Los Angeles County’s First EIFD Marks New Era of Collaborative Economic Development

Los Angeles County’s first Enhanced Infrastructure Financing District, in the city of La Verne, has been greenlighted. Explain how this new “sustainability district” fits into La Verne’s long-range goals, and serves as a precedent for more EIFDs to come.

Larry Kosmont: I think it’s great for L.A. County, one of the state’s more urban areas, to have an EIFD focused on sustainability and transit-oriented development. So much of the economic development bet that L.A. County has made through propositions like Measures M and R is around transit infrastructure.

La Verne is a smaller city, with about 35,000 people. In the next couple years, a Gold Line station is coming to its downtown (known as Old Town) that will provide viable mass transit. It’s  funded and approved—but the city has limited supportive infrastructure. There’s no utility, pedestrian, auto, or bike access to the station. Without that transit-serving infrastructure, there’s no tangible way for the community to functionally utilize this new station while creating economic opportunity. The new EIFD will enable the city of La Verne—in partnership with other major players, like the county Fairplex and the University of La Verne—to fund infrastructure and incent transit-oriented development to optimize the Gold Line station.

La Verne has created a 110-acre transit-oriented district with three subareas: two are adjacent, and one is a half-mile down the road closer to the university. (A unique feature of EIFDs is that their subareas do not have to be contiguous.) The city has taken this area, which is poised for development, and overlaid a specific plan that, among other things, expands density for mixed-use and commercial development. Together, the EIFD and the specific plan serve as a basis for the private sector to pursue significant projects that will create tax increment, which will fund new infrastructure.

Step back and describe the value of EIFDs for local jurisdictions. 

EIFDs allow local communities to establish districts where they can collect tax increment, or the amount of property tax that increases as a result of new private investment in that area. That tax increment can be used to make infrastructure investments, and in doing so, induce private investment. Private investment generates more tax increment revenue to fund more infrastructure.

In an EIFD, no new taxes are imposed on constituents or property owners. It relies only on tax increment that is affirmatively allocated by each of the taxing districts willing to contribute. This is different from redevelopment, where a city could simply claim tax increment dollars from other public agencies.

What jurisdictions were required to signed off on the creation of La Verne’s EIFD?

La Verne’s Public Financing Authority is made up of three members of the City Council and two public members, representing the University of La Verne and the community at large, respectively.

La Verne invited L.A. County to participate, but the county did not yet have an EIFD policy in place. By the time they adopted one in August 2017, La Verne had already made the decision to proceed. However, the PFA’s formation documentation enables the county to join in a subsequent year, should it choose to do so. Everyone will be watching whether it does.

In my view, the La Verne EIFD fits exactly the profile of the county policy. It’s textbook. If the county were to throw in, say, 20 cents of their own increment—matching the city’s 20 cent contribution—it would cut in half the time it would take to install the infrastructure needed to support the new Gold Line station with regional benefits.

At the recent California Economic Summit, you discussed the challenges to scaling EIFDs in California. Summarize your takeaways.

Now that several EIFDs have formed around the state, we’re starting to see commonality in the challenges they face. The first obstacle is educating the tax base—property owners and constituents—that EIFDs are not a new tax on the property owner’s bill; they are a redirection of property tax increment received by taxing entities that authorize allocations to the district.

The second and primary obstacle is getting other taxing agencies involved. The state set up these sustainability districts to encourage lead agencies—usually cities—to approach other taxing agencies with a plan for regionally beneficial infrastructure improvements, and hopefully convince them to collaborate.

The problem is that, to my knowledge, there are still no takers on the county side. EIFDs suffer from the suspicion that was generated when cities could use redevelopment to unilaterally grab future property tax share from other agencies. This can no longer happen—EIFDs require voluntary and affirmative contributions from participating agencies—but the bias against jurisdictional cooperation largely remains intact.

That’s going to take a while to overcome, but I’m optimistic that it will change. Certainly, as the state starts to ratchet down climate control requirements, EIFDs are going to be one of the better opportunities for local governments to partner on making sustainability impacts in compliance with state law, and to facilitate private investment and economic development while doing so.

The third obstacle is that many cities have not yet adopted planning and land-use standards that enable upgrades in density and valuation. Some cities should be looking not only at EIFDs, but also at their current zoning, to expand their zoning envelopes around transit and other infrastructure that would support new density. That takes time as well. 

Elaborate on the opportunity that L.A. County’s Measure M provides for local jurisdictions using EIFDs to maximize the economic impact of new transit stations.

We can put this in terms of a fourth obstacle to EIFDs: early cash flow. It takes a while for tax increment to build. If you need tax increment in order to build infrastructure in order to generate private investment and raise tax increment, it becomes a question of the chicken and the egg.

Measure M presents to L.A. County a robust and unique opportunity to invest transit improvement dollars in an EIFD and get incredible leverage. The EIFD would induce private-sector investment around Measure M’s public-sector infrastructure investment. That could ramp up the tax increment, which would double down on Measure M monies. That’s a winning formula.

The state’s approach to EIFDs is exactly this. It says that if regional authorities can identify common public investment needs, match that with private investment, and throw resources in on the early side—like through Measure M—then they can leverage the tax increment that the EIFD allows for 45 years. That’s a win-win.

What Measure M represents for all the cities touched by transit investment in L.A. County is the opportunity to create transit sustainability districts like La Verne’s, and to provide early cash flow that induces private-sector investment and increases the tax yield from new tax increment.

What opportunities other than transit investments could be leveraged through the creation of EIFDs? 

There is opportunity for more suburban communities—say, those with hundreds of acres of greenfield areas that can’t be developed because they need water capacity, sewer capacity, roadway access, or other capacity. In many places up and down the state, just one or two missing infrastructure improvements are preventing an area from unlocking its value. The zoning might be there; the public support might be there; but the front-end infrastructure money is not there. An EIFD can resolve this.

One potential example is at the site of the former municipal airport in Rialto in San Bernardino County, now governed by the Renaissance Specific Plan. Essential and regionally beneficial flood control and roadway improvements along the 210 Freeway there could induce millions of square feet of private industrial, commercial, and residential development. Very often, in circumstances like this, Kosmont Companies finds it appropriate to implement a Community Facilities District to fund the initial infrastructure, with reimbursement coming from the EIFD’s future tax increment.

An EIFD can open up other sources of early money as well. In addition to capturing tax increment, an EIFD can elevate participating jurisdictions’ standing for cap-and-trade money and other state funds that could enable the district to enter a transaction with a developer and receive front-end development fees, which could be applied as early cash flow for that key infrastructure because they will be reimbursed by the back-end tax increment and potentially state funding later on. This could change the dynamics of housing and mixed-use development projects, with or without transit, up and down the state.

In 2016, Los Angeles City Council voted to consider an EIFD for the L.A. River. Is the EIFD a practical tool for planning and funding the revitalization of the 51-mile river?

Yes, I think so. If done properly, an L.A. River EIFD could transform L.A.’s back door into a multi-jurisdictional regional attraction. But political will is needed to make it happen.

The reason it’s a compelling tool in this case is that L.A. gets about 26 cents on the property tax dollar, which is very high. Of the 88 cities in L.A. County, only 17 get more than 15 cents on average.

Certainly, there are regional benefits to the river project. But the challenge will be for the city of Los Angeles to work in coordination with the county and 11 or so other cities along the river. A compelling economic case has to be made to achieve their cooperation, and one strategy is for L.A. to offer to combine its higher property tax rate level with other cities that have a lower share of property tax.

If all river-adjacent cities and the county aggregated their tax increment allocations, an L.A. River EIFD could get 40-50 cents on each new property tax dollar for the next 45 years. That could change the economic course and future quality of life for all of Los Angeles County.

If we were to speak again six months about the growth of EIFDs as a planning and financing tool, what would be our focus?

I think how we use EIFDs will start to change. A new law (AB 1568, Bloom) now allows a sub-district to be created within an EIFD called a Neighborhood Infill Finance and Transit Improvements district (NIFTI), where cities could use sales tax as well as property tax to promote housing. Now, it’s not as if there will be dozens of cities lined up to use their sales tax for housing by next year. But to me, this is a tell. It says that the state is very invested in making these districts work, and in making housing work.

The pathway the state provides for cities to engage in economic development is about climate action controls, sustainability, housing, transit, and mobility. That’s the business the state is in, and whether cities realize it or not, that’s the business they must be in in order to promote economic development locally. They have created a variety of districts, like EIFDs and CRIAs, to address those issues, with four new districts kicking in January 1, 2018. In six months or a year, I think we’ll be talking about what additional flexibility, funding and authority the state is giving these districts to work with.

The state’s interest in expanding the power of these districts induce deals on climate action, sustainability, and housing is not going away—because the climate targets they have set for themselves are so onerous, they’re going to need the help. At some point—perhaps in the next five years—there will be enough critical mass of tools and revenue sources for EIFDs to promote large sustainability and housing projects in a way that benefits the state and its sub-regions.

Remember, redevelopment was about 60 years old when the state extinguished it in 2011. Redevelopment agencies did not seed overnight, and neither will sustainability and housing districts. These are nascent districts; their day is coming, and the sooner cities set their economic development targets around these new tools, the more they will prosper.

Let’s close with your involvement in a new economic development app:  OppSites.com. Describe the value it offers.

OppSites.com started as an online economic development marketplace. More than 750 cities and economic development organizations, as well as thousands of real-estate professionals, use the marketplace on a daily basis.

Now, OppSites has also become an economic development matchmaker. Its messaging system allows investors and developers to talk directly to city decision-makers about any opportunity—not just those cities have on offer. Developers can register an interest in mixed-use near transit, say, and 15 cities in California that have also registered that interest can immediately respond. Bingo: a conversation has started. We’re seeing thousands of these conversations every day, and they lead to economic development and housing opportunities that are actionable by both the public and private sectors. This is digital economic development.

Some developers are still driving an hour and a half to take a city official out to lunch to figure out which zones might be changed in the next year, whether an EIR is being challenged, or whether a new community needs subterranean parking. In five minutes on OppSites, developers and cities can be in immediate conversation—with attachments, maps, and aerials—to see if it’s truly worth making that drive.

For cities who want to expand the universe of developers and investors their community is exposed to, beyond those who come to the same broker breakfast every year, there is no cost-effective alternative. Post your community’s economic development dreams on OppSites, and attract a broader group of interested parties.

OppSites doesn’t replace physical interface; it uses the Internet to accelerate real estate and land-use conversations so that investments can come to fruition that much quicker. This is precisely what cities and developers need. Time is valuable for both sectors.

I believe that when cities, counties, economic development organizations, developers, investors, or lenders find OppSites.com, they will realize that it is truly a marketplace network that acts as a lead-generator for tangible opportunities; a matchmaker for services, communities, and developers; and most of all, a time-saver that creates efficiencies for real estate and economic development users.