LOS ANGELES -- After rejecting past bills aimed at reviving local development financing in California, Gov. Jerry Brown gave a sign for the first time that he's willing to work on replacing redevelopment financing in the state.
In his
While his proposal is a step in the right direction, redevelopment advocates say it does not go far enough to help local agencies create much-needed infrastructure.
"I'm trying to see the positive here, but it seems when compared to recent legislative efforts to make IFDs usable it's a fairly minimal gesture," said Larry Kosmont, president and chief executive officer of Kosmont Companies, a Los Angeles-based government and development consulting firm. "But here's the good news: it's a place to start and maybe it can get expanded. As proposed, I think it would be too minimalistic."
Under the current state 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, flood control, child care facilities, libraries, parks, and solid waste facilities.
Incremental property tax growth can be used to back debt, similar to redevelopment, which was terminated in 2012.
Redevelopment did not require any voter approval; IFDs require two-thirds voter approval to form and also for the IFD to issue bonds.
Brown proposed expanding the types of projects that IFDs can fund, lowering the voter approval requirement to 55%, and allowing IFD projects to overlap with former redevelopment project areas.
The proposal would be included as part of the budget process in a trailer bill. Brown's administration must submit "trailer bill language" to the legislature by no later than Feb. 1, according to H.D. Palmer, spokesman for the state's Department of Finance.
Brown's proposal, dubbed "IFD reform lite" by Kosmont, is a less aggressive version of similar legislation lawmakers proposed following the statewide shutdown of redevelopment agencies under 2011 legislation.
"Primarily it reduces the voter requirement from what's an onerous 66% or two-thirds, to a less, but still onerous 55%," Kosmont said.
Sen. Lois Wolk, D-Davis, introduced a bill last year that would go a step further than what the governor has proposed. Her Senate Bill 33 aims to make IFD law more usable by completely removing the voter requirement.
It would also extend the term of IFD bonds from 30 years to 40 years and create accountability requirements for the IFDs.
Wolk's bill had passed the Senate and was making its way through the Assembly last year before being put on hold in September.
However, the bill is still active and can be taken up at any time, according to Melissa Jones-Ferguson, a spokesperson for the senator.
Wolk said in an emailed statement that she is pleased that the governor has proposed expanding local governments' access to IFDs.
"Local governments need additional tools to help finance and deliver needed infrastructure throughout the state," Wolk said. "That is why I authored Senate Bill 33, to enable local governments to pay for public works projects using IFDs, a rigorous, flexible financing tool that doesn't affect the state's general fund or school districts' share of property tax. I look forward to continuing to work with the Governor's office moving forward."
Wolk had a proposed a similar bill in 2012 — SB 214 — that was vetoed by the governor, along with other redevelopment bills that made it to his desk.
As new redevelopment bills made their way through the legislature last year, Brown
The League of California Cities has supported Wolk's SB 33, as well as a few other bills that aim to revive local government development financing.
While Brown's proposal does not match provisions in Wolk's bill, it's positive in that the governor has at least put out a proposal, said Dan Carrigg, legislative director for the League of California Cities.
"To some extent, what he's proposed is probably an improvement," Carrigg said. "The real question is: how much is that tool going to get used in the form that he has proposed?"
Carrigg said a 55% threshold might be a more achievable hurdle, but it's still a significant requirement.
Mainly because of the supermajority vote requirement, the IFD law has rarely been used in the 30 years it has been in place.
In 1999 Carlsbad formed an IFD to fund the public works for a new hotel next to the Legoland theme park. In 2011, a law created a special exemption allowing San Francisco to create an IFD without voter approval to finance waterfront improvements for the America's Cup sailing races.
The main challenge of putting the creation of IFDs to a vote is that it deals with the idea of "tax increment," which may sound like a tax increase to voters, Carrigg said.
Instead, tax increment financing, or TIF, is a method that uses future gains in taxes to subsidize redevelopment and infrastructure projects. It does not raise taxes.
Carrigg also points out that the voter threshold statute under IFD law isn't a requirement in the state constitution, since it does not raise taxes.
"You're not asking your voters for a tax increase, all you're doing is capturing some of the growth in an existing tax value in an area and using that to help improve the infrastructure, which we would argue helps increase the value of those investments even more," he said.
The League of Cities has also supported Assembly Bill 1080 and SB 1, which both use tax increment financing and would re-establish redevelopment powers to address community revitalization issues. Neither bill includes a voter approval requirement.
AB 1080, introduced assembly member Luis Alejo, D-Salinas, would allow a city, county or joint powers authority to establish a community revitalization and investment authority that could collect tax increment.
SB 1, introduced by Senate President pro Tem Darrell Steinberg, D-Sacramento, would create Sustainable Communities Investment Authorities that could use property tax increment and allow local governments to create an authority by entering into a joint powers agreement. They would also be able to use current local redevelopment law, minus the payments of tax increment from other taxing entities, such as schools.
The governor did not address re-establishing redevelopment in his budget proposal.
He did, however, mention the importance of continuing the redevelopment agency dissolution process, and included several related requirements for cities and counties that must be met before establishing an IFD.
Requirements include "conclusion of any outstanding legal issues between the successor agency, the city or county that created the RDA, and the state," according to Brown's budget proposal.
There are more than 100 active lawsuits challenging various aspects of the dissolution of redevelopment, according to the Brown administration.
Kosmont said he didn't know whether the state is in the clear yet regarding the dissolution process, and whether it might take another year or so.
"I just can't tell if — for lack of a better way of saying it — if based on current progress, that the redevelopment dissolution jail term is going to be commuted early or if it's going to keep going, I just don't know," he said.
Under Brown's proposal, the revised IFD tool would only be available to cities and counties that show that they have returned the cash assets of their former redevelopment agencies to the correct taxing entity, complied with all of the State Controller's audit findings, and concluded any outstanding legal issues relating to the former RDAs.
In addition IFDs, Brown also listed other tools available to local governments, which include issuing general obligation bonds, lease revenue bonds, and increasing local tax rates.
Language for the bill should be up on the state's Department of Finance website in the next two weeks, according to the department's spokesperson.
In May Brown will release a revised budget proposal for the coming fiscal year that must be passed by June 15, to take effect July 1.
