What Now For Redevelopment? And Good News For The Mills Act

​During its most recent session, the State Legislature passed six bills designed to revive aspects of redevelopment or in some way stimulate local economic development.  Governor Brown vetoed all six.  Does the Governor just have it out for redevelopment?  Maybe not.  In his vetoes of the bills Governor Brown wrote that he could not support the bills until the dissolution of redevelopment agencies was finally complete, but that he was supportive of the redevelopment intentions of the bills.  In other words, although it is now certain that redevelopment as we know it is going away, some new iteration of redevelopment may be on the horizon.  The question is, what might that new redevelopment look like?

Infrastructure Financing Districts     

Until Governor Brown first proposed to abolish redevelopment agencies two years ago, Infrastructure Financing Districts (IFD) were scarcely known.  IFD’s are a creature of state law designed, as the name suggests, to help cities and counties finance public infrastructure.  During the era of redevelopment, IFD’s were largely superfluous because they were not much different than redevelopment.  They use tax increment financing to pay back bonds that fund infrastructure.  IFD’s are different than redevelopment in that no finding of blight is needed to create an IFD, but they are difficult because their creation (and the subsequent issuance of the bonds) requires a 2/3 vote of the property owners in the proposed district.  Also, every public agency that would contribute tax increment revenues to the IFD must approve the formation.  The boundaries of an IFD cannot overlap with a redevelopment project area.

Without redevelopment, however, IFD’s begin to look like a reasonable Plan B.  With the demise of redevelopment looming, redevelopment proponents seized on IFD’s and pushed three bills through the Legislature this year:

* SB 214 by Lois Wolk (D-Davis), the most significant of the three bills, would have eliminated the voter approval requirement, allowed IFD’s to overlap with redevelopment project areas, and created greater oversight and accountability for IFD’s.

* AB 2551 by Ben Hueso (D-Chula Vista), would have allowed a city or county to form an IFD, without any voter approval, in renewable energy zone areas to pay for renewable energy projects.

* AB 2144 by John Perez (D-Los Angeles), would have reduced the voter approval requirement from 2/3 to 55 percent. 

As stated, the Governor vetoed all three bills, expressing concern that the measures “would likely cause cities to focus their efforts on using the new tools provided by the measure instead of winding down redevelopment.” However, he left the door open for their return by stating suggestively that “[e]xpanding the scope of infrastructure financing districts is premature.”   

Another IFD bill, AB 910 by Norma Torres (D-Pomona), would have allowed IFD’s to finance affordable housing and economic development projects.  But this bill never made it out of the Legislature.  The Governor did sign one IFD bill into law this Fall.  AB 664 by Tom Ammiano (D-San Francisco), allows San Francisco to create a special purpose IFD on the San Francisco waterfront to finance certain development work for the America’s Cup.

SB 375 and Sustainable Communities Strategies

In 2008, as a follow-up to AB 32, the 2006 greenhouse gas emissions reduction law, the Legislature passed into law SB 375.  SB 375 requires each of the state’s metropolitan areas to adopt a Sustainable Communities Strategy that uses integrated land use, housing and transportation planning to meet the area’s AB 32 greenhouse gas reduction targets.  Two of the pro-redevelopment bills from the last session sought to integrate redevelopment with the objectives of SB 375.

SB 1156 by Darrell Steinberg (D-Sacramento) was the most ambitious of all six bills in that it authorized the creation of a new public agency, much like a redevelopment agency, empowered to collect property tax increment in a blighted project area.  Unlike redevelopment agencies, no tax increment could be diverted from school districts.  

The link to SB 375 came in that the project areas had to be located in transit priority areas, and the project area “redevelopment” plan had to implement the goals of the local Sustainable Communities Strategy.  AB 345 by Norma Torres added to and was contingent upon the passage of SB 1156.  

In vetoing both of these bills, the Governor was even more encouraging than with the IFD bills, stating that he “prefer[s] to take a constructive look at implementing this type of program once the winding down of redevelopment is complete … .  At that time, we will be in a much better position to consider new investment authority.”

The last of the six bills, by the Committee on Budget and Fiscal Review, would have provided additional redevelopment dissolution funds to three counties that lost school funding due to an oversight in the redevelopment dissolution legislation.

As the foregoing indicates, the elimination of redevelopment agencies is certain.  However, it seems likely that the neighborhood revitalization and economic development aspects of redevelopment will return, and the leading policy approaches to achieve that are IFD’s and coordination with Sustainable Communities Strategies.  We will continue to monitor and report on these legislative efforts.

Good News for Mills Act Contracts

A Mills Act Contract is an agreement between the City and County of San Francisco and the owner of a qualifying historic property.  The property owner receives property tax reductions in exchange for taking certain measures to preserve and restore the historic character of the property.  Among other qualifications, residential properties must have a pre-contract assessed value of $3,000,000 or less, and commercial properties must have a pre-contract assessed value of $5,000,000.

Recently, the Mayor and Board of Supervisors approved changes to the City’s Mills Act Contract program to make it more appealing to landowners.  The two significant changes were:

* Specific deadlines designed to expedite the processing of applications; and

* A reduction in application fees from $9,159 to $2,500 for residential properties and from $18,310 to $5,000 for commercial properties.

Reuben & Junius is experienced with the Mills Act Contract program.  Please let us know if we can assist you in any way with a Mills Act Contract.

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.


Copyright 2012 Reuben & Junius, LLP. All rights reserved.