Group Presentation - Association of Defense Communities

Infrastructure Finance Districts (IFDs) – The California Case Study

Tuesday - August 7, 2012 12:30 pm to 1:45 pm

Panelists  Mr. Michael Wright, Director, Community Reuse Planning, City of Concord, CA  Robert M. Haight, Jr., Partner, Goodwin Procter, Los Angeles, CA  Suheil Totah, Executive Vice President, Lennar Urban Development, San Francisco, CA Moderator  Ms. Kristie Reimer – Associate Vice President, ARCADIS–US, Marina, CA

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Background   

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Redevelopment project financing is complex, and adequate funding for infrastructure improvements are critical to overall project success. In February 2012, 400 redevelopment agencies throughout the State of California were abolished. Redevelopment agencies used a portion of property tax money (tax increment) in partnership with developers to encourage development in blighted areas. This equated to billions of dollars per year in tax revenues – a portion of which were allocated to support redevelopment on former military installations. Reuse and redevelopment of former military bases is a complicated process, and in now in California it is even more challenging without these fiscal tools. LRAs are promoting State law amendment to provide an easier process to create Infrastructure Financing Districts (IFDs); allowing a percentage of tax increment used to fund public infrastructure improvements.

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Focus of the Panel  

This session will provide details on IFDs, their applicability and potential benefits to BRAC sites. Various perspectives will be presented:   

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Session Outline    

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Local Reuse Authority viewpoint and realities Legal interpretations and aspects Developer experience and outlook

Background / Impact from loss of Redevelopment IFD Options and Application Legislation Implications to Redevelopment

Panelist will engage in an active discussion and encourage an open Q&A discussion

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Impact from Loss of Redevelopment  Loss of tax increment for infrastructure + affordable housing contribution by 6 municipalities  Impact is to recently closed bases and early round closures that have progressed to issuing bonds  Reduced attractiveness of reuse of closed bases  Adds years to development build-out

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IFDs  What are they?  What can they do?  Are they a substitute for RDAs?

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IFDs: The Drew Barrymore of Public Finance Drew Barrymore

IFDs

Drew is Offspring of Famous Parentage (i.e., the Barrymore family).

IFDs are Offspring of Famous Parentage (i.e., Mello-Roos CFDs and RDAs).

At a young age, Drew made a movie (E.T.) that has thrilled children for decades.

At a young age, IFDs financed a theme park (Legoland) that has thrilled children for decades.

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After early success, Drew fell into obscurity. After early success, IFDs fell into obscurity. Drew went through rehab to fix her problems.

IFDs now going through rehab (legislatively) to fix its problems.

Drew rediscovered in her early 20’s.

IFDs rediscovered in its early 20’s.

Drew marked her comeback taking over role made famous by another (Farrah Fawcett) in reboot of well-known franchise (Charlie’s Angels).

IFDs mark its comeback by taking over role made famous by another (RDAs) in reboot of well-known financing vehicle (tax increment).

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IFDs  IFD legislation enacted in 1990.  Only two IFDs in existence:  City of Carlsbad (Legoland Improvements) (early 90’s)  City of San Francisco (Rincon Hill) (2011)

 Hybrid of Mello-Roos CFD Law and RDA Law. 2012 ADC ANNUAL CONFERENCE| PAGE 9

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Formation of IFDs (Like a CFD) 10 IFDs

CFDs

Yes

Yes

Report

Infrastructure Financing Plan (IFP) (very detailed)

Community Facilities District Report (very simple)

Public Hearing

60 days notice after IFP

30 days notice after ROI

Resolution of Formation

Yes

Yes

Resolution Calling Election

Yes

Yes

Resolution of Intention (ROI) (to form IFD and to authorize issuance of bonds)

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Formation of IFDs (Like a CFD) 11 IFDs Waiver of Election Time and Formalities? Qualified Electors

CFDs

100% of Qualified Electors 100% of Qualified Electors Registered Voters if 12 or more in territory 90 days prior to public hearing; otherwise Landowners.

Same

Election (on IFD formation and to authorize issuance of bonds)

Ordinance

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2/3 Vote of Qualified Electors Voting

Same

Yes (to create IFD)

Yes (to levy special taxes)

Financing Method (Like an RDA) IFDs

RDAs

Tax Increment

Tax Increment

(of Issuer and Consenting Taxing Entities Only)

(of All Taxing Entities and ERAF)

30 years

Up to 45 Years

May not be formed over property that is, or ever was, in a RDA Project Area

N/A

Pass-Through Agreements

No

Yes

Housing Set-Aside

No

Yes (20%)

Revenue Source

Term of Tax Increment Location

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IFDs (Unlike an RDA)  Participation in an IFD is 100% voluntary:

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 Tax increment that is usually paid to an “affected taxing entity” may NOT be allocated to an IFD without the affected taxing entity’s explicit approval.

 Education districts may not participate in IFDs.  ERAF not allocated to IFDs.  IFDs formed only by City or County. 2012 ADC ANNUAL CONFERENCE| PAGE 13

Other IFD Restrictions  Facilities  Public Capital Facilities only (no private facilities).  Useful Life of 15 Years or greater.  Finding of Community-Wide Significance.  Finding that Facilities benefit an area larger than the IFD.  Only “completed” Facilities may be acquired.

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Other IFD Restrictions  Housing  Like RDAs:  Housing that is destroyed by development must be replaced.

 Unlike RDAs:  No tax increment set aside.  If the IFD finances public housing, then 20% of units must be set aside for affordable housing.  No Eminent Domain powers. 2012 ADC ANNUAL CONFERENCE| PAGE 15

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So Why Aren’t IFDs More Popular?  IFDs can’t be formed in a former RDA 16 project area.  Voluntary nature of IFDs drastically reduces tax increment amounts.  30-year life limits bond financing capacity.  Less flexible than RDAs.  More complicated than CFDs.

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Infrastructure Financing Districts Alternative to Redevelopment  Existing sections of California Government Code and Health 17 Safety Code allow for formation of IFD  Existing law is restrictive and cumbersome in terms of formation and operation of a District  Six basic goals for change  Waive existing District formation restrictions  Streamline formation requirements  Extend term of the District  Match affordable housing requirements to Redevelopment  Expand definitions for use of funds  Affected tax entities control

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Redevelopment/IFD Comparison 18 Redevelopment

IFD Scenario 1 City share only

IFD Scenario 2 City + County

IFD Scenario 3 City/County/ERAF

780,000,000

84,420,000

335,000,000

387,920,000

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Legislative “Fixes” in the Works  AB 2144 (Perez)  Renames IFDs “Infrastructure and Revitalization Financing Districts”.  Removes RDA Project Area restriction.  Extends tax increment life to 40 years from date of Ordinance, or such later date as set forth in Ordinance.  Allows certain private facilities, including housing.  Lowers vote to 55% (from 2/3).  No vote required for former military bases under certain circumstances. 2012 ADC ANNUAL CONFERENCE| PAGE 19

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Legislative “Fixes” in the Works  SB 214 (Wolk)  Creates new “Public Financing Authority” to be appointed by Issuer.  Removes RDA Project Area restriction.  Extends tax increment life to 40 years.  Eliminates voting requirement for formation and bond authorization.  Allows for tax increment to be used for maintenance of constructed facilities.  Imposes public accountability measures.

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Legislative “Fixes” in the Works  SB 1156 (Steinberg)  Creates new “Sustainable Communities Investment Authority” (SCIA) as a substitute for RDAs (not IFDs).  For transit oriented and sustainable communities only through Metropolitan Planning Organizations (MPOs).  SCIA formed by County, or as joint powers agency with City and County.  SCIA has all powers of an RDA.  If joint powers agency, tax increment generated from both City and County (but not ERAF). 2012 ADC ANNUAL CONFERENCE| PAGE 21

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