But elimination of redevelopment begs the question: How will local governments continue to fund infrastructure projects when the stream of redevelopment dollars, brimming in recent years at $5 billion annually, dries up?
Lawmakers are considering a handful of financing tools to essentially replace redevelopment. One of them, Senate Bill 214, would modify the laws governing Infrastructure Financing Districts so that they are easier to use.
Under current law, local agencies may establish an IFD to finance the purchase, construction, or improvement of any project that offers community-wide benefits and an estimated useful life of 15 years or longer. These projects may include highways, transit, water systems, flood control, solid waste facilities, parks, and even child care facilities.
Similar to redevelopment, IFD funds are based primarily on tax-increment revenue. But unlike redevelopment, an IFD does not divert revenue from school districts. While this distinction limits an IFD’s tax increment to a mere fraction of what redevelopment can do, it also relieves the state of having to backfill schools for their lost revenue.
The IFD’s smaller scope therefore makes it a likely compromise for State Budget negotiations because there is no state subsidy.
In practice, redevelopment has always been the preferred vehicle of tax-increment financing because IFDs require two-thirds voter approval to form and issue bonds. SB 214 would strike that election requirement from IFDs; the legislation would also extend the life of an IFD from 30 years to 40.
Freed from election requirements, IFDs have an important advantage over redevelopment. The redevelopment law requires officials to identify blight prior to adopting a project area. In the early 1990s, the Legislature passed strict reforms that narrowly tailored the definition of blight and required local officials to clear multiple thresholds to make a finding of blight. The effect generally limits redevelopment activities to high-density areas where existing infrastructure has deteriorated, among other conditions.
Because there is no blight requirement for IFDs, the substitution presented in SB 214 marks a sea change for the applicability of tax-increment financing. No longer bound on an election process, and still free from any blight criteria, IFDs would likely become a powerful and adaptable tool for local agencies to construct and improve public facilities.
The removal of a blight requirement from tax-increment laws signals a departure from the prior exclusive focus on urban renewal, in favor of placing more fiscal heft behind blunt infrastructure delivery. As a result, SB 214 could have the effect of “flattening out” local infrastructure investments in such a way that stimulates low-density outward growth and deflates urban infill.
Planners have talked about how redevelopment could be helpful to cities trying to promote transit-oriented, infill development – of the type many local and state policies encourage, including SB 375. Part of that perception owes to redevelopment’s statutory charge to channel its activities to blight-fighting investments.
Liberating tax-increment financing of that statutory charge would likely test the discipline of local governments to continue the painstaking and complex work of supporting transit, walkable communities, and climate goals. SB 214 would specifically prohibit using IFD funds to lure big box retailers or vehicle dealers, but certainly leaves a lot of other options on the table that could detract from urban infill.
Whether they keep the bull’s eye on infill-supportive infrastructure or revert to the more tempting model of urbanizing greenfields, the decisions of local officials, in an SB 214 world, could weigh more heavily than before on the direction of local infrastructure.