Finance

Tax Credits - Income Averaging

One of the most recent changes to TCAC’s regulations is allowing income averaging. For those that are unfamiliar with this change, below is a simple breakdown. Currently, TCAC limits affordability to 30-60% of the area median income (“AMI”). The AMI restricts how much the project can rent the units for. With the new regulations, projects can include limits that exceed 60% AMI, up to 80% AMI. However, the average AMI requirement for all units has not changed. So, developers will have to compensate the higher 61%-80% AMI units, with a lower AMI on other units.

With this flexibility the developer can get creative and potentially improve their projects financial feasibility. The new change can bring in more operating income. The additional income will support more debt and help close the gap in project financing, or reduce the soft financing that the project may require from a public jurisdiction. How the developer ultimately uses this regulation change to revise the projects affordability mix is up to them. However, this appears to be a very powerful tool for proposed developments with project-based vouchers.

 

SB 711 - Providing EIFDs/CRIAs a Larger Share of Property Taxes

RSG is one of the most active consultants working on a variety of area and project based tax increment financing districts in California.  But despite the interest in EIFDs, CRIAs and other tools, many communities find these fall short of what is needed simply because their own share of the tax levy is so small – often less than 10 cents on the dollar.  What gave rise to redevelopment agencies was the restriction on how cities could raise property tax rates after Proposition 13; cities found that redevelopment allowed more taxes to be retained and invested locally for projects to grow the economic base, provide the largest source of affordable housing assistance outside of tax credits, and fund all types of infrastructure. The newer tools are less helpful because they are limited to how much a local agency may be able to muster up from its own (often small) share of property taxes.

SB 711 proposes a focused change to this tool by allowing the State’s Strategic Growth Council to decrease what a city (or county) would have otherwise lost to the Educational Revenue Augmentation Fund to provide a larger share of the property taxes for certain TIF districts.  Expanding EIFDs and CRIAs by creating a more useful revenue stream will help the state achieve GHG and VMT goals, while making local communities healthier, affordable and prosperous.  ERAF took anywhere from 25% or more of a city or county’s share of the local taxes away – permanently.  This could be a big deal if communities get behind this. Take a look at the sponsor’s SB 711 fact sheet.  The California League of Cities are seeking support from local communities. 

The Day After Thanksgiving

 

Often referred to as Black Friday, the day after Thanksgiving used to be the busiest day of the year for shopping in retail stores. It was the launching point for the critical holiday shopping season, which accounts for 30% of annual retail sales. Recent trends show decreasing store turnout for the retail market’s biggest shopping weekend – from 133 million people shopping in stores in 2014 to 102 million in 2015

Now consumers seem to be “navigating from the physical to the digital,” according to Fortune. Online shopping grew 19% from 2014 to 2015 for the holiday weekend, reaching $6.1 billion in 2015.

While huge numbers of people still shop in stores, online shopping is a trend that continues to grow faster each year. Black Friday is still a big event, but shoppers research and buy products online in ever-increasing numbers.

Will we see another large drop-off in store shopping this year? If recent trends are an indicator, shoppers will fill their mobile shopping carts, and Black Friday will just be another option. What could this mean for local sales tax revenues and the retail real estate market?

Written by Brett Poirier, an Analyst at RSG

Using Cap-and-Trade Funding to Address Homelessness

 

Homelessness is a growing concern. California has 20 percent of the country's homeless population, almost 114,000 people. Most of California's homeless people are in Los Angeles County, which has more than three times the homeless population of the Bay Area. L.A.'s chronically homeless population has grown 55%, to 12,536, since 2013. Almost two-thirds of California’s homeless people sleep outside with no shelter.

Cap-and-Trade funds can help address homelessness and affordable housing. Los Angeles was awarded $64.6 million in grants in zero-and low- interest loans from the state’s cap-and-trade fund to build eco-friendly affordable housing projects near job centers and transit in order to reduce car trips. The projects include four homeless housing developments totaling 348 units, and two developments with a combined 205 units that will be offered at affordable or below-market rates.

Does a homeless shelter create net benefits for the community? To learn more about how your local agency can access cap-and-trade funds, contact the staff at RSG today.

Written by Alexa Smittle, a Principal at RSG, and Jeff Khau, a Senior Analyst at RSG

The Future Of Cap-And-Trade

On January 7, 2016, Governor Jerry Brown presented a cap-and-trade expenditure plan for Fiscal Year 2016-17, totaling $3.1 billion. Because the carbon market appears to be underperforming, some legislators question whether the program should extend beyond its sunset in 2020.

The cap-and-trade program in California is contentious in many ways. While many can agree on the end goal of reducing carbon emissions, there is a financial problem when the carbon market is generating inadequate revenue. The most recent auction in May was expected to yield $150 million in revenue, but generated $2.5 million after only 11% of the available credits were purchased.    

As a result, big plans to spend cap-and-trade revenue were scrapped. The California High-Speed Rail Authority, which receives 25% of carbon sales proceeds, is the largest beneficiary of cap-and-trade dollars and relies on auction proceeds to fund rail construction. Without these funds, high-speed rail’s future looks bleak.

Local governments are affected as well, because a percentage of carbon proceeds helps fund grants for affordable housing (20%) and intercity rail projects (10%). Cities looking to build affordable housing or break ground must pay for the projects themselves or seek other funding sources.

Supporters of cap-and-trade and high-speed rail say the blip in May does not mean dismal failure. They believe that the lack of demand for carbon credits is proof that the program is actually successful. The cap-and-trade law, signed in 2006, proposed to reduce greenhouse gas emissions to 1990 levels by 2020. Less carbon credits on the market means less carbon is emitted, and carbon emissions in California have been falling at a high rate.

Opponents of the program claim that the program will fail as a surplus of carbon credits reduces their value. Because market forces determine the price of each carbon credit, numerous market failures can bring prices to an artificially low point. Other critics call the program unconstitutional, because it functions as a tax, which requires a two-thirds vote by the Legislature to be approved.

The program does not sunset until 2020, but today’s successes and challenges of the program will dictate whether the law will extend past 2020.

Written by Jeff Khau, a Senior Analyst at RSG

Dissecting Brown’s Budget

 Image courtesy of http://calbudgetcenter.org/

Image courtesy of http://calbudgetcenter.org/

Governor Brown and the California legislature approved a $122.5 billion budget to fund state operations for 2016-17. The budget allocates $400 million for affordable housing construction, increases preschool/child care funding by $500 million, increases reserves by $2 billion, invests $200 million in college readiness programs, and redirects $2 billion in Proposition 63 mental health funds to provide housing for mentally ill homeless people.


Putting an extra $2 billion into the rainy day fund suggests that state lawmakers are weary about a looming recession. There was a notable focus on alleviating poverty and income inequality in this year’s budget process. Brown and lawmakers failed to agree on a spending plan from the state’s greenhouse gas reduction fund, also known as the cap-and-trade fund, and failed to reach a deal on funding to fix crumbling roads and highways, which they have labeled as a top priority for several years.


To learn more about how the state budget impacts your local community and how you can make the most of it, contact RSG.


Written by Jeff Khau, a Senior Analyst at RSG

 

San Carlos Breaks Ground on a Landmark Hotel

 

The City of San Carlos recently broke ground on a new four-story, upscale, extended-stay Landmark Hotel. The hotel will include 204 guest rooms with individual kitchens, outdoor patio areas with a pool and sport court, fitness and laundry center, and a meeting room.

 

 

The hotel will be located near the City’s gateway entrance off the 101 freeway. It will provide much needed transient occupancy tax revenue to diversify the city’s tax base and increase revenues to fund services for the community. All buildings previously on the site have been demolished, and the entire project is expected to be completed in August 2017

RSG was involved in every step along the way from site assembly and acquisition, drafting purchase and sale agreements, relocating existing businesses, developer negotiations and agreements, and obtaining approval from local agencies. Call us to find out how we can facilitate your next project.

Written by Suzy Kim, a Senior Associate at RSG

Are CRIAs or EIFDs Right for You?

Community Revitalization and Investment Authorities (CRIA) and Enhanced Infrastructure Financing Districts (EIFD) are receiving a lot of hype as the “new” redevelopment options. While they offer many valuable tools, they have many restrictions. CRIAs and EIFDs are not one-size-fits-all solutions and may not work for every community.  

The major benefit is the ability to collect tax increment revenues and issue bonds to fund projects such as infrastructure and building improvements, environmental remediation, business assistance, and affordable housing. Unlike EIFDs, CRIAs allow the use of eminent domain, but they also mandate a 25% set-aside for affordable housing.  A big hurdle is that either your agency’s share of property tax must be large enough to fund desired projects or other taxing agencies must agree to contribute. Lastly, CRIAs can be challenged by a protest vote, and EIFDs require voter approval to issue bonds

The main questions to consider are:

•    Do CRIAs or EIFDs fund the projects we need?
•    Are the proposed boundaries eligible?  
•    Will my agency’s share of property tax revenue be enough to fund projects, or will there be enough support from other taxing agencies to share the cost?
•    Will elected leaders and the community support a new CRIA or EIFD?

RSG can help you determine which tool is best, based on your area’s eligibility and needs.  Call us to learn more.

Written by Suzy Kim, a Senior Associate at RSG

A Fresh Look at Economic Development

The Brookings Institution recently released a report with guidelines to prioritize growth, prosperity, and inclusion in economic development efforts. 

The goal of economic development, should be to “put a regional economy on a trajectory of higher growth that increases the productivity of firms and workers and raises standards of living for all, thus achieving growth that is robust, shared, and enduring,” according to the report. Economic development should prioritize building strong business ecosystems for core industries, improving the productivity of firms and people, and facilitating trade. These are the market foundations from which growth, prosperity, and inclusion emerge. The report recommends five action principles:

1.    Set the right goals, 
2.    Grow from within, 
3.    Boost trade, 
4.    Invest in people and skills, and
5.    Connect place.

The report has already received coverage from outlets with broad distribution, like CityLab, which said that the report calls for a paradigm shift in economic development thinking, away from competitiveness and growth for growth’s sake, and toward a more inclusive prosperity. Such coverage is important for the ideas and approaches to spread and be adopted more widely.

At RSG, we have long focused on making growth equitable for all community members: residents and businesses. Our economic development analyses incorporate Brookings’s action principles. Contact us to discuss how your city can achieve inclusive growth and prosperity.

Written by Dima Galkin, an Associate at RSG

An Introduction to Property Tax

Property taxes give state and local governments a dependable source of revenue to help pay for public schools, roads, parks, public safely, and government administration. Levied at every level of local government, from state to county to special districts, property taxes pay for public services. These taxes are often complex and not well understood.

Public schools are often the biggest line item for receiving funding from property taxes. Because the U.S. government contributes about 10 cents to every dollar spent on K-12 education, most of the money that pays for education comes from state and local governments. Thus, schools are highly dependent on the property wealth of a community.

In California, property tax is one of the largest taxes paid. Sometimes, Californians pay more in property taxes and charges than they do in state personal income taxes. Property tax is unpopular among taxpayers, partly because it varies between regions. Different assessments for similar properties seem unfair, and the tax may burden fixed-income property owners in high-growth areas.

RSG analyzes, projects, and explains property tax revenues for local government organizations to assist with budgeting, upholding the specifications in their tax sharing agreements, and presenting information to the public.

Written by Evanne Holloway, a Research Assistant at RSG