Presentation to PDAOC Planning Officials Forum 2016

Tax Increment Financing Via Enhanced Infrastructure Financing Districts

September 22, 2016

1230 Rosecrans Ave, Suite 300, Manhattan Beach, CA 90266 (424) 456-3088

www.kosmont.com

New Deal Making Paradigm in CA

State has approved new “districts” (EIFDs, CRIAs, other): • Enable tax increment financing for local/regional projects • Compel joint ventures with cities, counties, special districts and

private developers New districts creating paradigm shift in California

• Districts geared to sustainability, infrastructure, energy efficiency Districts induce multi-jurisdictional partnerships for economic development and infrastructure

2

Today, use partnerships to accomplish:

Economic Development 2.0

Sustainability

Infrastructure

Energy/Resource Efficiency

GHG Reduction

Regional Cooperation

PLACEMAKING 3

AB 32 (Perez) Cap and Trade: Com Dev. Investment Tax Credits SB 375 (Steinberg) GHG Reductions: Sustainable Communities Strategy SB 1168 (Pavley) Groundwater Sustainability Agency & Plan: Priority Basins AB 1739 (Dickinson) Groundwater Mgmt: Sustainability Plan & Extraction Reporting SB 535 (De Leon) Greenhouse Gas Reduction Fund: Benefits to Disadvantaged Communities SB 350 (De Leon & Leno) Accelerated emissions standards including required energy reduction for buildings SB 32 (Pavley) CA GHG emissions 40% below 1990 levels by 2030 AB 197 (Garcia) CARB powers expanded (local funding pending)

Regional Sustainability

E.D. 2.0 Supports Partnerships – Legislative Direction

SB 628 (Beall) & AB 313 (Atkins) Enhanced Infrastructure Financing Districts SB 614 (Wolk) & AB 229 (Perez) Special Districts Annex Area and Former Military Bases for Infrastructure Financing & Revitalization AB 229 (Perez) Infrastructure & Revitalization Financing Districts - Former Military Bases AB 2 (Alejo) Community Revitalization & Investment Authority SB 743 (Steinberg) CEQA: Environmental Quality Streamlining for TOD / Infill Dev. AB 850 (Nazarian) Financing Public Capital Facilities: Water Quality AB 1471 (Proposition 1; Rendon) Financing Water Quality, Supply & Infrastructure Improvement: Bond Issuance AB 2660 (Aguiar) Infrastructure Financing Act: User Fees and P3s

Local & Regional Infrastructure

Successful Post-RDA Projects

Economic Development New Revenues and Jobs

Sustainable Policy Compliance

4

Post-RDA Economic Development Cities have 9 BASIC TOOLS for Public/Private Projects

Real Estate & Property

Special Districts (Tourism, BIDs, etc.)

Rebate of Taxes / Revenues

Joint Powers Authorities (JPAs)

P3 / Project Delivery Methods

Enhanced Infr.

Financing Districts (EIFDs)

Land Use / Zoning (Higher Density;

Parking)

Property Assessed Clean Energy

Finance Program (PACE) Community

Revitalization & Inv. Authority (CRIA)

Economic Development Real Estate

Project

New tools require collaboration 5

EIFD Summary of Key Terms

1. Enhanced Infrastructure Financing District • Governmental entity established by a city or county that carries

out a plan within a defined area to construct, improve and rehabilitate infrastructure

2. Public Financing Authority (PFA)

• Legislative body that governs the EIFD • Composed of participating governments & members of public

3. Infrastructure Financing Plan

• Plan adopted by city or county. Describes public facilities & development to be financed by the EIFD

• Implemented by Public Financing Authority (PFA)

THE AREA

THE TEAM

THE STRATEGY

6

Public Ventures Mean More $$$$ for Projects

EIFD districts push cities to create local/regional infrastructure projects (water, roadway, sewer, digital)

EIFDs can finance implementation of regional infrastructure via Public Financing Authority which uses property tax increment

Most cities need other agencies increment to fund/expedite projects

Regional approach elevates eligibility for external funding sources • Cap-and-trade grant funds (GRGF) reward projects that reduce GHG

emissions with billions in potential funds • Prop 1 contains over $7.5 billion in water infrastructure project funds

7

EIFD: New Economic Development Tool

○Can be used as a replacement to redevelopment - City can revitalize an area through Tax Increment Financing (TIF); - City allowed to use County or Special District property tax share as well as revenues pledged by special districts, if mutually agreed

○Catalyzes projects in development driven scenarios - Developer interested in pursuing project can use EIFD tax increment to help finance necessary infrastructure (reimbursement)

○EIFD created for 45 years with a focus on infrastructure, energy efficiency, and P3 partnerships - Managed by Public Financing Authority with 1 or more public agencies

8

Types of Projects EIFDs Can Fund

Brownfield Remediation Childcare Facilities Parks & Open Space

Light / High Speed Rail Civic Infrastructure

TOD Projects Aff. Housing / Mixed Use Industrial Structures

Wastewater/Groundwater

Source: SB 628 – Bill Text 9

EIFD - Property Tax is Primary $$$ Source

Property Tax: How Much Goes to Your City?

City

Special Districts

Local Schools

County67%

11%

15% 7%

10

EIFDs – Uses Diverse Funding Sources

Can use multiple funding sources with tax increment: ○If Bond Issuance then 55% voter approval required

Potential to apply State funding sources: - Proposition 1 bond funds - Cap-and-trade proceeds

Federal & State Grants - Greenhouse Gas Reduction Funds - Federal DOT/EPA/DOE funding programs

Other Funding Sources: - Property tax revenue including RPTTF - Vehicle License Fee (VLF) prop. tax backfill increment - Development Agreement / Impact Fees - User fees - City / county / special district loans - Hotel TOT - Benefit assessments - Contribution from Special District - Levied by EIFD - Private investment

11

How is an EIFD Formed?

1. Adopt Resolution of Intention

2. Prepare & Adopt Infrastructure Financing Plan

3. Enter into tax sharing agreements with other public entities/special districts

4. Approve IFP and form EIFD

5. PFA implements Infrastructure Plan

12

Getting Started Primary EIFD Start-Up

Questions

13

Primary questions to consider:

1. Who is interested? Which counties/cities/special districts would

measurably benefit from the EIFD

What is their share of tax increment?

2. What needs to get done? What infrastructure improvements and

development projects can be addressed?

What gets prioritized in Infrastructure Financing Plan (IFP)?

3. Where is the EIFD project area? What are the boundaries/scale of this district?

District does not need to be contiguous

Getting Started Primary EIFD Start-Up

Questions

14

4. What are the funding sources? Private sector funds (development impact fees, start-up capital)

Special taxes (Mello-Roos, Assessment Districts)

Other funds (road funds, public infrastructure funds)

5. Who is located in the EIFD? Does the project serve multiple jurisdictions?

How many property owners are located in this EIFD?

If 12 or less, voting is by property owners (1 vote per acre)

If greater than 12, then election of registered voters

6. What is the value of the project over time and what is cash flow in early years?

EIFD Case Study: City of La Verne Proposed EIFD (TOD focus)

15

Case Study: La Verne TOD EIFD

• EIFD Status EIFD under evaluation by City of La Verne as lead public agency La Verne’s EIFD Goals:

• Induce private development around future gold line station • Access to Statewide sustainable funding sources such as Greenhouse

Gas Reduction Fund (GGRF)

• The Proposed District Proximate to Univ. La Verne, Fairplex properties & future Gold Line Station 100+ acres adjacent to La Verne’s Old Town Specific Plan Area

• Projects (pubic and private) Station area improvements, circulation infrastructure next to Foothill station Development of mixed-use housing, potential hotel, retail and event space Sustainable improvements to commercial and industrial structures

16

La Verne Preliminary Potential EIFD Map

17

Future Gold Line Station

Brackett Field Airport

La Verne EIFD: Infrastructure Around Gold Line Station

Improvements for increased Pedestrian Access to Rail Station

Rail Station Improvements

Parking Infrastructure

Source: Old Town La Verne Specific Plan

18

Parking: 600-space structure at the Gold Line Station, four future parking structures at buildout

Gold Line Improvements (Sub-Area 1): Platforms, bicycle racks and improved streetscape at station.

Pedestrian Access: New bike lanes, pedestrian sidewalks, and a footbridge across Arrow Hwy. to connect proposed Fairplex development to Gold Line station.

Potential EIFD Public Financing Authority

Potential Core Public Agencies Potential Public/Private Partnerships

19

• La Verne currently finalizing PFA composition & tax sharing agreements with participating entities • PFA to draft IFP once PFA is formed by La Verne

La Verne EIFD: Partnerships

City of La Verne EIFD may include partnerships with: • Los Angeles County • University of La Verne • Fairplex – LA County Fairgrounds

Purpose of District/Premise of Partnership: • Serve regional support system including infrastructure around future Gold Line station • Connect Old Town, Brackett Field Airport, Univ. of La Verne and LA County Fairgrounds

Recently Approved LA County E.D. Resolution prioritizes: • Use of “Boomerang Funds” to fund infrastructure improvements • Support of EIFD/CRIA creation

La Verne Pitch to County for EIFD Participation: • Goals of La Verne EIFD/CRIA are consistent with goals of County • Projects funded by EIFD/CRIA are regionally beneficial • EIFD/CRIA induces private investment, which increases tax increment for LA County

Tax Increment Potential for La Verne with LA County Participation: • LA County receives ~30 cents on the dollar in property tax increment • City of La Verne receives ~22 cents • With LA County participation, EIFD district could increase tax increment above La Verne’s

share, increasing/accelerating infrastructure funding capacity for district 20

Initial Infrastructure Cost Estimates

○ City provided Kosmont with cost infrastructure estimates within Fairplex TOD, North TOD and ULV Campus West

○ Total infrastructure cost estimates are as follows:

City of La Verne Total Estimated Infrastructure Costs

Subtotals Estimated Cost Subtotal Water Infrastructure $15.7 Million Subtotal Sewer and Storm Drain $2.1 Million Subtotal Street Improvements $8.1-$10.1 Million

Total Infrastructure Cost Estimates $25.9-$27.9 Million

21

La Verne EIFD Tax Increment Projections

Assumptions: • Kosmont used initial 5, 10 and 20 year development projections and infrastructure needs

to estimate tax increment revenues

Key Initial Findings: • Project Area current assessed value ~$63 million • At year 10, EIFD will generate over $700,000 in annual TI revenue based on addition of 725

residential units & 300,000 sq.ft. comm.; 10 yr. projected AV of ~$351M • With estimated development projections, assessed value of new development could

increase to ~$484 million at projected buildout (year 20)

City of La Verne Preliminary Assessed Value Projections

Development Type Units

Projected AV/Unit/SF

Projected Total Assessed Value

Hotel 150 Keys $100,000 $15,000,000 Retail 110,000 SF $250 $27,500,000 Business Park 60,000 SF $100 $6,000,000 Apartments 920 Units $175,000 $161,000,000 Condominiums 915 Units $300,000 $274,500,000 Total Projected AV New Development $484,000,000

22

District Revenue Potential and Bonding Capacity

Kosmont ran two baseline scenarios to determine district revenue potential

Scenario A: La Verne and LA County each pledge 22 cents of increment to District

Scenario B: La Verne contributes 22 cents and LA County contributes 11 cents to District Tables below show summary of annual increment and potential bonding capacity for each scenario:

La Verne Tax Increment Analysis Scenario A La Verne LA County Total EIFD Contribution % 22% 22% 44% Annual Increment @ Year 15 $785,000 $785,000 $1,570,000

Bonding Capacity in 1st 15 Years $26,000,000

La Verne Tax Increment Analysis Scenario B

La Verne LA County Total EIFD Contribution % 22% 11% 33%

Annual Increment @ Year 15 $785,000 $393,000 $1,178,000

Bonding Capacity in 1st 15 Years $19,500,000

23

Residual County Revenue Projections

• In each hypothetical scenario, LA County will not contribute all of its tax increment to the EIFD • For each scenario, table below shows net residual property tax revenue from project area that

County is projected to retain after EIFD contributions

La Verne EIFD County net Residual Revenue After EIFD Contributions

Assumes 30% LA County Property Tax Capture Rate Scenario A Scenario B Tax Increment % that County Retains 8% 19% Year 5 Residual Annual Revenue $ 130,000 $ 310,000 Year 10 Residual Annual Revenue $ 245,000 $ 590,000 Year 15 Residual Annual Revenue $ 345,000 $ 820,000 Year 20 Residual Annual Revenue $ 590,000 $ 1,360,000

• If County did not contribute increment and the $63M base AV grew at 2% per year, the County would receive:

County Revenue in Baseline Case (No T.I. contribution)

Year 5 Annual Revenue $16,000 Year 10 Annual Revenue $37,000 Year 15 Annual Revenue $60,000 Year 20 Annual Revenue $87,000 24

La Verne Annual EIFD Tax Increment (based on La Verne TI estimates)

25

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

County Share City Share

EIFD Startup Funding Sources

Start-up Capital – an important component of EIFD formation

• At formation, EIFDs have zero revenues and tax increment is minimal

• La Verne may consider the following primary funding sources to provide initial capital for needed infrastructure in Project Area:

1. Grant funding from the Greenhouse Gas Reduction Fund (Cap and Trade monies)

2. Initial developer loan or pledge to be repaid through credit and reimbursement agreement

3. Development impact fee levies

4. Other public agency allocations (e.g., Property tax in lieu of VLF, RPTTF)

Creating partnerships with public/private entities can help alleviate initial EIFD funding issues

26

La Verne EIFD Status

27

• La Verne reaching agreement with all taxing entities on EIFD boundaries, PFA composition, & Tax Increment contributions

• La County has expressed interest in contributing TI to EIFD, determination expected by October 2016

• City must work with County to agree on PFA board

• La Verne beginning refining infrastructure improvement costs for IFP

• La Verne evaluating other funding sources for transit-oriented-improvements such as State and Federal grants (GHGRF, other)

LA Verne EIFD Formation Timeline

28

Year 16 2017 Quarter 4 1 2 3 4

1 City to make final determination of EIFD boundaries / PFA composition / TI contributions

2 City adopts Resolution of Intention to establish EIFD & creates PFA

3 PFA drafts IFP (in process)

4 PFA drafts / updates / processes necessary CEQA documents

5 PFA distributes IFP to property owners & affected taxing entities along with CEQA documentation

6 PFA conducts public hearing to review IFP & approves IFP after modifications (if any)

7 PFA ratifies resolution “proposing” adoption of IFP and formation of EIFD

8 PFA adopts IFP and resolution of formation creating EIFD; IFP takes effect

9 File Change of Jurisdictional Boundaries with BOE for FY 2018 implementation

Other Key Considerations for Implementation

• Timing for adoption – Necessary to coordination formation efforts with County Auditor-Controller and State Board of Equalization Necessary filings per guidelines from Board for Change of Jurisdictional Boundaries

by December 1st of the year immediately preceding division of taxes for EIFD

• Former RDA Project Areas – If EIFD is within or overlaps a former RDA area with ongoing debt, EIFD debt is subordinate to existing obligations

• CEQA – Legislation says IFP must be distributed with any required CEQA documentation for proposed public facilities and project development IFP should leverage existing Specific Plan and/or General Plan environmental

documentation to the extent possible

29

Economic Development 2.0 - Next Gen

• Basis of E.D. 2.0 is partnerships which prioritize regional collaboration, energy efficiency, sustainability & infrastructure

• Partnerships formed through “districts” such as La Verne EIFD

• Can use tax increment with private sector investment/participation

• 45 year district that can yield taxes, jobs and infrastructure

30