Infrastructure Finance Districts (IFDs) – The California Case Study Tuesday - August 7, 2012 12:30 pm to 1:45 pm

Infrastructure Finance Districts (IFDs) – Infrastructure Finance Districts (IFDs) – The California Case StudyThe California Case Study

Tuesday - August 7, 2012

12:30 pm to 1:45 pm

2012 ADC ANNUAL CONFERENCE| PAGE 3

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

Session Outline 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 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.

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.


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Formation of IFDs(Like a CFD)

IFDs CFDs

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

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


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Formation of IFDs(Like a CFD)

IFDs CFDs

Waiver of Election Time and Formalities?

100% of Qualified Electors 100% of Qualified Electors

Qualified ElectorsRegistered 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)

2/3 Vote of Qualified Electors

Voting

Same

Ordinance Yes (to create IFD) Yes (to levy special taxes)


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Financing Method(Like an RDA)

IFDs RDAs

Revenue Source Tax Increment

(of Issuer and Consenting Taxing Entities Only)

Tax Increment

(of All Taxing Entities and ERAF)

Term of Tax Increment 30 years Up to 45 Years

Location 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%)


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IFDs(Unlike an RDA)

Participation in an IFD is 100% voluntary: 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.


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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.


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So Why Aren’t IFDs More Popular? IFDs can’t be formed in a former RDA

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

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

Redevelopment

780,000,000

IFD Scenario 1City share only

84,420,000

IFD Scenario 2City + County

335,000,000

IFD Scenario 3City/County/ERAF

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.


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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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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).

Documents

Infrastructure Finance Districts (IFDs) – The California Case Study Tuesday - August 7, 2012 12:30 pm to 1:45 pm