Q & A on Enhanced Infrastructure Financing Districts (EIFD)

On January 13th, 2015, Meeting of the Minds hosted a webinar discussion on a new set of infrastructure financing tools that had just become available in the state of California (video archive here). Our audience submitted over 100 questions to our panelists, many of which we were unable to answer during the short 1-hour webinar.

Many thanks to our panelists, who took the time to answer many more of our audience’s questions below. Questions have been consolidated and grouped into categories.

Panelists

Fred SilvaFred Silva
Senior Fiscal Policy Advisor
California Forward


Pisano-241Mark Pisano
Professor of the Practice of Public Administration
USC Sol Price School of Public Policy


larry-smile-1Larry J. Kosmont, CRE®
President and CEO
Kosmont Companies

Questions

How do EIFDs interact with former RDAs and other local infrastructure plans and projects?

Most former RDAs won’t be completely “wound down” for 30 years when all bond payments are paid off. Must the implementation of an EIFD wait until this date? — Douglas H.

No. A city or county can initiate proceedings to set up an EIFD right away, as long as the city or county has a Finding of Completion from the Department of Finance certifying there are no RDA or successor agency assets under litigation that would benefit from an EIFD—and as long as the city or county complies with the State Controller’s asset transfer review.

Can you formally start preplanning for the EIFD before complying with the successor agency prerequisite? — Hector R.

You can, so long as you have not initiated proceedings to form the EIFD and do not expect to have the EIFD pay for costs attributable to work done before state clearance.

As a special district, the city must repay the redevelopment money (wind that down) before the City can move forward with establishing an EIFD, correct? — Karen G.

Yes, see answer to question 1.

Does a City have to have had a previously established Redevelopment Agency to be eligible to create an EIFD? — Rick S.

No. The authority generally applies to all cities and counties including those that did not have a redevelopment agency.

The CA P3 law exits until end of 2016. What is the relationship between approvals under that law and the EIFD? Do you see a project that might go across both? — ­Frank R.

Since the EIFD is a separate agency, it can take advantage of the P3 statute. It’s worth noting that there are expected to be efforts in the 2015-16 legislative session to extend the P3 authority.

Can you establish an EIFD prior to your LRPMP being approved? — Kymberly H.

­Although it is not specifically in the EIFD statute as a barrier to formation, the successor agency must have a Long Range Management Plan for its assets approved by the Department of Finance. If the three conditions are met as outlined in question 1, agencies that want to form an EIFD should be able to proceed.

How does this relate to resource conservation projects, as part of infrastructure? — Glenn F.

Resource conservation projects are part of the broad authority for financing under the EIFD, since they are assumed to have community-wide benefit.

What are the specific financing powers of an EIFD?

Are the enhanced eminent domain powers extended to the Financing Districts of EIFD? — Lara D.­

Generally, the EIFD statute does not contain the power of eminent domain.

The EIFD Model appears somewhat similar to Community Services Districts, without the ability to provide services, and with the addition of TIF financing and a reduced Bond threshold? Is this correct? And how is the governance model similar or different? — David M.­

Your description of the authorities of CSDs and EIFDs is correct. As for their governance models, CSDs are normally made up of the governing board of the city (City Council) or county (Board of Supervisors) that created it. The EIFD includes all of the participating taxing entities— including cities, counties, and special districts—along with two public members. If an EIFD is created by a single city, it is governed by three members of the city council and two public members.

How do you envision leveraging Prop 1 bonding capacity using EIFDs? Can state agencies benefit from this too? — Simon B.

To the extent that there are state Prop 1 bond funds that require a local match, an EIFD can be organized around an eligible Prop 1 project. The state’s administering agencies are aware of these new statutory provisions.

Are agricultural lands and community land trusts included in EFIDs? — Theodosia F.­

Participation in an EIFD is limited to taxing agencies such as cities, counties, and special district that have a share of the property tax. However, nothing prevents a community land trust from participating in a project that meets the goals set forth in the infrastructure plan. Their participation will vary depending on what the specific plan is hoping to accomplish.

I’m not familiar with redevelopment agencies, so could you explain how the VLF and other taxes are utilized by the financing authority? Are they required? — Heather M.­

A participating local agency (e.g. city and a county) that receives a portion of the property tax may pledge a portion of its growth as part of the financing of a project. That property tax comes to the city or county in two forms: One is from property tax growth within the boundaries of the district and the other is from property tax revenue a city or county receives from the state to backfill local revenue losses following the 2004 reduction of the state Vehicle License Fee. This backfill amount increases along with the citywide and countywide growth in assessed property value.

Does the EIFD fund simply reapply existing tax revenues or is there a mechanism to increase revenues or benefit assessments? — Karl N.­

The Public Finance Authorities can use growth from existing revenues, as described in response to question #12. Additionally, they can use all existing assessment law authority granted by the state, as well as fee and partnership authority granted by the Infrastructure Financing and Investment Act. To leverage these funds, EIFDs can also create availability payment schedules using the resources of participating taxing entities.

Can the district be limited in size so that specially designated areas (like an airport authority) keep the funding focused to their boundaries? — Beth L.­

Yes, an EIFD’s size is determined by the project or investment program. Additionally, EIFDs can make expenditures outside the district if there is a direct nexus to the community benefit of the investment.

What is the difference between IRFDs and EIFDs? — Alan N.­

The planning and strategy authorities of IRFDs can partner with the financing and organizational capacities of EIFD’s for implementation.

How do EIFDs powers interact with state laws like Prop 218 as well as federal laws?

How does Prop. 218 fit into this?­ — Paul M.­

Prop. 218 sets vote requirements for agencies levying local taxes. The EIFD does not have the power to levy taxes and therefore is not covered by the 2/3rds vote requirements in Prop. 218. EIFDs do have the power to use the growth of the existing property tax, to use special assessments tied to benefits conferred upon property, and to use fees for projects such as water services. To the extent a nexus exists between the assessment and the benefit to property, the assessment is not considered a tax under Prop. 218.

To what extent might implementation of a new EIFD created to build supplemental infrastructure conflict with federal funding grant restrictions on the base infrastructure that is already built? For example any conflicts with TIFIA? It may be possible to use a TIFIA guarantee as part of an EIFD transportation project all TIFIA requirements, (multi-modal, etc) would need to be achieved. — Alexander K.­

The EIFD statute is simply a basket of financing tools including the growth in the property tax, benefit assessment, fees, and other related authorities. Any conflicts with federal funding will be subject to a review of the federal rules depending on what the federal government spent their money on.

When does an EIFD have to seek voter approval?

If a P3 or SPV issued PABS (private activity bonds), would they be subject to voter approval? — Frank R.

No. A vote is required only when an EIFD issues tax increment bonds supported by an allocation of the property tax, with a vote threshold of 55 percent.

To clarify, the EIFD could be created and the tax increment could flow to a specific project (or projects) on an ongoing basis, but would NOT need to go to the voters if no bonds are issued. — Ian P.­

Correct. Simply allocating property tax increment to a project over a period of time would not trigger a vote. It would only require the approval of the participating agency.

What can EIFDs be used for?

Do you anticipate EIFD funding all public good projects or projects which could return a risk adjusted rate of return for an investor? — ­David M.

Yes, if the project can demonstrate a community-wide benefit.

­­Colin B.­: How well suited is an EIFD for infrastructure planning and development in economically disadvantaged and small communities?

Disadvantaged communities, regardless of size, are ideally suited for an EIFD if a specific plan has been adopted that could increase the wealth and value in the community. An EIFD investment plan would establish the increased revenues that could be captured by growth in the value of local property. These funds that could then be used to make continued capital investments.

The types of projects that Mr. Kosmont listed are single purpose projects that solve one problem as opposed to projects that solve multiple problems. Would any of the panelists speak to SB628’s capacity to create plans to address multiple problems? ­And by “multiple problems,” I mean inter-connected problems that are more efficiently and affordably addressed by an integrated project? — Susan L.

The investment plan of the EIFD is based on the identification of a clear goal and the creation of a funding strategy aimed at achieving it. This will be addressed in many cases by bringing multiple investment streams together from across jurisdictions. The more benefits that are generated by a project, the more revenue streams may be accessible to it. This new authority is intended to provide the multiple financing authorities and flexibility needed to strengthen local funding and financing capacity.

Can you speak to this funding as a mechanism for flood control projects? We are currently funded by Mello Roos taxes, but limited to very small districts within the County. Could this be used to fund joint projects, say fire and flood? — Chris C.­

Yes. The statute specifically mentions flood control as an authorized activity. To join an EIFD, participating agencies such as a flood control district, affected fire districts, and other agencies would work together with a city or county to develop an infrastructure plan that tapped into the new EIFD financing authorities to support their project.

Can EIFD fund water supply/water infrastructure projects? — Saquib N.­

Yes. EIFDs will be able to support every type of local water project, thanks in part to a change to Prop 218 last year that expanded the definition of water services to include water from any source, including recycled water and reclaimed stormwater. EIFDs will be able to use water fees to finance a broad range of water services.

­How would a Prop. 84 regional water management group or regional flood group use an EIFD? — Paul M.

Like any other local agency, regional water managers could partner with a city or county to form the EIFD to take on a range of different kinds of water projects. The EIFD would also be able to use the Joint Power Authority to bring multiple cities, counties, and water agencies together to work on issues across watersheds.

For water and climate change projects, areas covered by an Integrated Regional Water Management Region – wouldn’t those groups be a likely starting place for determining critical water infrastructure needs? — Lynn R.

Yes. And the EIFD authority will allow these groups to join plans to do just that. It will also provide them with an organizational structure to work across jurisdictions and access all available local financing tools to make them successful. For more information, see response to question 25 and 26 above.

Are there “multi benefit requirements”? — Heather M.

There are no requirements that a project provide multiple benefits to receive funding from EIFD, but the more benefits a project provides, the broader its access to different revenue streams and increased funding opportunities.

Can we establish de-salinization plants? — Brock W.

There is no limitation in the EIFD that would prohibit the appropriate agencies from adopting a plan for the construction of a de-salinization plant.

Operations & Maintenance?

Would pavement maintenance be an eligible use for EIFD? — Salvador A.­

Probably not, unless it was part of a broader street revitalization program, as opposed to “routine maintenance.” See Government code section 53398.52 (b) for this inclusive list of powers plus the prohibition in Section 53398.52 (a) (3).

Can EIFDs be used for O&M? — Paul M.­

No. The statute specifically states: “The district may not finance the routine maintenance, repair work or costs of an ongoing operation or providing services of any kind”. See government code section 53398.52 (a) (3).

Can EIFD funds be used for on-going annual maintenance after construction? — Dennis K.­

See response to question 30. Recognizing the specific statutory prohibition on the use of EIFD funds to support operations and maintenance, there’s no reason why a procurement agreement between an EIFD and a private party couldn’t encourage a vendor to use their own funds to support operations and maintenance.

Who can join an EIFD?

Are Native American tribes eligible to participate in EIFDs? — Glenda H.­

Yes, a representative of an Indian Nation could be added to Public Financing Authority—but only as an individual serving as one of the public members of the board. Tribes could not join as a participating agency, since that role is restricted to taxing entities. A tribal representative on the EIFD would be able to shape the district’s business plan by bringing partnerships and multiple investment strategies together, including the Indian Nations contained within the district’s boundaries. Tribes can also be included as partner under the Infrastructure Financing Authority Act.

Are Community Colleges able to use EIFDs? — Mark H.

No. Community colleges may not participate in the EIFD process. See Section 53398. (a). However there is nothing that prevents the city and county participant from undertaking an infrastructure projects that benefits a community college.

Are EIFDs not appropriate when there are many property owners and why? — Caroline N.

In nonresidential areas (areas with less than 12 registered voters), the vote to approve EIFD bonds is taken by the property owners of the district, with one vote per acre (or portion of acre) owned. For that reason, nonresidential areas with a few property owners might be particularly attractive areas for starting an EIFD, since a small number of property owners could, by themselves, ensure approval of the EIFD bonding. But that is certainly not to say that EIFDs cannot be formed in areas with many property owners, who the EIFD could also ask to support its bonds.

Can the federal government agency (i.e. USDA) be part of this EIFD? — Robert M.

The EIFD is a distinctly local agency consisting of local taxing agencies. Although a federal agency like USDA may play a role in the activities of the district, it may not serve on the district’s board as a formal voting member of the district.

How does forming an EIFD work and how does it interact with the public?

Does step 2: reach out to stakeholders include reaching out to the public and in what way? — Caroline N.

The legislation requires participating governments to directly notify all affected government entities and property owners, conduct a public hearing after providing notice in a newspaper of general circulation, provide an opportunity for public input, and hear and pass upon any objections, before the EIFD can be created and before the infrastructure finance plan can be approved. Then, before the EIFD issues any bonds, it must provide public notice of its intention to do so, and submit the proposal to the voters of the district. Fifty-five percent of those voting must approve the bond issuance. In addition to these requirements, most if not all local governments have their own requirements to conduct public outreach and publicize the agendas of their public hearings. All of these would also apply.

What is the typical timeline for forming an EIFD? — Leslie D.

Although there is limited experience with this new statute, the timeline for forming will be driven by how long it takes local governments to come to an agreement on what they want to accomplish and how they would like to pay for it. This will often depend on the amount of community consensus there is around the project.

What is the public reporting requirement? Would it be annual report submittals? Who is the oversight authority if any? — Salvador A.­

The primary oversight is locally-based and relies on the participation of the people in the community. If tax allocation bonds are used, an independent audit is required every two years. The Bureau of State Audits has the authority to conduct financial and performance audits of EIFDs.

Has anyone used an EIFD yet?

Are there any cities or entities that have, as of today, created an EIFD? Have any issued bonds yet? If so, are there any early “lessons learned” from any such experiences? — Ignacio B.­

The statute just took effect January 1, 2015 so no districts at this point have been established, although the City of Los Angeles has expressed interest in creating a district as part of its efforts to support restoration of the Los Angeles River basin.

We hope that by the end of 2015 we will have a few “lessons learned” that we can post on the website of the California Economic Summit. Be sure to join the Summit to get updates: www.caeconomy.org.

Local agencies interested in using the statute can also participate in regional efforts to build out a project pipeline: The Bay Area Council in Northern California and the Southwest Megaregion Alliance in Southern California are both working with regional leaders to identify projects that could benefit from the new EIFDs.

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