Will This Year Mark the Return of Tax Increment Financing?

It has been three years since the effective death of redevelopment when the state eliminated its redevelopment agencies and the California Supreme Court in December 2011 validated the ruling. At the time, Governor Brown issued a statement saying that the court decision “validates a key component of the state budget and guarantees more than a billion dollars of ongoing funding for schools and public safety.”

Critics argued that the redevelopment system was in serious need of reforming. Cities managed to find “blight” where none existed. They used redevelopment to do what they pleased because the law allowed them to. As a former mayor wrote in the LA Times in January of  2012, “The result has been that one of every eight property tax dollars in the state has been going to redevelopment agencies through ‘tax-increment financing,’ a system that sends any increase in property taxes after land is redeveloped back to the agency instead of to county coffers.”

However, there is no doubt that local governments have felt the sting of the loss of redevelopment and, more importantly, of a viable tax increment financing tool. As the California League of Cities described it in a briefing yesterday, “The mechanism which enables growth in property tax in an area over an established base year to support investments in infrastructure and economic development.”

The question, as three bills lie on the desk of Governor Brown, is whether this will be the year that the tax increment authority is returned to the local governments and under what conditions.

Senator Lois Wolk authored SB 614 which “authorizes a financing mechanism that can be used as part of a city annexation, at the option of the affected agencies and subject to the approval of a local agency formation commission (LAFCO), to provide the necessary upgrades of sewer, water and other systems needed to improve the living conditions within a disadvantaged unincorporated community.”

Assemblymember Lois Alejo has authored AB 2280, a bill supported by the California League of Cities, which would authorize “the establishment of redevelopment agencies in communities to address the effects of blight, as defined by means of redevelopment projects financed by the issuance of bonds serviced by tax increment revenues derived from the project area. Existing law dissolved redevelopment agencies and community development agencies, as of February 1, 2012, and provides for the designation of successor agencies to wind down the affairs of the dissolved agencies and to fulfill the enforceable obligations of those agencies.”

“Existing law also provides for various economic development programs that foster community sustainability and community and economic development initiatives throughout the state,” the bill summary notes. “This bill would authorize certain local agencies, to form a community revitalization authority (authority) within a community revitalization and investment area, as defined to carry out provisions of the Community Redevelopment Law in that area for purposes related to, among other things, infrastructure, affordable housing, and economic revitalization.”

The summary continues, “The bill would provide for the financing of these activities by, among other things, the issuance of bonds serviced by tax increment revenues, and would require the authority to adopt a community revitalization plan for the community revitalization and investment area that includes elements describing and governing revitalization activities. The bill would also provide for periodic audits of the authority with respect to affordable housing, conducted as provided by the Controller, and for annual public reports by the authority as well as periodic proceedings for the consideration of public protests.”

Back in January, Governor Brown threw out a small bone on IFDs (infrastructure financing districts). He proposed reducing the voter approval threshold from 2/3 for special local issues such as bonds and tax increases; the threshold would be lowered to 55% for local governments to issue bonds for public works projects through IFDs.

At the time he said, “The elimination of RDAs was necessary to avoid further reductions in core services. Given that current compliance levels with the RDA dissolution statutes is improving, the Budget proposes expanding the tax increment financing tool utilized by IFDs for a broader array of uses than that which is currently authorized under law.”

For instance, the plan would “expand the types of projects that IFDs can fund to include military base reuse, urban infill, transit priority projects, affordable housing, and associated necessary consumer services.”

“The goal is to maintain the IFD focus on projects which have tangible quality‑of‑life benefits for the residents of the IFD project area,” the governor proposed.

But that proposal was never enacted as part of the budget.

Under AB 243 by Assemblymember Roger Dickinson, an infrastructure and revitalization financing district would be created with the allowance of the issuance of debt at the 55% voter approval level. According to the summary, “The bill would authorize a district to finance projects in redevelopment project areas and former redevelopment project areas and former military bases. The bill would authorize the legislative body of a city, as defined, to dedicate any portion of its funds received from the Redevelopment Property Tax Trust Fund to the district, if specified criteria are met.”

The League reported yesterday that the bill is “ in the process of being amended to reflect the most recent round of changes to the Governor’s ‘Enhanced IFD’ proposal that had been floated, but not enacted, as part of the budget. The most recent revisions will reflect — in part — suggestions made by the League in meetings with Administration officials. Under draft amendments the League reviewed Friday, an authority could be set up administratively, but bonds issued would be subject to a 55 percent vote requirement.”

The League of Cities analysis suggests, “The tools above provide paths forward that can augment local efforts to improve infrastructure and assist poorer and disadvantaged communities. Each responds to different local conditions, needs and circumstances.”

—David M. Greenwald reporting