Economic development comes in many shapes and sizes. Depending upon the makeup of your community, it could use any one, or possibly a combination, of the following:
- Infill residential or mixed-use development
- Conference center and hotels
- Renovating or rebuilding a commercial zone, your downtown or “Main Street”
- Improved community infrastructure (roads, libraries, utilities including improved access to the internet and recycled water, etc.)
To finance such improvement though, you are going to need a financing tool. One option is to create a Special Financing District (SFD}:
- Community Facilities District (CFD) or Parcel Tax
- Business Improvement District (BID) or Property and Business Improvement District (PBID)
- Special Assessment District
- Infrastructure Financing District (IFD) or Enhanced IFD (EIFD)
More information on these are provided in the Details section below. Pay as you go can be a viable option in such situations. If financing is needed, then we turn to financing tools such as these:
- Municipal bonds, in taxable or tax-exempt form
- State Revolving Funds/SRF
- Bank loans
- iBank or other tools available to California agencies
The first phase of any economic development or improvement project is often the most challenging and most crucial step in the process: We must understand the financing options available and choose one.
This involves financial analysis of course, but it also requires an important legal analysis to ensure that the desired financing tool is actually available to your city, town, special district, or other local agency. Is it in your enabling legislation? Are you a charter city or general law city? If the SFD is not available currently, can legislative or legal steps be taken so that the desired tool can be used?
Lastly, you will have to do a practical analysis of the pros and cons of the preferred tool(s), including the all important approval step. Is a vote of the registered voters needed, and at what threshold? Can property owners approve the SFD? Will your community accept the SFD of choice? It is wise to keep your SFD options open throughout the process, and vet the most viable ones.
Here are a few different types of SFDs along with actual project examples to help illustrate how these details come to life in a real scenario.
Above all of the other tools, CFDs are the most flexible. They are credited for having financed hundreds of millions of dollars of California infrastructure over the past few decades, as well as for funding essential public services. Consider the following uses of CFDs:
- Supporting infill development for residential, mixed-use, or commercial projects
- Rebuilding or building new library facilities or other community assets
- Replacing aging utility infrastructure, or adding new infrastructure
- “Pre-financing” for tax increment financing (until the increment is significant}
The Mello-Roos Community Facilities Act of 1982 (i.e., CFO statute) is available for use by cities, counties, and most special districts. Charter cities have the ability to adjust the general CFO law to tailor to certain needs. Because of the CFDs inherent flexibility, the charter cities of Berkeley and San Francisco were able to craft them to finance energy efficiency and alternative energy (solar, wind, etc.) improvements.
Two recent examples of CFDs that I find interesting are:
- San Francisco: To fund the endless list of desired infrastructure, San Francisco is maximizing the conceptual “headroom” of l % (of additional assessed value for taxation) to finance such improvements as transit, parks, and storm drain facilities in an “infill” development setting.
- Santa Cruz County Libraries: The community just voted (70% yes) to form a CFO which will finance $60MM in countywide library facilities, some “pay as you go” but mostly bond-financed.
A property and or business-based business improvement district also has the potential to finance projects. This financing ability, above and beyond the commonly-known funding of annual services, has been available for a few years, though without significant activity. For example, a PBID can fund or finance:
- Parking facilities
- Benches, kiosks, shelters, and signs
- Public restrooms, decorations, parks, and fountains
- Street, sidewalk, and plaza improvements
SPECIAL ASSESSMENT DISTRICT:
Special assessments have been used in California for over one hundred years, financing essential local infrastructure like streets and utilities. This includes Landscape & Lighting Districts, Benefit Assessment Districts, and the well-known 1913/1915 Act Districts.
Recently, assessment districts have financed downtown streetscape improvements and recycled water infrastructure:
- Downtown Burlingame Avenue: An assessment district provided l /3 of the $ l 6MM complete overhaul of the well-trafficked and robust main drag in Burlingame, the wealthy enclave on the San Francisco peninsula. The project included everything from rebuilding utilities to widening and beautifying sidewalks to adding an environmentally friendly storm drain infrastructure. The transformation was nothing short of amazing and the budget contribution provided by the assessment district was a critical component in getting it done.
- Los Carneros Water District: The tried and true 1913/1915 Act Assessment District financed the ability to bring recycled water, affectionately called “purple pipe” water, to a large area of Napa County. The viticultural area is known worldwide for its’ storied vineyards, and it requires water to thrive. The local water supplies had dwindled for many years preceding the project. With its completion, the recycled water will effectively support both current stability and the future economic potential of the area.
The recently-touted EIFD (Enhanced Infrastructure Financing District) is here. The question is, is it useful to you? It is not the same IFD that was enacted a few years ago, but rather SB 628 called for the creation of an essentially new governmental entity that can finance a wide range of improvements both locally and regionally. The list of improvements includes roads, water/ sewer treatment, flood control, transit facilities, libraries and parks. Unlike the old Redevelopment Agencies (RDA), there are no housing set-aside or affordable housing obligations, but the option to fund low and moderate income housing remains. Unlike redevelopment of the recent past, an EIFD may not use eminent domain to acquire property, nor may it buy and sell property.
An EIFD has the power to issue bonds via the use of Tax Increment Financing (TIF). The EIFD may also enact fees, special assessments or taxes, as allowed or by approval of the voters or property owners.
The primary revenue tools and their respective required approval thresholds are:
- TIF/Bonds: 55% voter approval (or landowner if less than 12 registered voters)
- CFD: 2/3 approval required by voters (or possibly landowners if no registered voters)
- Assessment Districts: By majority protest ballot procedure, per Proposition 21 8
- User Fees and Development Impact Fees: By administrative approval (in the same manner as currently provided by any local agency, under guidelines from statutes and Proposition 218 and 26)
An EIFD can be formed by a city or county. Other special districts may voluntarily join the EIFD, with the notable exception of school districts who may never participate in an EIFD. No vote is required to initially form the EIFD, but as highlighted above, a 55% vote is required for bond issuance.
In summary, EIFDs may not divert revenue from any non-consenting municipality or special district. Instead, they provide a specialized tool for local government(s) to install, replace or enhance desired infrastructure, via existing and anticipated new revenues as discussed above.
A municipality with a relatively-high share of total property tax revenues is the most likely candidate for an EIFD.
However, most cities are not that fortunate. In those cases, an EIFD is likely not a suitable financing tool. That said, here are a few projects where an EIFD, perhaps in conjunction with a CFD, could make a project viable:
- A downtown conference center with an adjoining hotel is one project presently under discussion in a city in Northern California, where the city could benefit and thus increment from a larger area can be taken into consideration
- Similarly, a large freeway interchange project in Central California has EIFD potential, positively affecting a large area with at least a nominal level of tax increment
- San Francisco, as a city and a county with a large tax increment share, is also in pursuit of EIFD financings, having already implemented IFD projects.
When considering economic development, there are almost as many financing options as there are desires to improve a community. In the end, the only way to know which tool is right for your situation is to do your research.
Only then will you be in a position to choose wisely ….