United States: Redevelopment Strikes Back

After several failed attempts in previous years, the Legislature passed and the Governor signed AB 2 (Alejo) on September 22, 2015. (Stats. 2015, ch. 319.) AB 2 authorizes a new structure for tax increment financing—the planning and financing tool that redevelopment agencies (RDAs) had used to support revitalization projects until 2012, when California dissolved the sixty-year-long operation of RDAs.

AB 2 allows local governments (either independently or in collaboration under a joint powers agreement) to create Community Revitalization and Investment Authorities (CRIAs) that would work with developers and other parties to invest in and revitalize certain low-income areas. Notably, school districts are expressly prohibited from forming CRIAs. Only local governments that have finished winding down their former RDAs are eligible to form CRIAs.

Role of CRIAs in revitalization planning and investment

Like RDAs, CRIAs are authorized to issue debt backed by tax increment funds to finance community revitalization plans. As government entities, they may also exercise the power of eminent domain.

A local government may form a CRIA by adopting a resolution and appointing a five-member board, three of whom are local legislators, and two of whom are public members living or working within the proposed plan area and appointed by the members of the legislative body.

Multiple local government entities may form a CRIA, provided they can form a board comprised of a majority of each local government's legislative body and two public members living or working within the proposed plan area.

In order to receive the tax increment funds collected by the local governments in a proposed community revitalization and investment area, a CRIA must first adopt a plan. The process for adopting a plan includes a public hearing, a protest process, and in some cases, voter approval of the plan through a specified election process.

Projects eligible for CRIA financing

A CRIA can dedicate funds to a community revitalization and investment plan that involves specified infrastructure development, low and moderate income housing construction, brownfield cleanup, seismic retrofits, property acquisition, construction of specified structures for provision of air rights, and direct assistance to businesses for industrial and manufacturing uses.

An area qualifies for CRIA investment if: (1) at least 80% of the area has an annual median household income (AMI) that is less than 80% of California's AMI, and (2) three of the following four conditions are met—which would constitute a finding of blight in the area:

(i) Nonseasonal unemployment is 3% greater than the statewide median;

(ii) Crime rates are 5% greater than the statewide median;

(iii) Neighborhood infrastructure (streets, sidewalks, water supply, sewer treatment or processing, parks) is deteriorated or inadequate; and

(iv) Commercial or residential structures are deteriorated.

Distinctions between CRIAs and RDAs

The new CRIA iteration of RDAs addresses concerns that the Governor and opponents voiced about the former annual $6 billion financing tool. CRIAs are subject to an annual review and report process, a five-year mark audit procedure to ensure compliance with affordable housing requirements, and a 10-year mark voter protest proceeding that would allow a plan area's residents and property owners to divest the CRIA of its authority to implement the plan.

Unlike their predecessors, CRIAs are prohibited from diverting tax increment revenues from schools. Moreover, each government entity collecting tax increment revenue within a CRIA plan area has the choice of whether to contribute its tax increment to the CRIA.

AB 2 retains the affordable housing replacement plan component modeled after the former RDA structure. However, affordable housing that is destroyed or removed due to the community revitalization and investment plan must now be replaced within two years rather than four years, must be built within the CRIA's territorial jurisdiction, and must remain affordable for a period of 45 years. Affected residents and any nonprofit local community institutions must be relocated within the plan area, and in compliance with state law requirements. Moreover, 25% of the tax increment revenues diverted to a CRIA must be set aside into a Low- and Moderate-Income Housing Fund to be used by the CRIA to add to and preserve the affordable housing stock within the CRIA's territorial jurisdiction.

Distinctions between CRIAs and Enhanced Infrastructure Financing District authorities (EIFDs)

Before introducing CRIAs in 2015, the Legislature also enacted SB 628 in 2014 and authorized local governments to establish EIFDs. The purpose of EIFDs is to support local economic development and infrastructure development; no finding of blight is required to establish an EIFD.

In 2015, the Legislature enacted AB 313 alongside AB 2. AB 313 enhances the authority that was initially given to EIFDs last year, though important limitations still exist. EIFDs are authorized to finance community-scale public works projects including the development of highways, transit, water systems, sewer projects, flood control, child care facilities, libraries, parks, and solid waste facilities. EIFDs may also finance brownfield restoration, conversion and construction of industrial structures for private use, and other projects that support sustainable community strategies.

While the scope of eligible projects is wide, one significant limitation on EIFDs is that they may only issue bonds subject to a 55% voter approval within the District. Moreover, the statutes do not give EIFDs the power to exercise eminent domain.

It is unclear whether local governments will favor forming CRIAs or EIFDs—or both. While they could potentially compete for the same tax increment revenues, local governments may also decide to use CRIAs and EIFDs in tandem on community revitalization and infrastructure investment plans in order to mitigate the risks and retain the flexibilities presented by each structure.

*Co-authored by Vicky Chau, who is a law clerk in Sheppard Mullin's Los Angeles office.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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