TIF Revival On The Table in Sacramento

 

Even as the redevelopment wind-down process continues, the Legislature is beginning to play around with possible ways to bring it back in a more limited form. Many of the ideas involve tinkering with tax-increment financing in ways that will hold the state financially harmless. Others would allow cities to keep some or all of their former redevelopment agencies’ cash and land assets, which are likely worth several billion dollars.

“The body is dead and it is sitting in our front yard rotting away,” said Assemblyman Chris Norby, a Fullerton Republican and longtime redevelopment opponent, at an Assembly hearing Wednesday. “Some people are picking at the carcass and carting pieces away. But now the undertaking must begin.”

In a prepared statement to the hearing, Assembly Speaker John Perez said: “It was never the intent of the members of the Assembly to eliminate redevelopment” but rather “to rein in bad practices.”

Whatever the Legislature is considering, however, Gov. Jerry Brown has not tipped his hand. So far Brown has shown no willingness to consider reviving redevelopment in any form. The only representative of Brown’s office who spoke Wednesday was Pedro Reyes, policy chief at the Department of Finance, who talked about the wind-down process. He said Finance had reassigned 20 auditors to work on post-redevelopment issues and will likely reassign more in the future.

A parade of witnesses at the Assembly hearing proposed a variety of post-redevelopment solutions. For example, Claudia Cappio, director of the California Housing Finance Agency and Gov. Jerry Brown’s former housing chief in Oakland, called for a “permanent revenue source for affordable housing.” She said she had not cleared the idea with Brown and she did not specify a possible source. However, at a Senate hearing two weeks ago she mentioned the possibility of a real estate transfer tax, a technique used to fund both affordable housing and open space protection in other states.

Most of the discussions had to do with tax-increment financing, however. As Michael Coleman, a fiscal consultant to the League of California Cities, out it: “TIF has a long history all over the world of being used and used well.”

It was the cities’ expansive use of TIF, of course, that did redevelopment in. With little state oversight, TIF had expanded to include close to $6 billion a year, or about 12% of the state property tax. Because the state is required to backfill the financial loss to schools, TIF was costing the state approximately $3 billion per year.

Many of the new TIF ideas involve collaborative relationships among local governments that receiving a portion of the property tax funds and/or holding the state harmless. The most obvious possibility would be to permit cities and successor agencies to receive TIF on all property tax revenue except revenue that goes for schools. This would still drain property tax from counties and special districts, so some proposals would require the creation of a joint-powers authority including those other agencies in order to perform redevelopment functions.

 

John Lambeth of Civitas, the state’s business improvement district guru, asked the Legislature to give cities the power to create TIF districts in which they divert only the tax-increment that would otherwise flow to the city general fund – generally about 15% of total property tax. He called this strategy the Downtown Economic Vitality Authority, or Downtown EVA. 

Meanwhile, on the Senate side, Senate president pro tem Darrell Steinberg has been proposing that cities and successor agencies be permitted to keep former RDA assets even if TIF revenues are redistributed. At the Senate hearing a couple of weeks ago, Steinberg noted that RDAs cash assets of at least $2 billion – and possibly more – at the time they were dissolved on February 1. The value of RDA real estate assets is impossible to determine at this point, but it is probably billions more. In addition, RDAs were sitting on about $1.3 billion in unencumbered funds earmarked for affordable housing.

Both Senate and Assembly bills are likely to include protections for the $1.3 billion as well as language designed to avoid a “fire sale” of former RDA assets. Quick sale of assets is encouraged by the language of AB 1x 26, the law that eliminated redevelopment.