Tax Increment Tools
NEW FAQ on California's New Tax Increment Financing Tools
NEW Primer on California's New Tax Increment Financing Tools
(In Collaboration with the California Association for Local Economic Development (CALED))
The old redevelopment economic development tool is gone but several new tools, which the League helped shape, are now in place and allow tax increment to be used for various purposes. They differ significantly from “old school” redevelopment, but offer potential to help cities solve problems. Compared with redevelopment, the new tools have reduced financial capacity, thus requiring innovative thinking and new partnerships to maximize their potential.
Tax increment is much different under the new tools. Agreement by any affected agency is now required.
A taxing jurisdiction is entitled only to the increment generated on its own share of the property tax unless other local agencies also agree to contribute their shares. For example, if a city forms a new entity, the city can direct only the increment derived from its own share to this purpose, unless the county and/or special districts also agree to have growth of their respective shares dedicated. As a result, when local governments agree to partner on infrastructure and economic development they can maximize the tool’s financial capacity.
School districts, however, are prohibited from agreeing to allocate growth from their shares of property tax to these purposes, reflecting the state’s concern about the need to backfill any losses. This is a major reduction in financial capacity, because approximately 50 percent of property taxes are allocated to schools.
The three new tools are breifly described below with links to additional resources.
The Enhanced Infrastructure Financing District (EIFD)
Enhanced Infrastructure Financing District
law (beginning with Section 53398.50 of the California Gov’t. Code) provides broad authority for local agencies to use tax increment to finance a wide variety of projects, including:
- Infrastructure, such as roads, bridges and wastewater and groundwater facilities;
- Affordable housing, mixed-use development and sustainable development;
- Transit-oriented development;
- Light rail;
- Industrial structures;
- Parks and open space;
- Child care facilities;
- Military base reuse; and
- Brownfields remediation.
The EIFD provides broad flexibility in what it can fund. No public vote is required to establish an authority, and though a 55 percent vote is required to issue bonds, other financing alternatives exist. Unlike former redevelopment, this tool imposes no geographic limitations on where it can be used, and no blight findings are required. An EIFD can be used on a single street, in a neighborhood or throughout an entire city. It can also cross jurisdictional boundaries and involve multiple cities and a county. While an individual city can form an EIFD without participation from other local governments, the flexibility of this tool and the enhanced financial capacity created by partnerships will likely generate creative discussions between local agencies on how the tool can be used to fund common priorities.
Community Revitalization and Investment Authority
The Community Revitalization and Investment Authorities (CRIAs) law (beginning with Section 62000 of Gov’t. Code) authorizes tax increment to be used in combination with the powers of former redevelopment agencies. A CRIA focuses on assisting with the revitalization of poorer neighborhoods and former military bases. While similar to redevelopment, a CRIA is more streamlined. Accountability measures are included to ensure that the use of the CRIA remains consistent with community priorities, and a 25 percent set-aside is included for affordable housing. Although an initial protest opportunity exists, no public vote is required to establish an authority, and bonds and other debt can be issued after a CRIA is established.
Annexation Development Plan
The Annexation Development Plan (ADP) law (Section 99.3 of Revenue and Tax Code) authorizes tax-increment financing to be adopted by consenting local agencies (city and/or a county or special district) to improve or upgrade structures, roads, sewer or water facilities or other infrastructure as part of annexing a disadvantaged unincorporated community. An ADP can be implemented by a special district either formed for this purpose or incorporated into the duties of an existing special district. After the Local Agency Formation Commission (LAFCO) approves the annexation, the special district can issue debt without an additional vote.