Tax increment financing (TIF) works by freezing the property tax revenues that flow from a designated project area to the city, county, and other taxing entities at the “base level” in the current year. Additional tax revenue in future years (the “increment”) is diverted into a separate pool of money, which can be used either to pay for improvements directly or to pay back bonds issued against the anticipated TIF revenue.
In California, TIF has historically been used by redevelopment agencies to raise funding for infrastructure improvements, land assembly, housing, and other projects in redevelopment areas. However, redevelopment agencies in California were required by state law to dissolve as of February 1, 2012. In 2014, with Senate Bill (SB) 628 the State revamped existing Infrastructure Financing Districts into Enhanced Infrastructure Financing Districts (EIFDs). EIFDs are a type of TIF district cities and counties could form to help fund economic development projects. Several legislative measures have passed in the years following that modified SB 628 and EIFD requirements: Assembly Bill 733 (2017) allows for EIFDs to fund climate change adaptation projects, including but not limited to projects that address conditions that impact public health (such as decreased air and water quality, temperatures higher than average, etc.) and extreme weather events (such as sea level rise, heat waves, wildfires, etc.); Senate Bill 1145 (2018) allows EIFDs to also fund infrastructure maintenance costs; Assembly Bill 116 (2019) allows for EIFDs to issue bonds without public vote however does increase public engagement requirements.
With these modifications, EIFDs are currently able to fund infrastructure maintenance and housing development, economic development, transportation infrastructure, sewage treatment, and climate adaptation projects, among other uses. EIFDs do not increase property taxes, as they cannot pull property taxes from school districts. EIFDs are governed by a Public Financing Authority (PFA) made up of 5 members of at least 3 elected officials and 2 local community members who live or work in the district area. The PFA oversees the creation of the District’s Infrastructure Financing Plan (IFP), which outlines the specific projects the District will fund. Additionally, while EIFDs are not required to set aside a specific percentage of affordable housing, all housing that is developed must be affordable.
Although there are a handful of approved EIFDs in the State, several jurisdictions across California are in process of forming their own EIFDs. Kosmont Companies has mapped out this progress, click here to view.
The Case Studies below explore some of the EIFDs currently formed and in process of formation, and highlight infrastructure-types that EIFDs can fund, such as Climate-Safe Infrastructure.