SB 961: Legislature’s Latest Effort to Finance Neighborhood Infill TOD

Senator Allen, with affordable housing in short supply in coastal California, you have authored SB 961, which promises to provide a new revenue stream for affordable housing near transit. Who have you been collaborating with to pass your bill?

Ben Allen: First of all, we are working closely with Move LA. All of us in the Legislature have been looking the debate over housing availability and affordability. We all participated in the conversation around Sen. Wiener’s SB 827.

In SB 961, we find a mechanism for getting housing online in a way that does not entail displacement in the way that SB 827 did, and is also more local control-friendly. Ultimately, this bill seeks to provide a voluntary tool for local governments that are committed to expediting transit improvements and incentivizing middle- and low-income housing near transit.

This bill adds to the list of tax-increment financing options that are available to local government under the current EIFD law. Most notably, SB 961 provides the option for districts to bond against future sales and property tax increments without voter approval—with strong fiscal controls and the support of local government.

SB 961 is a way to address some of the broader infrastructure needs of the state. We have a housing availability and affordability crisis. We have to figure out a way to get smarter planning online in our cities and to facilitate more ridership on transit and reduced congestion. As our cities grow, we need them to grow in a more transit-oriented way.

This bill also allows us to put money into programs promoting ridership, transit-oriented development, first-last-mile connections, active transportation, parks, urban greening and urban forestry. Other infrastructure is still needed for residential communities, but this bill is about making us truly transit-oriented in the way that we grow. 

How open is Governor Brown to these Neighborhood Infill Finance and Transit Improvement (NIFTI-2) Districts, given that he’s been rather resistant to other like attempts by the Legislature to recreate redevelopment authorities and tax-increment financing tools?  

Ben Allen: Governor Brown has shown a real interest in addressing the housing availability and affordability challenges that we face as a state. He was interested in Sen. Wiener’s efforts, and has been interested in pushing through more possibilities for by-right development. The subject matter is up his gumtree (as my father would say). I am hopeful that he will see this as a way to get more housing online and supporting transit-oriented development. This is a workable solution that can get support of local governments and needed stakeholder groups.

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Denny Zane: The governor has already signed three bills creating new tax-increment financing programs. One was Enhanced Infrastructure Finance Districts (EIFDs), and the second was Community Revitalization and Infrastructure Authority (CRIA). The third was Neighborhood Infill Finance and Transit Improvement (NIFTI), which we are building on with NIFTI-2. NIFTI added sales taxes to the mix, where it had previously only applied to property taxes, while CRIA provided for bonding against tax increment without need for voter approval. Everything that might be considered politically challenging about this bill has already been accepted by the governor in another bill.

The community development opportunities in this bill closely parallel the Affordable Housing and Sustainable Communities (AHSC) program, which is funded by cap and trade and run by the Strategic Growth Council. These are like bookends with each other. The governor is quite supportive of AHSC, recognizing that land-use patterns are an important part of reducing greenhouse gas emissions.

To reduce greenhouse gas emissions, you have to make transit work better. To make transit work better, you have to put people—especially low-income people—near transit. First/last mile and urban greening programs are not just beautification efforts; they are fundamental to making a community a livable place, and therefore a place where developers will want to build.

Our problem in Los Angeles is not just a housing supply problem. Part of the problem is that the development community is fixated on building in high-rent areas. There is much less development happening in other areas that do not have established high-rent markets. That’s why, in our program, we included not just fixed transit stations but also high-frequency bus routes.

As former LA County Supervisor Zev Yaroslavsky noted in his criticism of Scott Wiener’s SB 827, making planning decisions based on bus frequency is a slippery slope for the congested landscape of metro Los Angeles. With LA Metro undergoing the most significant overhaul of its bus routes in a quarter century, speak to the rationale for including bus routes in SB 961.

Ben Allen: This bill is fundamentally different in that it is entirely permissive; it is optional. It gives local government another tool to utilize if it wants to—as opposed to SB 827, which used transit stops to impose upzoning on local government.

In this case, the local government has the right to decide how it wants to utilize this tool. Ultimately, the local government retains control over aesthetics, zoning, and planning.

After the defeat of SB 827 in committee, Dan Walters of CALmatters assessed the many political challenges of moving the locus of responsibility for land-use decisions from local government to the state Legislature. He wrote in conclusion that he wasn’t sure that “the cure was not worse than the disease.” What are your thoughts? 

Ben Allen: I share some of those concerns, and I was not supportive of Senator Wiener’s SB 827 because I believe it went too far. I did support SB 35 because I believed it threaded the needle well, but SB 827 ran roughshod over local concerns.

Still, I do share the sentiment in the Legislature that, if cities don’t work with us to figure out a local-friendly way to address our broad infrastructure challenges, then the state will start to explore more aggressive options.

Senator, isn’t it unlikely that your constituents in metropolitan Los Angeles will embrace having their local land-use issues decided in the state Capitol?

Ben Allen: Under my bill, the state will not get involved in micro-managing individual projects and parcels. But this issue is so important to Californians that people are coming to Sacramento to advocate and voice their concerns.

Having Sacramento be the forum for land-use policy is not optimal. We want public comment to take place at the local level, where it’s easier for people to participate in the process. But the sense among many legislators is that local officials are politically incentivized to stop certain types of smart growth, and legislators are getting increasingly frustrated with that. Senator Wiener is the poster child of that perspective. Obviously, not enough members shared his perspective—but this sense is bubbling.

Has SB 961 benefitted from observing how SB 827 was received by your colleagues? 

Ben Allen: I’m not sure I would go that far. Certainly, local-control-friendly solutions will be met more positively in the Legislature. But the broader concern is that relying upon local initiatives to increase housing supply is not enough.

SB 827 is considered to have gone too far. But I think there is a willingness in the state to be more prescriptive in telling cities what to do on housing, especially if cities are not stepping up to meet broader infrastructure needs. The state’s interest in taking a more robust role in housing, and even dictating terms, is not going away.

This is a tricky place in politics right now. I think we need to first exhaust more local options and see how local governments apply the low-hanging fruit options they have today. One example is something like SB 961. Another is reducing litigation for certain beneficial projects and empowering local governments to move those projects forward.

Denny, SB 961 would make it possible to use parking revenues to implement transportation demand programs aimed at reducing trips. How would this work? 

Denny Zane: When you build a public parking structure, you charge money for parking. That’s a revenue stream for the public entity. In a NIFTI-2 district, you would have the flexibility to use those parking revenues as programmatic revenues—not just to secure bonds—so that you could create incentives to reduce trips. A good example is subsidizing transit passes for residents in these districts. 

Is it not possible that the unintended impacts of Prop 13, coupled with the failures to date to reform CEQA, are more responsible for the state’s housing crisis than local housing policies? Are those two issues still perceived by the Legislature as politically untouchable?

Ben Allen: I continue to hope that we can make tweaks to both Prop 13 and CEQA that still hold sacrosanct those policies’ core goals—environmental protections in the case of CEQA, and in the case of Prop 13, making sure that folks on fixed incomes are not priced out of their homes because of increasing property values. I want to tweak those laws in ways that help us evolve and face 21st Century challenges.

We can only do this carefully. I would never want to see any CEQA reform that would set back our environmental goals. But recent events actually suggest that CEQA is being misused in a way that is antithetical to an environmental agenda. The most egregious example is a parking lot that is using CEQA to block the construction of public transit to LAX. This represents how the old ways of LA—automobile dependency—is trying to shape growth toward nothing but the automobile.

I’ve told the development community: Don’t get greedy; we’re never going to set back environmental protections. But if we can make changes that allow us to advance an environmental agenda while better facing our infrastructural challenges, we owe it to ourselves to have that conversation.

In closing, Denny, as former mayor of Santa Monica, you understand the value of SB 961 for financing infrastructure projects. Is community planning also a beneficiary of this funding?

Denny Zane: With SB 961, planning remains under the purview of the local municipality, as it is today. SB 961 creates resources and incentives for local decision-makers to do good planning.

We will create an incentive to do planning closer to transit, by making it an opportunity for local government to capture significant tax increment. We will create an incentive to use these resources to improve access to transit and urban greening, which will make it easier to attract both market-rate and affordable development to locate in these areas near transit.

This bill provides an answer to your concerns about Prop 13 and CEQA, as well. Prop 13 limits the ability of local governments to generate tax revenue. Tax-increment financing is a tool with which local governments can capture a share of the taxes that are already being paid, rather than raising or creating new taxes. It helps to fill a void that redevelopment used to fill, and to respond to the constraints created by Prop 13.

All of this ultimately lies in the negotiation between local authorities, namely the city and county. Under SB 961, any city wanting to create an infrastructure financing district will have to negotiate an agreement with the county. In Los Angeles County, we have a progressive board of supervisors who will support good planning with the incentives SB 961 prioritizes: affordable housing near transit, urban greening and first/last mile transit solutions. We can potentially be a model for other cities and counties in the future.

In terms of CEQA, we need to find the sweet spot whereby a city can generate significant transit-oriented development that generates environmental benefits, without creating a green light for excessive projects that will arouse opposition about traffic generation. For example, if we were able to create a CEQA exemption for moderate-scale projects close to transit, with all the ingredients for a good transit-oriented neighborhood, then we could get more housing built, enhanced transit ridership, and environmental benefits without all the folderol.

When I was mayor of Santa Monica, we created a set of planning tools for the Downtown area around the Third Street Promenade. These tools gave benefits and preferences to mixed-use projects with fewer than 70 units. And what happened? We got 2,500 mixed-use units—one-third of which were deed-restricted affordable—that did not face community opposition of any sort. If a developer had walked in and wanted to build 2,500 units in Downtown Santa Monica, there would have been hell to pay. The lesson here is to follow the philosophy of Christopher Alexander in The Pattern Language: Incrementalism creates the best cities.