Eminent Domain Report

They have been around for over 20 years.  Established at a time when state and federal governments were withdrawing from financing infrastructure projects, Infrastructure Financing Districts (IFDs) were developed as an alternative vehicle for local financing of those types of projects.  However, they are difficult to establish and have limited powers.  As a result, they have rarely been seen as an alternative to redevelopment agencies.  Now, a generation later, with the possible demise of redevelopment, cities and counties are once again casting about for alternative sources of financing for public projects.  Senator Wolk (D-Davis) may have a partial solution.  She has introduced SB 214, which could allow IFDs to partially fill the void left by redevelopment’s potential demise.     

IFDs are a little bit Mello-Roos and a little bit redevelopment.  They are formed in proceedings similar to those used for Mello-Roos Community Facilities Districts.  Like redevelopment agencies, they use property tax increment to finance public projects.  Unlike redevelopment agencies, the formation of IFDs and their power to issue bonds is subject to voter approval, by a 2/3rds majority no less.  IFDs also lack the power of eminent domain.  While they use tax increment to finance projects, they do not have access to tax dollars otherwise allocable to school districts so they have significantly less revenue at their disposal than redevelopment agencies.

Senator Wolk, the Chair of the Senate Governance and Finance Committee, believes that her legislation provides a practical alternative to redevelopment agencies that will enable local governments to continue financing economic development.  Her legislation would allow the legislative bodies of cities and counties to form IFDs and issue debt without voter approval.  It would also extend the term of IFD bonds from 30 to 40 years, thereby lowering the amount of periodic debt payments.

IFDs lack two of the more controversial powers of redevelopment agencies:  (1) the ability to receive tax increments that would otherwise go to school districts, and (2) the power of eminent domain.  Since Senator Wolk’s bill would not grant IFDs either of these powers, it may be immune from much of the criticism levied against redevelopment agencies.  This will certainly enhance the bill’s political viability on both sides of the isle.

Of course, it would not replace one of the core functions of redevelopment:  the assemblage of blighted parcels for redevelopment by private developers.  IFDs can only provide financing for the infrastructure needed for development of blighted communities.  Cities and counties would need to look to other creative measures to attract private capital to actually develop those communities.