Redevelopment Agencies

EIFDs: Redevelopment 2.0?

 

When Governor Brown signed Senate Bill 628 in 2014, many were surprised about the return of tax increment financing in the form of enhanced infrastructure financing districts (EIFDs). But little was known about how the tool works. At RSG, we have looked closely at the details and honestly, we have yet to find many situations where it makes sense for a community to form an EIFD. Why?

First, unless you have a project that can only happen if an EIFD is created, an EIFD doesn’t generate any new dollars. Rather, your city offers up future General Fund dollars to get back those same dollars for investing into projects.

Second, school districts cannot participate – so in many cases, the largest share of property tax is unavailable. Getting other taxing entities to participate can be a challenge at best.

Third, forming an EIFD is an onerous process, which RSG estimates costs at least $500,000 from…you guessed it – the General Fund.

Finally, everything you fund is built at prevailing wage; the fiscal benefits of government underwriting don’t get stretched too far when you are paying 25% or more for added labor costs. 

To be candid, EIFDs are just not that great of a tool. Not yet, at least. In my next post, I’ll offer some ideas for improvement. I hope the law is cleaned up in the upcoming legislative sessions. If not, I suspect only a few of these will be created. 

Written by Jim Simon, a Principal at RSG

The Governor’s 2015-16 Budget Summary and Implications for RDA Dissolution

In 2011, Governor Jerry Brown proposed the elimination of about 400 redevelopment agencies across the state.  The redevelopment agencies utilized   property tax revenue to invest in communities, spur economic development, eliminate blight, and redevelop disadvantaged areas.  Dissolution of the redevelopment agencies sought to increase funding for school districts and other local agencies by diverting it away from redevelopment agencies. Since 2012, successor agencies have been winding down the affairs of the redevelopment agencies.

From 2011-12 to 2013-14, about $990 million in property tax revenue has been returned to cities, $1.3 billion to counties, and $430 million to special districts.  The Governor’s office anticipates that in 2014-15 and 2015-16 combined, cities will receive an additional $580 million, counties $660 million, and special districts $200 million;  with ongoing property tax revenues of more than $900 million annually distributed to cities, counties, and special districts.  This money could be used by local governments to fund police, fire, and other critical public services.

According to the 2015-16 Budget Summary released January 9, 2015, the dissolution process has been “complex and time-consuming,”, but has also provided substantial funding for local governments to use on core public services.  The Governor’s office suggests that the dissolution process has progressed to the point where the State can make legislative changes to finalize dissolution and remove the State from the process.  

The Administration hopes to introduce legislation that will:

•    Minimize the potential erosion of property tax residuals being returned to the local affected taxing entities. 
•    Clarify and refine various provisions in statute to eliminate ambiguity.
•    Maintain the expeditious wind-down of former RDA activities while adding new incentives for substantial compliance with the law.
•    Assure that approved enforceable obligations will be paid.

More specifically, the Administration’s proposed legislation will introduce or clarify the following:  

•    Successor Agencies will submit one ROPS per year instead of two.
•    Create a “Last and Final” ROPS process whereby a Successor Agency can submit one last ROPS to carry it through to dissolution of the Agency.
•    Clarify that former tax increment caps and RDA plan expirations no longer apply
•    Reentered agreements that are not for the purpose of providing administrative support activities are not authorized or enforceable. 
•    Litigation expenses associated with challenging dissolution determinations are not separate obligations, but rather are part of the administrative costs of the successor agency. 
•    Contractual and statutory pass-through payments end upon termination of all of a successor agency’s enforceable obligations. 
•    Finance is exempt, as provided in existing law, from the regulatory process. 
•    County auditor-controllers’ offices shall serve as staff for countywide oversight boards. 

In May the process will be revisited with specific legislation likely.  We will provide updates as they happen. Also, check back soon for a more thorough analysis of some of the proposed legislative changes.