million loan to open its 14,000-square-foot gourmet grocery on Second Street downtown; at the time, everyone hoped that the market would have customers in droves as people moved into new residential highrises nearby. Unfortunately, this scenario never quite materialized. The dotcom bust and the slow economy that followed led to the market closing temporarily in 2003. It reopened with a restructured loan in 2004, and finally began turning a profit in 2006, but the good times didn't last. A newly wobbly economy coincided with the RDA's 2009 decision to subsidize (via a loan of $1.85 million for a massive parking garage) a new Safeway store just a half-block away. For Zanotto's, this was the last straw.

Moving forward, Zanotto's will be opening a downsized deli on First Street, and its other markets in San Jose will be unaffected. The city, unsurprisingly, will lose money on their decision to subsidize one business at the expense of a competitor that also owed them money. Which illustrates that RDAs can hardly be essential to economic development, if their understanding of economics is this poor.