February 14, 2019

With the state budget in a surplus position, there has been heightened attention by both the Legislature and Newsom Administration on paving the way for local economic development. Proposals on the topic are currently all over the map; however, they all illustrate the desire for workable tools to finance economic development and housing projects.

In his January budget proposal, Governor Newsom pointed out that various economic development tools have been introduced since the dissolution of redevelopment, but that only a handful of agencies have utilized them. To remedy this problem, Department of Finance released trailer bill language proposing to remove the 55-percent voter approval for Enhanced Infrastructure Financing Districts (EIFDs) to issue debt (note: Senator Beall has introduced a companion measure in SB 128). The aim is to provide EIFDs with greater access to capital so they can support longer-term infrastructure commitments. Governor Newsom has also discussed pairing EIFDs with the federal Opportunity Zones program and essentially stacking the incentives to increase the production of affordable and moderate-income housing.

While Governor Newsom has stressed the need to focus on existing tools, members of the Legislature are proposing different approaches. Assembly Member Chiu (D-San Francisco) and Senator Beall (D-Santa Clara) both came out the gate the first day of the legislative session with their own proposals to address the lack of viable funding tools for economic development.

AB 11 (Chiu), otherwise known as the Community Redevelopment Law of 2019, takes a similar approach to the tax increment financing structure used by the former redevelopment agencies (RDAs), but with a pass-through provision for agencies that do not choose to participate financially. This has been a two-year work in progress as CSAC and a coalition of like-minded partners have been working diligently to ensure any pass-through mechanism returns the full amount of property tax increment to non-consenting taxing entities.

SB 5 (Beall) takes an entirely new approach by creating a program that relies on redirecting funds from the Educational Revenue Augmentation Fund (ERAF), which the State would be required to backfill. This would operate more as a grant program for participating agencies and includes a cap on total State expenditures not to exceed ($2 billion annually at full implementation).

Both AB 11 and SB 5 contain dedicated set asides (30 percent and 50 percent, respectively) for affordable housing, advancing a key priority of the Legislature in these conversations.

In the same vein, Assembly Member Stone (D-Monterey Bay) recently introduced a proposal that seeks to funnel more money to affordable housing, specifically to the City of Santa Cruz. However, this district bill, AB 411 (Stone), sets a troubling precedent by allowing the local successor agency to use funds from its former RDA to create affordable housing, rather than pay off bond debt, which would delay returning property taxes to the county, city, and special districts.

CSAC is interested to hear what counties think about the various proposals presented in this article. Please feel free to email any comments or questions to Geoff Neill, CSAC Legislative Representative, or Tracy Sullivan, CSAC Senior Legislative Analyst.