IFDs: The New Infrastructure Funding Tool; SFHAC Summit May 4

This week the Planning Commission may have been peering into the future when it held an informational hearing on Infrastructure Financing Districts (IFDs), a public financing tool provided by state law. With Redevelopment Agencies still on life support (although seemingly upgraded from critical condition), cities are scurrying to find new ways to fund economic development activities, infrastructure improvements and affordable housing. IFDs could be one solution to these problems.

IFDs have been around for several decades but to date have been little used in San Francisco. Once established, IFDs provide funding for new infrastructure within their boundaries, including streets, sewage and water facilities, child care facilities, libraries and parks. These improvements are funded through tax increment financing, which allows a city to divert increased property taxes collected within an IFD from the city’s general fund directly towards improvements within the IFD. Bonds can be sold backed by future expected tax increment revenue, allowing a city to get a chunk of money up front to pay for improvements, instead of waiting for new taxes to come in each year. To create an IFD, both the Board of Supervisors must approve the IFD and accompanying financing plan and two-thirds of the residents of the proposed district (or of property owners if there less than 12 residents in the district) must vote to approve it.

Tax increment financing is a tool that redevelopment agencies are able to take advantage of, and the idea currently building a head of steam in the city is that IFDs could fill the void left if and when redevelopment agencies are eliminated. Recently, an IFD was created for the Rincon Hill neighborhood. The city sees this Rincon district as a test case for future IFDs to fund infrastructure improvements. The Rincon IFD is a noncontiguous area that only includes a number of undeveloped sites that are entitled or proposed for major residential towers. The Rincon IFD is expected to fund roughly $15.5 million in infrastructure improvements, while project-specific impact fees would provide another $16.5 million. Over the 30 year life of the Rincon IFD, property values are expected to increase by $2 billion. During the first few years, 100% of the incremental property tax will be diverted from the general fund, whereas only 14% will be diverted for the final 17 or so years.

In many ways IFDs can fill many of the roles of redevelopment. Within the IFD’s borders, increased property taxes can be diverted back into the district. This is especially helpful in areas where future growth is projected and area plans have recently been adopted. IFDs can make public infrastructure improvements happen faster – through the sale of bonds – and possibly more efficiently – where a developer’s contractor can construct not only in-kind improvements, but other improvements that can be funded through tax increment and impact fees. IFDs, however, cannot be created where there was once a redevelopment project area, so they will not be able to pick up where old redevelopment areas left off.

IFDs have the potential to fill part of the void left if redevelopment agencies are eliminated, but they also benefit from the fact that no finding of “blight” is required to establish an IFD – unlike redevelopment areas. IFDs have the potential to put the “future neighborhoods” of Rincon Hill, the Eastern Neighborhoods and others on a fast track to adequately serve their residents by constructing public infrastructure much faster than would be constructed without them. As the future of state assistance for economic development becomes less and less clear, San Francisco will have to continue to think creatively to pick up the slack. Expect to hear more on IFDs in the coming months and years.

SFHAC Hosts Fifth Annual Housing Summit May 4

Just another friendly reminder that the San Francisco Housing Action Coalition is holding its annual housing summit on Wednesday, May 4 from 7:30 a.m. to 10 a.m. at the PG&E Auditorium at 77 Beale Street in San Francisco. This year’s topic: “After the Fall: Stimulating New Housing Production.” Speakers include

– Oz Erickson, Chairman, Emerald Fund
– John Rahaim, Director, San Francisco Planning Department
– Dr. Ted Egan, Chief Economist, San Francisco Controller’s Office
– Doug Shoemaker, Director, Mayor’s Office of Housing
– Cynthia Parker, President and CEO, Bridge Housing
– Moderated by Dan Murphy, principal of UrbanGreen Devco LLC

Think of this as the “State of the Bay Area Housing Market” event – it’s a great event that informs on you what’s happened in the last year and what to expect this coming year. For more information on the event, go to http://sfhac.org/events or contact Julia Sullivan at Julia@sfhac.org or (415) 541-9001.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben & Junius, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.

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