Governor's 2014-15 Budget Summary Proposes Expanding Tax Increment Financing

by Best Best & Krieger LLP
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Proposed Changes to Infrastructure Financing District Law

This week Governor Brown released his 2014-15 Budget Summary. It contains a proposal to expand the tax increment financing used by Infrastructure Financing Districts (IFDs) for uses not currently authorized under law.

Specifically, the Administration proposes legislation to:

(1) expand the types of projects that IFDs can fund to include military base reuse, urban infill, transit priority projects, affordable housing, and associated necessary consumer services;

(2) allow cities or counties that meet specified benchmarks (discussed below) to create these new IFDs, and to issue related debt, subject to receiving 55 percent voter approval; and

(3) allow new IFD project areas to overlap with the project areas of former redevelopment agencies, while strictly limiting the available funding in those areas to dollars available after payment on all of the former redevelopment agencies’ approved obligations.

If a city or county formerly operated a redevelopment agency, the expanded IFD tool would be available to them only when they meet the following benchmarks:

(1) Receipt of a Finding of Completion from the California Department of Finance;

(2) Compliance with all State Controller’s Office redevelopment agency audit findings; and

(3) Conclusion of any outstanding legal issues between the redevelopment agency’s successor agency, the city or county that created the redevelopment agency, and the state.

The IFD proposal includes elements found in bills that are currently in the Legislature, including AB 229 (Perez), AB 243 (Dickinson), SB 33 (Wolk) and SB 628 (Bell). Just how the Governor’s proposal will move forward is not yet clear, as it may be part of the budget process as a trailer bill or may find its way into another piece of legislation.

The proposal as outlined is less aggressive than other proposals in the Legislature to amend the IFD law and the proposed benchmarks may not make them practical in many communities. However, the proposal does suggest expanding the use of IFDs as a tool for economic development. Other tools for economic development discussed in the Governor’s Budget Summary include issuance of general obligation bonds and lease revenue bonds, as well as increasing local tax rates.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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