Filling the Void Left by Redevelopment Agencies
SB 623 Offers New Options for Funding Public Infrastructure
Filling the Void Left by Redevelopment AgenciewLegislature - filling the void left by Redevelopment Agencies
Filling the Void Left by Redevelopment AgenciesOn September 26, 2014, Governor Jerry Brown signed into law Senate Bill No. 628 ("SB 628"). SB 628 creates Enhanced Infrastructure Financing Districts ("EIFDs") which relax several of the requirements that constrain standard Infrastructure Financing Districts ("IFDs"). Standard IFDs allow cities and counties to use a portion of the property tax increment to fund public improvements, but IFDs are subject to several procedural and substantive requirements that make them inaccessible to many local agencies. Thus, although IFDs have existed in California since 1990, only two IFDs have ever been created. Redevelopment agencies ("RDAs") were the preferred alternative because they had broader powers to leverage tax increment financing for a variety of public projects. With the dissolution of RDAs in 2011, local agencies needed a more flexible mechanism than IFDs to fund the construction and rehabilitation of public infrastructure projects. The changes made by SB 628 are expected to enable EIFDs to fill the void left by the dissolution of RDAs.
Overview of Notable Statutory Changes
Standard IFDs and Redevelopment Agencies
Before the enactment of SB 628, two financing mechanisms were available to local agencies for funding public infrastructure projects: IFDs and RDAs. IFDs take advantage of property tax increments. Property tax increment financing is based on the concept that enhancing public structures boosts the value of nearby property. Higher property values produce higher property tax revenues. Tax increment financing captures these increases between the pre- and post-project tax revenues.
To form an IFD, a city or county must develop an infrastructure plan, send copies of the plan to every landowner in the district and all affected taxing entities, consult with each affected taxing entity, and hold a public hearing. Each taxing entity that will contribute tax increment revenue to the IFD must approve the infrastructure plan. Additionally, at least two-thirds of voters in the proposed district must approve formation of the IFD and any bonds that the IFD issues.
In addition to IFDs, redevelopment agencies provided a second mechanism to fund public projects. The Community Redevelopment Law, which was enacted in 1945, allowed public entities to set up RDAs, prepare and adopt redevelopment plans, and finance redevelopment activities. When AB x1 26 dissolved RDAs in 2011, they had been in existence for over 60 years, and California cities and counties had formed over 400 of such agencies. Like an IFD, a RDA is funded by tax increment financing which can be used to repay bonds and other debt used to finance an agency's projects. Unlike an IFD, a RDA does not require an election for formation, nor does a RDA require voter approval to issue bonds.
EIFDs and Changes Under Senate Bill No. 628
SB 628 authorizes the legislative body of a city or county to create an EIFD to fund infrastructure projects through tax increment financing. EIFDs differ from IFDs in several significant ways, which bill proponents hope will enable EIFDs to, among other things, finance the reuse and revitalization of military bases, fund transit priority projects.