SAN FRANCISCO - A new California law allowing the creation of "Enhanced Infrastructure Financing Districts" is a credit positive for the state's local governments, according to Moody's Investors Service.
The new law is a positive because it restores local governments' ability to use tax increment financing to fund redevelopment and infrastructure improvements, the credit ratings agency said in a recent report.
"The reestablishment of this kind of financing creates opportunities for public projects that might otherwise have been unaffordable for California municipalities," Moody's analyst Kristiano Cordero wrote in the report. "The new law also makes it easier for California local governments to create Infrastructure Financing Districts and to finance a wider array of infrastructure projects."
Local governments had previously employed redevelopment agencies as a vehicle to issue tax increment financing, until the state dissolved redevelopment in 2012. Tax increment financing dedicates the incremental increase of property tax revenues in a particular area to fund development.
The new law, signed by Gov. Jerry Brown on Sept. 29, aims to give local governments the ability to access the financing tool through IFDs. It amends the state's current IFD law, which has been criticized as being too "onerous."
The new law will remove a voter approval requirement for creation of a district, and lower the voter approval threshold for the district to issue debt to 55% from a two-thirds supermajority from voters within the district.
The legislation also expands the type of projects that can be backed by tax increment financing to include low and moderate income housing in addition to highways, transit facilities, and water and sewer infrastructure.
"Given the historical demand for tax increment financing from 2002 through 2011 and the need to invest in public infrastructure, we expect the creation of Enhanced Infrastructure Financing Districts and the restoration of tax increment financing will result in significant new debt issuance over the long term," Cordero said.
According to Moody's, more than $24.3 billion in tax increment debt was issued in the last ten years of California redevelopment agencies' existence. In 2011, redevelopment debt comprised approximately 10% of local government long-term debt issuance.