October 26, 2002 - From the October, 2002 issue

ULI's Newest Report: Putting the Pieces Together" Advocates State Action To Foster Smart Growth

For much of 2001 and 2002, the Urban Land Institute convened a series of smart growth workshops in California, bringing together business and community leaders to develop an agenda that will promote smart growth. The result was a report spelling out the actions recommended by this Coordinating Committee of the ULI Smart Growth Initiative. TPR is pleased to excerpt this portion of the ULI's report "Putting the Pieces Together: State Actions to Encourage Smart Growth Practices in California."

The Committee recommends that state leaders consider implementing the following economic incentives, detailed below, to advance smart growth in California:

• Community dividend program.

• Smart growth transportation funds.

• Tax-increment financing for transit-oriented development.

• Fiscal incentives for housing.

CREATE A COMMUNITY DIVIDEND PROGRAM

The proposed Community Dividend Program encourages and rewards local governments with a voluntary financial incentive-a dividend-for integrating smart growth practices into their planning and development processes. The program has two parts: 1) grants and forgivable loans for planning activities that help encourage smart growth, and 2) the awarding of priority status for future infrastructure funds to localities that meet defined smart growth criteria.

The program's goals include improved growth patterns throughout the state, the provision of needed planning funds to localities, the more efficient use of state infrastructure funds, the provision of infrastructure that supports smart growth projects, and support for localities that accommodate a share of the growth that is projected to occur in the state and growing regions..

Planning Loans and Grants

The state's provision of grants and forgivable loans for up-front land use planning and California Environmental Quality Act (CEQA) documentation can encourage cities and counties to voluntarily seek to advance smart growth objectives. Planning assistance would be offered to communities for the development of integrated planning strategies incorporating smart growth objectives-for example, a diversity of housing choices, an expansion of travel-mode choices, infill development, downtown revitalization, transit-oriented development, a mix of land uses, open-space preservation, the protection of natural resources, and certainty in the development review process. Specific criteria for providing Community Dividend Program planning assistance will need to be developed.

Priority Infrastructure Funding

The state's provision of priority infrastructure funding for cities and counties that voluntarily implement smart growth strategies would encourage localities to practice smart growth. The Community Dividend Program would involve the redesign of the state's allocation systems for funding transportation and other infrastructure, economic development, open space acquisition (including recreational land), and the preservation of agricultural land and environmentally important land. Specific criteria for providing Community dividend Program planning assistance will need to be developed.

Implementation

In order to establish an effective Community Dividend Program, state administrative and legislative leaders need to take the following actions:

• Establish a pool of funds to support the planning assistance aspect of the program

• Direct that the policies of all state agencies involved in funding infrastructure-including agencies that fund transportation improvements, sewer and water facilities, open-space acquisition and natural resource preservation, and economic development-incorporate criteria to support the priority infrastructure funding aspect of the program.

• Link new funding initiatives for public facilities, including bond acts, to the objectives of this program.

The planning and infrastructure funds made available under this program could be particularly valuable in encouraging the integrated planning that the Statewide Coordinating Committee calls for in its recommendation concerning the reform of environmental review and planning law regulations.

PROGRAM TRANSPORTATION FUNDS TO PROMOTE SMART GROWTH

Metropolitan planning organizations and state transportation agencies generally program a significant amount of state and federal transportation funds each year. The California Department of Transportation (Caltrans) has recently directed some of its resources to local smart growth planning activities. It should carry that initiative further.

Caltrans can contribute to smart growth by undertaking the following actions:

• Create a pool of funds to be made available to localities on a competitive basis for community planning and capital improvements that 1) promote mixed-use development near existing or future rail stations, 2) concentrate growth along bus corridors, and 3) improve the regional jobs/housing balance.

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• Provide financial and technical support to two recently established state programs administered by the Department of Housing and Community Development, the Inter-Regional Partnership Grants for Jobs-Housing Balance, and the Jobs-Housing Balance Incentive Grants.

• Integrate smart growth funding strategies into the allocation of federal and state funds for transportation planning and capital facilities throughout California.

• Encourage regional organizations that allocate state transportation dollars to include smart growth considerations in their funding criteria.

Ideally, Caltrans could use criteria similar to those suggested for smart growth dividends to prioritize its planning and capital facilities funding. It would be desirable to reprogram certain Surface Transportation Improvement Program (STIP) funds to emphasize smart growth plans and projects, but Caltrans would have to take care to not violate existing funding commitments.

AUTHORIZE TAX-IMCREMENT FINANCING FOR TRANSIT-ORIENTED DEVELOPMENT

Under California redevelopment law, local redevelopment agencies are authorized to use tax-increment financing (TIF) together with land assembly powers to achieve redevelopment objectives in areas determined to be blighted. The state should authorize localities to use TIF powers also in nonblighted areas near rail facilities and along major bus corridors to achieve transit-oriented development (TOD) objectives.

The result of successful TOD can be vibrant, mixed-use communities and pedestrian-friendly town centers with improved access to public spaces and mass transit; enhanced property values; and the prevention of blight in at-risk areas.

California should enact legislation allowing localities to use TIF around major bus stops or rail-transit stations that conform to specified criteria. TIF would be available for use within one-quarter mile of stops or stations. The criteria for use of this tool would include minimum peak period ridership on the transit route, as well as assurances that:

• the area is predominantly urban;

• critical county and other services dependent on property tax growth are protected;

• the hoped-for development would not reasonably be expected to occur through private enterprise or government action, or both, without tax-increment financing assistance;

• density standards within TIF areas are sufficiently high, parking requirements are sufficiently reduced, and a mix of housing types is permitted;

• a variety of nonresidential land uses, including transit-oriented retail and commercial development and civic uses such as daycare and libraries, are allowed within the TIF area; and

• sufficient affordable housing is included.

PROVIDE FISCAL INCENTIVES FOR HOUSING

The reliance of local governments in California on sales taxes encourages them to approve proposed commercial development and discourages them from approving (or promoting) sufficient residential development. This incentive structure needs changing.

Fiscal incentives for local government approval of proposed affordable housing and other housing projects conforming to smart growth practices are needed. Even though the state currently faces fiscal limitations, incentives that would stimulate the production of needed housing warrant careful consideration, because such housing would provide significant long-term benefits to the state's economy. Certain incentives could be used in connection with a regional tax-sharing strategy. The state should consider the adoption of three (not mutually exclusive) possible fiscal incentive strategies:

• Dedicate a portion of the growth in locally generated property or sales taxes to encourage the production of housing as well as transit-oriented development and to provide parks, open space, and other infrastructure.

• Dedicate a portion of the property tax increment from specific smart growth projects or types of projects to support local housing and other community needs. For example, set aside a portion of the property tax growth from transit-oriented developments for use by local governments in promoting housing and providing needed infrastructure in the tax-increment district or nearby areas.

• Permit city/county voluntary agreements to provide for an exchange of a portion of the city's sales tax revenue for a portion of the county's property tax. The city would collect a lager share (and the county a smaller share) of property taxes on new housing development levied in the city and the county would levy a portion of the sales tax in the city. In the first year, the transaction would be revenue neutral. Over time, however, the city's revenue base would come to depend more on taxes on residential properties. Thus, this tax-exchange program would reduce the city's motivation to approve an overabundance of commercial development and incentivize the production of housing. The optimum location for tax-exchange programs would be in counties in which most urbanization is taking place within city boundaries and the counties are not seeking urban development in unincorporated areas.

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