The loss of the tax-increment financing program in 2011 sounded a death knell for economic development statewide. The doors closed permanently on 400 tax-increment financing programs. California’s cities lost a tool that bolstered businesses in economically fragile neighborhoods, generated jobs, returned blighted areas to productive use and provided an important means to build or upgrade infrastructure.
Concord, Contra Costa County’s largest city, was focusing at the time on something few municipalities get the chance to acquire: a closed military base. The city’s profile on Strong Cities | Strong State details the base conversion economic development plans. That profile is available online
“We were very disappointed and quite concerned when we heard the news that Sacramento had decided to eliminate Concord’s ability to use tax-increment financing,” said Concord City Manager Valerie Barone. “At a time when the city was facing enormous budget challenges and responsibly working to manage the revenue reductions brought about by the collapse of the financial markets and ensuing recession, the state’s actions put the future of the plan to redevelop the former Concord Naval Weapons station in jeopardy.”
The city had been planning to use an estimated $556 million in tax-increment financing that would have been generated over the life of the base development project. These funds would have helped pay for the infrastructure needed to leverage private investment in the prized property, one of the last remaining major undeveloped tracts in the San Francisco Bay Area.
The 5,028-acre parcel was used by the U.S. Navy for naval munitions transshipments and storage until it was mothballed in 1997 and officially closed under the Base Realignment and Closure Act in 2008.
The land represented a unique opportunity for Concord. Assisted by groups of local stakeholders, the city has been at work these past seven years developing a vision for the property. Where the Navy left bunkers, testing areas and administrative buildings, city residents envisioned parks, trails, open space, 12,200 new homes (including affordable housing) and new businesses. The project also is projected to generate 26,000 jobs.
When the state pulled the plug on tax-increment financing, Concord and other cities began scrambling to develop new strategies.
The U.S. Department of Defense and the city council, which also functions as the city’s Local Reuse Authority (LRA), remain wholly committed to transferring the base to the city, said Michael Wright, the LRA’s executive director about the project’s status.
Concord is currently negotiating the transfer process and value of the property with the Navy, he said. The transfer could occur in late 2014 or early 2015. Then the city, probably in a public-private partnership with a master developer, would market the property for sale.
Progress Slows Dramatically; Pending Legislation Affects Future Financing Options
The loss of tax-increment financing will add years to the project’s scheduled build-out and probably also means delays in constructing a library, parks and other recreation facilities. “It places a bigger burden on the master developer,” Wright said.
To ease that burden, the city may be forced to seek tax-increment dollars through other measures, such as the creation of an Infrastructure Financing District (IFD), which opens a new avenue for cities to apply tax-increment financing to economic growth projects. But whether an IFD may be applied to a military base project is undecided at the moment and will require passage of legislation currently before state lawmakers.
According to Wright there are “about a half dozen” bills making their way through the Legislature that could “soften the structure and administration of IFDs.” And their progress is being watched closely by a number of cities, including San Francisco, Monterey, Irvine, and Alameda, among others, he said. San Bernardino, home to March Air Reserve Base, which closed in 1996, is also monitoring the bills.
Wright notes that IFDs have been around as long as tax-increment financing loan programs but an IFD is “more complicated to put into place” because it can impose “numerous voting requirements.” For instance, the current law requires approval by at least 51 percent of the voters who live within the proposed IFD area. No such requirement had to be met under the tax-increment financing partnerships eliminated by the state in 2011.
One bill currently being considered,
SB 33 (Wolk), updates IFD law to make it a useful tool for cities to maintain, repair and rebuild critical infrastructure and spur economic development. Sen. Lois Wolk’s (D-Davis) expands the list of areas that can qualify as IFDs to include military bases, said Wright. Supported by the League, the city of Concord and the LRA, the legislation also does away with current voting requirements affecting IFDs and the issuance of the bonds that cities need to raise the money required for infrastructure.
Another bill, AB 229 (Pérez), maintains some voting restrictions and would broaden when an IFD may be used. The League supports Speaker John Perez’s (D-Los Angeles) bill because it offers another tool that can be helpful to repurposing closed military bases. The bill provides more time to pay for infrastructure. At the same time, however, it would require voting on a district’s formation only when a proposed IFD has more than 12 registered voters, said Wright. The Concord naval site has just one property owner now — the U.S. Department of Defense.
Under an IFD the city would get a share of the tax increment generated by the base development, which would be used to cover infrastructure costs. The city might also be allowed under IFD legislation to go to the county to seek its partnership and a commitment of a portion of the tax increment the county collects from the military base development, helping to further defray infrastructure costs.
The base development involves considerable infrastructure expenses. The city anticipates that over the course of the 30 years it will take to complete the project’s build-out the infrastructure price tag will exceed $1.5 billion.
Wright said that while IFDs are not the equal of the former tax-increment financing program, they could be a useful new tool for cities to continue to drive economic development.
However, an IFD program is very different than the former tax-increment financing program, according to Wright. “An IFD creates a smaller revenue stream,” he explained. For each dollar that a tax-increment financing program provided cities, an IFD program provides only about 10 cents to 14 cents.
“The city strongly supports AB 229 and SB 33, and is also backing another piece of legislation that we feel would be a positive for the reuse project,” said Barone. “AB 1080 would give us a tool to fund a portion of the infrastructure the project needs, and create jobs, which Concord needs. We hope the Legislature will pass these bills which are vitally important to the future of our community.”