Tax increment financing presents an opportunity for jurisdictions to fund or obtain infrastructure and affordable housing as well as other community benefits through land value capture. At a basic level, by authorizing development, constructing public works projects and other improvements, and making zoning changes that permit additional development, a jurisdiction can improve property values. A city can capture the associated land value increases through property taxes and reinvest those into other public purposes that benefit the community, including other types of infrastructure, affordable housing, and economic development.
Following the dissolution of Redevelopment in 2012, the State has bolstered alternative means of tax increment financing through the approval of legislation that permits the creation of enhanced infrastructure finance districts (EIFDs) and community revitalization and investment authorities (CRIAs), further discussed below. Pending State legislation may also provide another form of tax increment financing for TOD districts in the future.
Enhanced infrastructure financing districts (EIFDs). The primary objective of infrastructure financing districts is to finance capital projects of “communitywide impact.” Enhanced Infrastructure Financing Districts (EIFDs) can be used to finance infrastructure projects such as transportation infrastructure, water and wastewater facilities, solid waste facilities, and community amenities including parks, libraries, and childcare centers. EIFDs can also help fund affordable housing and even environmental mitigation where improvements are found to provide communitywide benefits.
EIFDs may be formed over a defined area (the district), including non-contiguous areas, by a city, county, or joint powers authority (JPA). EIFDs formed by a JPA can be established without voter approval; however, 55 percent voter approval is required for the issuance of bonds. As such, EIFDs have the greatest potential for success where taxing authorities (typically cities and counties) are motivated to move such projects forward and have strong community support.
Projects within EIFDs are financed through tax increments generated from the growth in property taxes collected from parcels within the district. EIFDs may last for up to 45 years from the date on which the issuance of bonds is approved. Additionally, cities and counties may loan money to an EIFD to fund authorized projects.
EIFDs may also be used to fund projects within former redevelopment areas (RDAs) when the Successor Agency has obtained a finding of completion for the RDA project, RDA litigation has been resolved, and Controller review has been completed.
Community revitalization and investment authorities (CRIAs), in particular, are intended to provide a source of funding for infrastructure and housing in disadvantaged communities.
Opportunities and advantages. Stakeholders expressed serious concerns regarding infrastructure capacity and costs associated with upgrading existing infrastructure as well as providing new infrastructure to developing areas. EIFDs may present an attractive option for financing infrastructure needed to serve housing projects and can also be used to fund affordable housing projects themselves. The financing capacity of the districts is driven by the portion of the base 1 percent tax levy that is dedicated to the district. It can be an effective tool when either a sponsoring city receives a large share of the 1 percent property tax levy or if counties agree to contribute a portion of the county increment to the district.
Challenges for implementation. Some of the challenges associated with EIFDs include various limitations, requirements, and difficulties in forming them. The use of EIFDs could be limited if a jurisdiction has not completed its redevelopment area wind-down processes. EIFDs are also subject to State provisions such as prevailing wages, but given that public works projects and most affordable housing projects that receive public subsidies are also subject to prevailing wages, this may not be a significant issue. Lastly, the formation of EIFDs requires strong partnerships with participating taxing entities and strong community support, especially for the issuance of bonds within districts having 12 or more registered voters, since a 55 percent approval rate is required. In districts having less than 12 registered voters, each landowner has one vote for each acre or portion of an acre of land that they own within the district. As such, issuance of bonds within a newly developing or a largely uninhabited area may be more readily feasible. Conversely, strong community support and educational outreach will be needed in districts with 12 or more registered voters. It is important to inform stakeholders that EIFDs do not create a new tax and do not create a lien on the property.
Relevant State Law
Senate Bill No. 628 (SB 628) (2014). Enhanced Infrastructure Financing Districts.
California Community Economic Development Association. Resource Guide to Enhanced Infrastructure Financing Districts.
California Association for Local Economic Development. How to Create an Enhanced Infrastructure Financing District (EIFD).
Lincoln Institute of Land Policy. Land Value Capture and the Property Tax.