Originally posted at CA Economy.
By Mark Pisano.

California’s local and regional infrastructure needs are overwhelming—whether it is transportation, water, or other aging pillars of the state’s economy—but new tools to pay for these projects are sorely lacking. A 50-year-old system of financing local infrastructure through redevelopment agencies was repealed several years ago—eliminating access to more than $5 billion a year cities and local agencies were investing in economic development. Now is the time to develop new financing tools to replace it.

The administration has proposed a modest step toward meeting this challenge—outlining a plan to expand an existing local authority, Infrastructure Financing Districts, to allow cities along with other local agencies to invest in local infrastructure projects from affordable housing and transit facilities to sewage treatment and water reclamation.

Cities, counties, and other local agencies, however, have responded with a collective shrug.

A matter of size

Why? The simplest way to explain the less-than-enthusiastic response is this: The governor’s proposal would replace redevelopment—a $5 billion income stream for local economic development that allowed cities to tap into an expansive pool of property tax revenues—with a program that gives cities access to the growth only on a share of their own portion of local property taxes. Because IFDs, under the proposal, would be able to access to only 11 percent of statewide property taxes ($4.9 billion), the pool of resources available for economic development would be relatively small: Assuming property values grow at an average of 5 percent, the new IFDs would have a total statewide income stream of $250 million a year.

This program may be only a fraction the size of redevelopment, in other words—but there are still ways to strengthen it. While some financing experts have expressed concerns about other aspects of IFDs—the complexities around lowering the vote requirement to issue debt, in particular—I believe an expansion of the amount of funds cities can access, along with the number of financing options at their disposal, is even more important.

Members of the Summit Infrastructure Action Team have identified four steps the state can take to provide local leaders with the authority and flexibility they need. Taken together, these ideas could modestly increase the resources available to local governments for infrastructure and economic development.

Rebuilding local economic development: The Summit proposal

1.     Financing tools: The governor’s current proposal focuses on using property tax increment as its primary financing tool, but in California property tax increment alone will not create a pool of resources big enough to meet communities’ needs. This issue can be addressed in the following ways:

  • Include the growth of all property tax growth cities receive:  An updated statute should enable the total amount of property tax growth going to the city and participating agencies to be accessible by IFDs—including the sizeable amount of property tax that is allocated to cities over and above the amount identified in the proposal.  The Summit estimates this step alone would nearly double the property tax share available to IFDs, making a total amount available over $400 milion.
  • Expand authority beyond just property tax increment: IFDs should also be given specific authority to use all of the financing tools available to local agencies that can be a part of them—not just property tax increment. This should include tools under existing financing authorities including the use assessments for benefit and user fees to finance infrastructure projects.
  • Allow revenues to be used for more than debt financing: The administration has proposed allowing IFDs to use tax-increment to finance projects, but since life-cycle costs of infrastructure are often left to a local government general fund budget, it is vital that operating and maintenance costs be included, as well. This will yield lower-cost solutions, as well: Mello-Roos Districts that finance infrastructure for new development provide a precedent by allowing these costs to be included as eligible financing categories.

2.     Appropriate project authority: The current IFD statute demonstrates the Administration’s commitment to provide local governments with the flexibility and tools they need to support a range of infrastructure projects, from affordable housing to transit. In light of the ongoing drought, water management systems like runoff and ground water recharge should also be included. This will make IFDs a useful tool for communities impacted by water shortages that are eager to invest in water projects.

3.     Monitoring results: With hundreds of millions of dollars moving through this new program, IFDs should be held accountable for results. Although the proposal requires the district to “state…the goals the district proposes to achieve,” IFDs should be required to periodically report to the public on the progress made toward achieving those goals.

4.     Transparency: Like most legislation adding new authority to an existing body of law, an expanded IFD authority has the potential to make the law more complex. Wherever possible, lessons should be applied from past efforts to create public financing tools that have confused even an engaged public. The authority should be kept simple, easy to use, and transparent.

Mark Pisano is president of the Southwest Megeregion Alliance and co-lead of the California Economic Summit Infrastructure Action Team.