The Demise of California Redevelopment Law, and the Repackaging of Tax Increments for California Municipalities

by Frank Zerunyan

originally posted on PUBLICCEO, March 24, 2015

On June 28, 2011, Governor Jerry Brown signed into law two bills that effectively dissolved all California Redevelopment Agencies (RDAs). Through the California Redevelopment Association and the League of California Cities, local governments challenged the constitutionality of the two laws (ABx1 26 and ABx1 27) at the California Supreme Court. Unfortunately for local governments, the Court ruled in favor of the state, holding that what the state created it could legally dissolve. Despite several attempts to delay and change the rules of dissolution, there has been no indication that the Governor or the Legislature is intent in changing the status quo.

The California Legislature enacted the Community Redevelopment Act in 1945. The Act permitted cities and counties to set up redevelopment agencies (RDAs) in order to assist local governments in eliminating blight through development, reconstruction, and rehabilitation of residential, commercial, industrial, and retail districts.  The Act was codified in 1951 and made part of the California Constitution, as well as the Health and Safety Code. At that point, it became known as the Community Redevelopment Law (CRL). The most important component of the CRL was the authority of local governments to use future increases in property taxes to subsidize or pay for current infrastructures and improvements. Tax increment financing (TIF) made it possible for local governments to use this public financing method to pay for community improvement projects.

Since the dissolution of Redevelopment, California finds itself in a struggle to improve and build the new infrastructures necessary for its growing population. Governor Schwarzenegger’s administration had estimated the need to invest more than $750 billion dollars by 2020. Organizations such as California Forward, the California Economic Summit, the League of California Cities, and the California Contract Cities Association have all advanced reforms to help state and local governments address the infrastructure needs in the absence of redevelopment.

Many attempts to revive or recreate redevelopment through legislation were discouraged, and in some instances vetoed, by the Governor. At last, in September of 2014, the Governor signed two bills that stand out in the context of infrastructure finance. SB 614, authored by Senator Lois Wolk, authorized local agencies to annex disadvantaged unincorporated communities to provide additional options for financing infrastructure. Perhaps more importantly, SB 628, authored by Senator Jim Beall, authorized the creation of enhanced infrastructure finance districts (EIFDs).

SB 628 provides local communities with the legislative tools needed to invest in roads, sidewalks, sewage treatment, water, flood control, parks, brownfield restoration, mass transit, affordable housing, and transit oriented development. Specifically, SB 628 authorizes the legislative body of a city or county “to establish an infrastructure financing district [IFD], adopt an infrastructure financing plan, and issue bonds, for which only the district is liable, to finance specified public facilities upon approval by the 2/3 of the voters.” The 2/3 voting requirement applies to both the establishment of the IFD and to the issuance of bonds.

Most significantly, SB 628 authorizes the legislative body of a city or county “to establish an enhanced infrastructure financing district [EIFD], adopt an infrastructure financing plan, and issue bonds, for which only the district is liable, upon approval by 55% of the voters.” The voting requirement here is to issue bonds and not for the authority to establish the district. This appears to be the major distinction between an IFD and EIFD. One or more EIFDs may be created within a city or county for the purpose of financing the construction or rehabilitation of a wide variety of public infrastructures.

An EIFD is authorized to fund public infrastructures with the property tax increment of the local taxing agencies, which include cities, counties and even special districts, but not schools. EIFD’s are also authorized to combine this tax increment with other sources of funding that are specifically permitted under the law. Under SB 628 an EIFD is a new governmental entity governed by a Public Financing Authority (PFA) comprised of 3 council members or supervisors and 2 members of the public. The PFA develops and implements an Infrastructure Financing Plan (IFP), which describes the public facilities to be constructed and financed. Last but not least, SB 628 requires various certifications and clearances from the state Department of Finance as well as the State Controller.

Critics have called this piece of legislation “a half loaf” with little potential to help local governments build infrastructures. It appears however that there is a genuine interest on the side of the state, as well as local municipalities, to implement the law after some minor clean up legislation that was introduced this week in AB313 authored by Assembly Speaker Toni Atkins. The cleanup legislation clarifies the procedures for housing in a district as well as the autonomy of the EIFD from the legislative body that created it. The city of Los Angeles is one of the first municipalities to express an interest in testing the use of an EIFD for the development and financing of the Los Angeles River project.

The very public processes set in motion by SB 628 appear to promote effective and efficient collaboration to advance communities both large and small. Key attributes of good governance like transparency, participation, accountability and results, make this law not only useful, but vital for the future of California.

 

The opinions expressed are those of the author, and do not reflect in any way those of the USC Bedrosian Center.