LOS ANGELES -California's nonpartisan Legislative Analyst's Office has recommended that the legislature adopt some, but not all, of Gov. Jerry Brown's proposals to change infrastructure financing district law.
In a report released Tuesday, legislative analyst Mac Taylor said some of Brown's proposed changes have merit, while calling others "problematic," including his proposal to lower the voter-approval threshold for forming an IFD to 55%.
Under current law, cities and counties can create IFDs to divert incremental property tax growth in a district for projects such as highways, transit, water and sewer systems, and solid waste facilities.
Incremental property tax growth can be used to back debt, similar to the financing of redevelopment, which was eliminated under 2011 legislation. Redevelopment financing did not require voter approval, but IFDs now require two-thirds voter approval for formation and also to issue debt.
Brown's plan, released in connection with his initial state budget proposal in January, is an attempt to provide local governments with better options to fund infrastructure and local economic development by making changes to the existing IFD law, which has seldom been used.
One way to make the law more usable is to lower the voter threshold. However, the LAO recommends that the legislature reject this aspect of Brown's proposal, and instead consider some alternatives.
One alternative would be to restructure IFDs to resemble similar local entities. Under this option, IFDs would be separate legal entities, would have their own governing body separate from bodies of their sponsoring local governments, and they would not be subject to voter-approval requirements.
"This approach mitigates potential conflicts with the constitution's voter-approval requirement for city and county debt by clarifying that IFDs are a distinct legal entity," Taylor wrote in the report.
A second alternative would be to expand voter-approval requirements to allow all residents of affected local governments to vote, instead of only those who live in the proposed district. This would make sure IFD decisions are aligned with community interests and are subject to increased public scrutiny.
However, this would make it more difficult for local governments to use IFDs. Under this alternative, Taylor said the legislature might wish to lower the voter-approval threshold, in which case he suggests clarifying IFDs as a separate legal entity in order to avoid constitutional requirements.
The LAO is also recommending rejection of Brown's proposal to require cities and counties to meet certain conditions related to redevelopment agency dissolution prior to creating an IFD.
"In our view, it is inappropriate to deny use of an economic development tool to a local government simply because it is disputing state actions related to RDA dissolution," Taylor wrote.
The LAO recommended adopting most of the governor's other IFD proposals. These include allowing affected local governments to loan funds to IFDs and the independent audit requirements of IFDs that issue bonds.
However, instead of allowing the Department of Finance to audit IFDs, the LAO said the legislature should adopt financial review standards for IFDs, similar to those required for other local governments.
"Some components of the governor's proposal merit consideration," Taylor wrote. "Particularly, the proposed expansion of IFD activities could further some state and local objectives, such as reducing greenhouse gas emissions, increasing the supply of affordable housing, and mitigating environmental pollution."
The LAO recommends adopting most of Brown's proposed expansion activities, except expanding IFDs to fund retail facilities. Taylor said the collective benefit to local governments from these activities would likely be limited.
Brown is expected to release his revised budget proposal for the coming fiscal year in May, which must then be passed by the legislature by June 15 to take effect July 1.
