Economic Development

Let's Do Better With Economic Development Incentives

by Jim Simon

by Jim Simon

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Yesterday, I was fortunate to be the instructor of CALED’s Advanced Certificate course on Business Retention and Expansion, where we spent a full day diving into the purpose, structure, and best practices for retaining businesses.  Studies have demonstrated that roughly 4 out of every 5 new jobs created in a city are a result of existing business growth.  The overwhelming number of businesses that close are not a result of failure, but rather a result of acquisitions, consolidations or other corporate decisions.  Yet, we continue to hear about incentives for new businesses as critical to economic development success.  

I get that, after all, you don’t break out the “big scissors” when a business stays in town for another year, and it would be hardly exciting to run for city council on the record that during your tenure, 99% of the businesses stayed around.  So incentives, particularly financial in terms of rebates, continue to be the area of effort and investment.  Few EDOs talk about the amount spent on business retention versus incentives for recruitment.  From Amazon HQ2 to Foxconn and others, throwing tax dollars at a project seem to be the measure of impact.

As evidenced by the Brookings March 2018 study, these incentives are missing the greater need beyond the project they aim to benefit.  For example, the study found that poor Latino and Black residents were left out of any benefit from the resulting project, that workforce investments for the existing community were rare, and the existing workforce rarely benefited from incentives. Meanwhile, nearly billions are being spent annually by communities across the country under the banner of necessary economic development. 

These sobering realities were startling for our group of 3 dozen economic developers, but rather than simply feeling incentives are not good policy, we need to be seeking much better parity between these incentives and the fundamental purpose for economic development to begin with.  Certainly it’s difficult, particularly where tax revenue growth is often central to the focus for California communities, but I see an opportunity for California to do better.  Irlanda Martinez and I will be back at Fresno State for CALED’s Keys to Local Economic Development course on October 21-24, 2019 where we will look into how communities are getting more results and the best practices that can be employed in your communities.  Hope to see you there!

SB2 and You: What you need to be ready

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SB2 was first introduced in 2017 as one of 15 bills in the 2017 Legislative Housing Package. In it’s design to create a permanent funding source for affordable housing, the bill has led to $128 million becoming available in funding and technical assistance grants to help local governments implement activities aimed at addressing the challenges of our housing crisis, which include updates to general plans, local process improvements, updates to zoning ordinances, infrastructure financing plans, and pre-approved architectural and site plans, among many others.

With applications for Technical Assistance grants due November 30, 2019, RSG wants to make sure that you are ready to take advantage of this funding source.  Per the Housing and Community Development Department, applicants must meet all of the threshold requirements for participation in the program as provided in the grant guidelines and listed below:

  • Housing element compliance – The applicant must have a housing element that has been adopted by the jurisdiction’s governing body by the deadline specified in the NOFA and subsequently determined to be in substantial compliance with state housing element law pursuant to Gov. Code Section 65585.

  •  Annual Progress Report (APR) on the housing element - The applicant must submit the APR to the Department as required by Gov. Code section 65400 for the current or prior year by the date established in the NOFA.

  • Nexus to accelerating housing production - The applicant must propose and document plans or processes that accelerate housing production. The application must demonstrate a significant positive effect on accelerating housing production through timing, cost, approval certainty, entitlement streamlining, feasibility, infrastructure capacity, or impact on housing supply and affordability.

  • State Planning and Other Planning Priorities - Applicants must demonstrate that the locality is consistent with State Planning or Other Planning Priorities. Consistency may be demonstrated through activities (not necessarily proposed for SB 2 funding) that were completed within the last five years.

 Whether it be an inquiry as to if your project qualifies or a question about the application process, RSG is here to answer all your questions! Contact Irlanda Martinez (imartinez@webrsg.com) with any inquiries regarding SB2.

Are Density Bonuses a Solution to the Housing Crisis?

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As the housing crisis remains front and center in legislative talks at both the state and local level, the presence of density bonuses can be seen in housing bills AB1763, AB1279 and SB50.  These three bills could ultimately increase density bonuses, concessions and incentives, overall allowing for the easier development of housing and possibly enticing developers into creating more affordable housing.  Below we have provided a brief overview of how density bonuses play a role in each bill.

  • AB1763 (Chiu; Planning and zoning: density bonuses: affordable housing). This bill would require a developer be awarded additional density bonuses, incentives, concessions, and height increases if 100% of the units in the development are targeted to lower income households.  Specifically, the development would now receive 4 incentives and concessions from what used to be only 3, a density bonus that is now 80% of the number of units for lower income households of which it used to be only 35%, and height and floor area increases and elimination of maximum density for those developments within ½ mile of a major “transit stop” or “high quality transit corridor”. 

  • AB1279 (Bloom; Planning and zoning: housing development: high-resource areas). This bill would require the Housing and Community Development Department to identify, with the feedback of stakeholders, areas that are considered low inclusion areas and label them as “high resource” areas.   Development projects occurring in this “high-resource” areas would then be deemed a “use by right” making them eligible to receive increased density bonuses.  Zoning changes would also allow for the development of multi-family homes in previously single-family zoning areas and would offer density bonuses to developers who include additional affordable units in residential use projects located in prime development locations.

    Density bonuses along with other incentives or concessions would also be granted for development projects in which some of the units offered were at an affordable housing cost, or affordable rent accessible to lower income and very low-income households based on the area median income.  This bill would also render the “use by right” development projects exempt from required CEQA approval.

  • SB50 (Wiener; Planning and Zoning: housing development incentives).  This bill will require local governments to grant “equitable communities incentives,” which reduce local zoning standards in jobs-rich and transit rich areas, if the development meets certain requirements including the residential development is either a jobs-rich housing project or transit rich housing project, located on a site that is zoned to allow “housing as an underlying use” in the zone, complies with all applicable labor, construction, employment, and wage standards as well as complies with all architectural design, demolition, impact fee, and community benefit standards, requirements, and/or prohibitions imposed by the local government, and remains affordable for 55 years for rental units and 45 years for units offered for sale, or abides by local inclusionary ordinances.

    Depending on whether a development is jobs rich or transit rich, the “equitable communities incentives” offered could include density waivers from maximum controls on density, minimum parking requirements greater than .5 parking spaces per unit, maximum height requirements less than 55 feet, maximum floor area ratio requirements less than 3.25, and up to three incentives and concessions under density bonus law. 

While SB50, AB1279 and AB1763 all aim to address the undeniable housing crisis through the use of density bonuses, some cities and counties may be wondering at what cost.  These bills are still moving through the legislative process.  If you’d like more information or to provide feedback to the legislature, please contact RSG Principal, Tara Matthews (tmatthews@webrsg.com).

SB 128

Enhanced Infrastructure Finance Districts, commonly known as EIFDs, were revamped by SB 628 in 2014 and AB 313 in 2015 and are being revamped again in 2019 through SB 128. EIFDs became legislatively popular as a “replacement” for redevelopment in the wake of dissolution, as they allow for multiple cities, counties, or agencies to form Joint Powers Agreements (JPAs) in which each cooperating entity pledges a portion of its share of tax increment to issue debt and fund infrastructure projects that will have widespread community benefit. Examples include  West Sacramento's Bridge District Specific Plan and the Los Angeles River Revitalization.

SB 128 is a useful piece of legislation because while EIFDs currently require no voter approval in formation, there is a 55% voter approval requirement to authorize bonds. Because Tax Increment Financing (TIF) is not approving a new tax, simply an alternate use of existing tax revenues (usually with direct benefits to taxpayers), voter approval becomes an extra burden when EIFDs attempt to issue debt. There is a public hearing process for EIFD formation that allows taxpayers to involve themselves early in the progression of the EIFD, which this legislation does not remove.  

SB 128 is a simple change to existing law, but one that should create an easier more streamlined process that will hopefully increase the use of EIFDs to fund infrastructure projects and economic development throughout the state.

CALED “State of California Economic Development”

With changes in resources and economic trends, the approach to economic development efforts in California have changed significantly in recent years. Prior to 2012, cities could rely on tax increment funding from Redevelopment Agencies (RDAs) to fund economic development. With Redevelopment dissolution, cities now must get more creative with limited funding sources. These trends have made this a challenge for local authorities. Economic development efforts have become more concentrated, shifting the focus from programs to projects. Furthermore, cities rely more heavily on regional economic development efforts or even developing multi-city strategies to market an area. Additionally, multiple partners, investors, and stakeholders, have increased transparency, which can lead to more complexity to getting a project done.

Nevertheless, local governments can do a lot to support economic growth in their jurisdictions, the following are some examples:

  • When selling city owned property, officials should aim to leverage those assets for the greatest economic impact, rather than just seeking the highest sale price.

  • With assets they continue to hold, local governments should also evaluate opportunities to leverage them for greater economic benefit.

  • Cities need to understand what it means to be “business friendly” and seek process improvements in order to attract more businesses to locate in their city.

  • Cities should embrace housing projects at all income levels. Recognizing the role that housing affordability plays in attracting and retaining a talented workforce, not to mention helping people improve their quality of life, some cities have started to warm up to housing developments, but many are still slow to react.

  • Cities should be aware of legislation at the state level that may affect resources and opportunities, and make their voices heard in order to inspire legislators to add tools for local economic development.

What is the Return on Investment for Infrastructure Improvements?

Infrastructure improvements are a sizable investment of public funds - it makes sense that evaluating the return on investment is a good first step in determining how communities prioritize these funds.   RSG recently completed an economic study assessing the impacts resulting from different rail improvement options along the Carlsbad portion of the Los Angeles-San Diego-San Luis Obispo (LOSSAN) corridor.  This study calculated the economic/fiscal effects of the different options on regional economic output including:

•    Jobs created
•    New development
•    Property values/taxes
•    Sales taxes
•    Value of lives saved/accidents avoided
•    Value of reductions in noise and traffic

RSG’s study is part of an overall Feasibility Study prepared by the San Diego Association of Governments (SANDAG).  A link to the City of Carlsbad website that provides an overview of the Study (as well as links to the actual reports) is provided below:
http://www.carlsbadca.gov/news/displaynews.asp?NewsID=1321&TargetID=61
 

Written by Hitta Mosesman
 

Small Town Revitalization

A feature in this month’s Planning magazine highlights the efforts of nonprofit regional planning organizations to revitalize small towns in New York State. These organizations seek to bring people back to cities and walkable communities with “good, urbanistic street networks and underutilized building stock.”

Regional planning organizations provide services to municipalities, such as demographic and issues research, strategic planning, and grant writing. The priorities of the organizations described in the article are to keep and attract young people while also preserving an area’s character.

Despite the vast distance that separates them, many California towns have much in common with their New York counterparts. Many were founded early, before automobiles, which means their development patterns could be similar. Similarly, an historic, underutilized building stock presents an asset for towns on both coasts. With such shared features, successful strategies for revitalization are more similar than one may initially expect.

If your town might be interested in developing a revitalization strategy, please contact RSG to help you through the process.

Written by Dima Galkin, an Associate at RSG

Build It, and They Will Prosper?

Copyright 2016 Kelly Wilson, Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Copyright 2016 Kelly Wilson, Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Do sports stadiums generate net economic benefits for the community? 

The consensus is generally no. Economists say that sports teams spur little new spending in the community. 

While stadiums are limited in use, politicians and developers claim that a stadium is a win for local communities. Proponents say that sports facilities improve the local economy by creating construction jobs, generating new spending, attracting tourism and multiplying local income and job creation. Advocates argue that new stadiums spur so much economic growth that subsidies are offset by revenues from ticket taxes, sales taxes, and property tax increases.

These arguments may overstate the benefits of stadiums. Economic growth takes place when a community’s resources become more productive. Increased productivity can arise from economically beneficial specialization by the community or from local value added. Building a stadium is good for the local economy only if it is the most productive way to make capital investments and use its workers.

Still, there are non-economic benefits, such as community pride and cultural activity. Some projects, such as the NFL Rams’ return to Los Angeles, which occurred with limited financial obligations for Los Angeles taxpayers, provide a valuable lesson in how to attract sports teams and new stadiums based on a market’s strength rather than subsidies.

Calculating the economic and fiscal impacts of a development is crucial when deciding on whether or not a project should break ground. RSG has extensive experience in projecting tax revenue from projects and can help determine if a sports stadium or other large municipal investment would be a good idea in your community!

Written by Jeff Khau, a Senior Analyst at RSG

Could Now Be the Time for a CRIA?

Copyright American Planning Association Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Copyright American Planning Association
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

AB 2492 extends Community Revitalization and Investment Areas to wealthier regions of the state, without much change to financial benefits of these tax increment financing (TIF) districts.

Last month, RSG discussed the limited financial benefits of Enhanced Infrastructure Financing Districts, one of several newer tax increment financing tools that provide limited benefits similar to redevelopment financing. Community Revitalization and Investment Authorities (CRIAs) are similarly structured and provide these tools AND opportunities for other community development tools. These characteristics have attracted some of our clients to evaluate their benefit. As it turned out, most of California could not benefit from a CRIA given the narrow socioeconomic requirements. 

However, just this week, the Governor signed Assembly Bill (AB) 2492 (Alejo) into law that makes changes to CRIAs, so we took a hard look at these changes and how they affect cities looking for help on community development projects. As it turns out, AB 2492 primarily expands the net on eligibility for CRIAs, but fails to provide much needed new capital to communities.

Here are the main changes:

  • More communities qualify – a greater number of lower income neighborhoods qualify because AB 2492 allows wealthier areas of the state to identify CRIAs in areas that have a median income less than 80 percent of the city or county median income, not just the state;
  • More flexibility - Added flexibility in measuring what parts of communities qualify by allowing the use of census tracts and/or block groups;
  • Any California Environmental Protection Agency-designated “disadvantaged community” automatically qualifies for CRIA - this certainly helps some very low and low income neighborhoods that would otherwise not qualify under the old law; and
  • Some added financial benefit – in addition to tax increment generated by the CRIA, special districts may now have the authority to allocate funds from certain tax and assessment revenues to the CRIA.  Cities and counties already had this ability.

We would love to see more done to make these districts more attractive by:

  • increasing the amount of tax increment revenues,
  • lowering the costs for startup, and
  • providing some other efficiencies like those RSG outlined in last month’s article for EIFDs. 

It’s important to note -  qualifying alone does not mean this tool is right for you.  It’s important to look at the financial feasibility carefully before jumping ahead.

Written by Jim Simon, a Principal at RSG

Boomerang Funds and Affordable Housing – What does it mean?

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Assembly Bill 2031 allows “Boomerang Funds” to be used as a revenue source to finance affordable housing development through bond issuance, as loan collateral, or on a cash basis. Boomerang Funds include ALL property tax revenue, both pass-through payments and residual RPTTF, received by a City or County as a result of redevelopment dissolution. Boomerang Funds are diverted from the general fund into a separate fund for affordable housing purposes.

The good news is that there is a new way to issue bonds for affordable housing development! Here are the main takeaways from this new tool as it’s currently written:

1.    Creation is Easy - A City or a County that has a Successor Agency who received its Finding of Completion may create an affordable housing special beneficiary district by adopting a resolution or an ordinance. No large reports are required, the district is co-terminus with the jurisdiction’s boundaries, and formation of a board is composed of three members of the city council/board of supervisors, the treasurer, and a community member.

2.    Largest Beneficiary – Counties will likely be the largest beneficiary since they receive not only their share from their redevelopment project area, but also pass-through and residual revenue from other project areas throughout the County. Cities that have a high tax rate or collect a large portion of residual revenue may also benefit from this tool.

3.    Not Many Expenditure Requirements – Monies must be spent on promoting affordable housing development for moderate income families and below. There are no proportionality or expenditure requirements as long as the board deems that the use promotes financing development of affordable housing within its boundaries.

4.    Ability to Issue Bonds – The beneficiary district may issue bonds for affordable housing purposes without voter approval or an asset as collateral. The term of the bonds may not exceed 20 years from the date of the Finding of Completion or 90 days from the dissolution of the successor agency. Typically, an agency would want at least 10 years remaining to be able to fully amortize the costs of issuing the bonds but a shorter period may still be advantageous depending on available revenues. And a general rule of thumb is that for every dollar of debt financed the issuer will need a dollar and twenty-five cents of available revenue (a 1.25 coverage factor).

This tool may prove useful for those Cities and Counties that receive a large portion of residual revenue and pass-through revenue. A major policy decision will center around a jurisdiction’s desire to divert general fund revenue for affordable housing purposes.

Written by Tara Matthews, a Principal at RSG