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Solimar Research

Can Jurisdictions 'Play Nice' to Reap New Tax Increments?

Josh Stephens on
Dec 13, 2015

For the past three years, California's cities have been like beachcombers, waving metal detectors over miles of beach in the hopes of discovering $5 billion. They haven't had much luck -- until recently. In the past year, though, Sacramento has bestowed upon the state's cities two new funding tools that, while they don't replace redevelopment, have given cities, developers, and other institutions reasons to salivate. 

First came Enhanced Infrastructure Financing Districts. The tool is as complex as its name implies. Allowing for a tremendous number of conditions and caveats, EIFD law (2014's Senate Bill 628) enables jurisdictions to set up special districts from which they can harvest marginal tax increment and use the increment to fund a broad range of investments. Investments include everything from hard infrastructure to affordable housing to any number of projects that support Sustainable Communities Strategies.  

To many people's surprise, EIFDs have a new friend as of this year: Community Redevelopment Investment Authorities. The product of AB 2 (see CP&DR coverage)  - which evaded veto, to much surprise - CRIA's evoke the spirit of the old redevelopment law, to the extent that they focus on distressed areas. These areas are defined not by blight - a definition that was often stretched to the point of abuse - but rather by socioeconomic indicators, such as poverty rates among residents. They are subject to several safeguards, including popular approval, so as not to fall prey to abuse and cronyism, as redevelopment was frequently accused of doing.

Neither of these tools promise the riches that redevelopment did, in part because they both exclude would-be school funds. And neither has been put into practice extensively. Nonetheless, it's interesting to consider the environment into which these tools are being introduced. If the world was fresh and new, jurisdictions might see them as curiosities with potential. Instead, there's that $5 billion. It's hard not to imagine that every city in the state is eying some combination of CRIAs and EIFDs to restore the natural order of things.  

Not so fast. 

I recently moderated a panel on CRIAs and EIFDs featuring an all-star cast: former Los Angeles Community Redevelopment Agency Director Cecilia Estolano, former Los Angeles City Council Member and current General Manager of L.A.'s Workforce and Development Department Jan Perry, and veteran land use consultant Larry Kosmont. The event was sponsored by the Los Angeles Chapter of the American Institute of Architects. 

Each exuded a combination of enthusiasm and sobriety. 

Kosmont has the EIFD sales pitch down pat. He spoke energetically about the circumstances that warrant EIFDs, the benefits they confer, and the political hurdles and hoops that stand in the way. His exuberance is infectious. Estolano focused largely on the benefits of CRIAs; she has clearly moved on from the days of RDA.

The great thing about EIFDs is that essentially anyone can conceive one. Redevelopment was always orchestrated by a redevelopment agency. An EIFD can be set up at a city's behest, of course. But it can also be the brainchild of a nonprofit, a developer, a special district, or anyone else who has a vision for an area and is willing to do the legwork necessary to get everyone to sign off on it. They can be top-down, bottom-up, or somewhere in between. And they can focus on any number of issues: housing, mobility, sustainability, economic development - you name it. 

Ideally, cities, counties, and special districts might be able to rally around a cause and recognize each other's mutual benefits. That's the ideal case. Los Angeles Council Member Mitch O'Farrell joined the panel briefly to outline a vision of an EIFD for the Los Angeles River revitalization, which is a long-sought dream in Los Angeles and other river-adjacent cities.

While you can summarize these programs in a few slides and imagine all the benefits, the political realities are daunting. In particular, EIFDs require that multiple jurisdictions "learn to play nice," as Kosmont put it. That's because EIFDs require cooperation of all jurisdictions and taxing entities affected by a proposed EIFD zone. 

I mean, what are the odds that say, a city council person and a county supervisor don't see eye-to-eye? Exactly. 

Ironically, EIFDs might be easiest to set up in places that need them the least. Imagine a developer in a rural area who needs a sewer line or a street grid. He might need to lobby only a single county supervisor and - poof - he'll have his increment. Meanwhile, the competing interests and rivalries that often arise in distressed inner city areas might make consensus impossible for an EIFD or a CRIA. 

That's one reason why L.A. Council Member O'Farrell's Los Angeles River plan may not hold water. The 11-mile stretch of river flows through more than 10 jurisdictions. Estolano recommended that cities pick specific goals and from a comprehensive CRIA/EIFD strategy to realize them. One example is the city of Los Angeles' well publicized interest in forming "innovation districts." Otherwise, you can imagine dozens of well meaning entities in a single city running around trying to set up special districts willy-nilly, each meeting with little success. If nothing else, they'll tick off county supervisors left and right.

That's why cities can't frantically try to reclaim their share of former RDA money as if it's there for the taking. EIFDs and CRIAs will never generate RDA money, and there's no bureaucratic structure. While jurisdictions will, eventually, get the hang of it, for now, each of these districts requires its own strategy, its own justification, and its own negotiations. It's surely a daunting prospect for cities.

Then again, opponents of redevelopment long said that nothing's more daunting than the prospect of wasting $5 billion a year.