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California TIFs May Be the New RDAs

MAY 26, 2011 5:54pm ET
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SAN FRANCISCO — No redevelopment agencies? No problem.

Legislation is gaining traction in California that would repeal the need for voter approval for one type of special tax district in order to make it easier for cities and counties to fund public works projects.

The infrastructure financing districts are being revamped as possible replacements for redevelopment agencies — a major source of development financing for local governments that is now on the chopping block in Gov. Jerry Brown’s proposed budget. 

The bill, which recently passed the Senate, would repeal voter approval requirements currently needed to form infrastructure financing districts and issue bonds for them. The legislation also includes other reforms that would help them replace redevelopment agencies.

“What I tried to do with my bill is take the best of redevelopment and narrow it so the schools would not be harmed, nor the state, but still allow for the kind of public investment in infrastructure that is critical to California being strong,” said Sen. Lois Wolk, D-Davis, the author of SB 214.

Because of the high voter threshold, only one infrastructure financing district project has been completed, for a hotel and amusement park in Carlsbad.

As it stands, cities and counties can create the districts and issue bonds to pay for public works projects using tax increment financing, but they need two-thirds voter approval. To set appropriations limits, they need a majority of voters to agree. TIF is the incremental property tax revenue growth in the district from rising tax assessments.

The legislation, now in committee in the Assembly, would also extend the ­allowable bond maturities to 40 years from 30 years, and permit the new districts to overlap current redevelopment project areas.

Redevelopment agencies do not need voter approval to issue bonds or to spend TIF revenue. The agencies also do not need a green light from other government agencies in the project areas, such as schools, to take the increment, which has stirred controversy.

Wolk’s bill would keep hands off school tax increment and force the districts to ask other agencies before taking the tax revenues in their areas for a project. The public works projects could also occur outside of the infrastructure districts with approval from municipalities involved.

“No matter what happens to the ­redevelopment agency issue with Jerry Brown and the budget, we still would have a useful tool for financing, which has been the major problem for local governments since Proposition 13,” said Wolk, chairman of the Senate Governance and Finance Committee.

Disclosure has also been tightened in Wolk’s bill. Districts would need to hold public hearings and would be forced to disclose their initial goals and needs, an annual report, and assessments of public works programs. Another source of controversy has been the term “blighted,” which is used by RDAs to slate a certain area for development.

The infrastructure financing district legislation leaves out the term and focuses on public works projects, such as sewers and libraries, and would also be able to fund brownfield cleanups.

The legislation “could greatly reduce the stress that everyone is having about redevelopment agencies being eliminated under the Brown budget,” said Stephen Ryan, a property tax expert and partner at the law firm Cox Castle & Nicholson in San Francisco. “It seems designed to create a median, a backstop to the elimination of RDAs.”

Ryan said the reformed infrastructure districts would be a much better financing tool than redevelopment agencies, partly because they would be unable to take TIF revenue from schools yet would still fill many of the same needs.

He said the main problem with current infrastructure districts has been that they must get two-thirds of voters to go along with any plan.

“It seems that SB 214 is the poor man’s RDA,” Ryan said. “It is immediately ­going to permit folks to go that route without voter approval with relatively greater flexibility.”

However, not everyone is on board with taking the voters out of the process.

“We think it is not a good idea to ­eliminate voter approval for creating these districts and using the taxpayers money for the bonds,” said David Kline, a spokesman for the California Taxpayers Association.

“Governor Brown has talked about voters approving any new tax measures and in keeping with that spirit we agree that voters should be involved in decisions like this that really affect their finances.”

A spokesman for Brown said the governor’s office does not comment on pending legislation.

Brown has proposed eliminating California’s 425 redevelopment agencies and shifting their available tax revenue to the state for one year to help close its budget gap, then allowing that revenue to flow back to local governments and districts in future years. The Democratic governor has run into opposition from local governments that manage the RDAs and collect the taxes.

The threat of elimination sent a flood of agencies into the bond market to sell tax allocation bonds. Redevelopment agencies issued $1.8 billion of debt in 2010.

In 1990, Gov. George Deukmejian signed the bill that created infrastructure financing districts with the voter requirements.

In addition to the high voter threshold, local officials have been reluctant to form the districts because of concerns about the constitutionality of using tax increment revenue from property outside redevelopment project areas, according to analyses by legislative staff.

In 1998, the attorney general allayed those concerns and Carlsbad formed a district to fund public works for a new hotel and the Legoland theme park.

To date, it is the only finished infrastructure financing district project. Several other bills to adapt the districts for local needs are moving through the current legislative session.

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