Santa Paula: Redevelopment Redux?

By Sheryl Hamlin

Clocking in at over five hours, the November 16, 2015 Santa Paula Council meeting included an informational presentation by Mr. Larry Kosmont, CEO of the Kosmont Group of Companies, who reported on the reincarnation of the California Redevelopment Agency (RDA) called the Enhanced Infrastructure Financing District (EIFD).

Background

Although much of this background information was not discussed in Mr. Kosmont’s presentation, it is important to be able to understand the presentation.

Dial back to 2011 when the state’s budget crisis required Governor Brown to take drastic measures, one of which was the cancellation of the Community Redevelopment Act, legislation enacted in 1945. In a nutshell, any California city could form a Community Redevelopment Agency (RDA) with the authority to acquire “blighted” property, often by eminent domain, propose and build new development on this property, sell bonds and pay for bonds using Tax Increment Financing (TIF).

It is essential to understand Tax Increment Financing (TIF) to understand how California developed over the last sixty years. TIF assumed that ANY new development would ALWAYS be worth more in the future and would ALWAYS attract more new development around it, thus raising tax revenues by increasing the assessment on the properties involved in the redevelopment. The city, of course, as well as the state gets a percentage of the property tax, as do schools. But in an RDA owned property, the state was subsidizing the school portion, which Brown was not longer willing to do, so redevelopment was canceled with a complex process of winding down the local agency. Because of outstanding RDA bonds, many local agencies will be winding down for decades. The downturn of 2007-2008 brought a halt to the vision of infinitely increasing property values and thus the concept of TIF, often called “generational theft”, was brought into question.

After 2011, Santa Paula was one of the few California cities which chose not to have a “Successor Agency” to manage the dissolution but was required to have a DLA (Designated Local Authority). The status of the former Santa Paula RDA was discussed at a January 2015 council meeting. Here is information on the dissolution process from the State of California. This article in Governing describes the situation of the RDA in 2011 and the rationale to discontinue it.

Fast forward to 2014 when the state’s budget is balanced (on a cash flow basis) and there is much discussion about revisiting redevelopment, particularly when redevelopment had been successfully deployed by many cities, as this article describes.

Economic Development 2.0 per Kosmont

Signed into law in 2014 and signed by Governor Brown, SB 628 creates the Enhanced Infrastructure Assessment District (EIFD). Mr. Kosmont’s slide presentation listed the EIFD and the Community Revitalization and Investment Authority (CRIA) as options for Santa Paula, but the CRIA was vetoed by Governor Brown.

The EIFD does not allow school district projects and does not have a housing component. However, it is still TIF based.  One striking difference between the EIFD legislation and the former RDA legislation is the length of time for the projected tax increment benefits which has been increased from 30 to 45 years. An EIFD can be formed without a vote and can even start on projects without a vote, but if bonds are to be issued, then a ballot measure will be required, but only a 55% majority to pass.  So the EIFD is easier to form and more facile to implement than the former RDA legislation. It also allows monies to be redeployed outside of the district by the new agency. Mr. Kosmont said we are in a “more exciting place now” to be able to pursue private investment. His presentation also included other legislation which might be pertinent to Santa Paula.

Mr. Kosmont did not specify a project or a type of project for Santa Paula, but based on the wording of the legislation, EIFD projects are highly skewed to “infrastructure” such as public water, roads and transportation. The city’s wastewater facility might have been a project for an EIFD had the city not taken the municipal bond route.

Mayor Procter introduced Ms. Lynn Jacobs, who is well known in Ventura County having served locally and at the state level in various planning capacities. She said that she would be providing a monthly report about grant opportunities. She also said that the establishment of an EIFD would be relatively simple and would take less than three months.

Vice Mayor Martin Hernandez said that this is timely with the city’s General Plan Update in process.

Responding to the Vice Mayor’s comment, Mr. Kosmont said, indeed, the city could wipe the slate, create a vision and finance it as long as the vision includes infrastructure, sustainability and mobility. Mr. Kosmont participated in a Q&A session about the new law, which can be studied here.

To view previous reports about this council meeting click here and here.

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