Can Enhanced Infrastructure Financing Districts Provide Equitable Paths Forward for Infrastructure in Redevelopment Areas?
By Robert Fulton, Contributing Writer
They’re called Enhanced Infrastructure Financing Districts (EIFDs). With a name that sounds like a bureaucratic word salad and a backstory that’s just as deep in the bureaucratic weeds, there’s a lot to unpack with EIFDs. But they can be a powerful tool for cities and builders to better redevelop entire neighborhoods, keep projects moving and put more people to work, so they’re worth knowing about.
Keep reading as we delve into EIFDs and the implications for California cities and building trades workers.
So, What on Earth’s an EIFD?
According to the state of California, an EIFD is “a tool to fund economic development projects within a geographic boundary utilizing tax increment financing.”
Clear enough? We didn’t think so either, so we talked to a few folks who helped us flesh it out.
“[An EIFD] is a very rational, well-thought-out way of improving a neighborhood,” said Oz Erickson, chairman of the Emerald Fund, a San Francisco-based and -focused commercial, retail, and residential developer. “It encourages future building and beautifies the area where the buildings go.”
Simply put, EIFDs are best utilized for megaprojects, such as redeveloping an industrial zone into a residential or mixed-use neighborhood complete with homes and shops. Take, for example, Treasure Island, a former naval base currently in redevelopment, or the Potrero Power Station, which is still fairly early in the process but will involve a huge space.
Building out that infrastructure, including roads, sidewalks, sewer pipes, libraries, transit centers, and parks, costs lots and lots of money that the developer might not have and the City doesn’t yet have, either.
To get that costly infrastructure up and running and to make a development more viable — and more attractive to investors — an EIFD is a geographic designation that can be created around a project. With tax increment financing, future property tax revenues within the district are accessed through bonds or other measures to pay for the necessary upgrades now. Ideally, the development becomes a real neighborhood, and the developers, the city, and the community enjoy all the benefits within it.
“It creates jobs for the building trades and also makes real the projected revenue for the public,” said San Francisco Building Trades Secretary-Treasurer Rudy Gonzalez. “Rather than leaving it to the private markets to decide when it’s going to be opportune to invest in San Francisco, which is subject to countless variables, you’re saying, ‘We want this thing to move forward, and we’re going to make sure that it does.’”
Jerry Brown’s Biggest Mistake?
At the beginning of 2012, at the urging of then-Governor Jerry Brown, California dissolved its multibillion-dollar redevelopment agencies. This was, in part, a budgetary decision following the Great Recession and, in part, a response to various oversight and structural issues; one infamous example was a K Street dive in Sacramento called the Mermaid Bar that received $6.8 million in redevelopment subsidies.
However, the elimination of redevelopment agencies would wind up dealing a significant blow to the revitalization of neighborhoods and the building of affordable housing statewide.
Michael Cohen is the former head of the Real Estate and Public Finance Group of the San Francisco City Attorney’s Office and a founding partner of Strada Investment Group. He said the most powerful tool in redevelopment was the ability to collect tax increment financing.
Cohen said that while Brown did some good things while in office, “his biggest mistake was blowing up redevelopment.” Cohen agreed that there were flaws and abuses in the redevelopment agencies but would rather have seen it tightened up, not incinerated entirely.
Eric Tao, chair of the Urban Land Institute San Francisco and managing partner of L37 partners, added that although there was good reason for eradicating the redevelopment agencies, doing so eliminated one major tool popular with developers.
Later, the state legislature passed bills building upon already-established infrastructure financing districts (IFDs), creating their new, enhanced brethren: the EIFD.
No Magic Wand
According to Gonzalez, there’s not a lot of pushback on EIFDs, though one could argue that they do fork over public dollars for the betterment of private investment.
Erickson suggested other neighborhoods might end up slighted because some tax revenue is routed directly to a specific district rather than the general fund, though the tax revenue in question must be generated only from that specific project.
Erickson added that getting an EIFD in place is a difficult process that needs buy-in from the developer, land owners, municipalities, and other stakeholders.
“It’s a very skilled concept and should be used,” Erickson said. “For certain areas that don’t have very many public facilities, it’s a great way of basically using real estate taxes to help improve a neighborhood. I think it’s a great idea.”
Tao agreed that EIFDs are a “heavy lift” and should be used only surgically and for projects that truly need it.
“It seems to me that the EIFD concept is one of the major tools that can be utilized to help this crisis,” Tao said of the need to build more homes in the Golden State.
Gonzalez added that EIFDs are a lever, “not a magic wand.” He’d like to see certain standards in place before any EIFD moves forward, including the viability of a project, its financing, community support, and — last but far from least — labor harmony.
“Any investment in public resources should come with conditions,” Gonzalez said. “There should be strings attached.”
Making the Infeasible Feasible
Cohen may have put the value of EIFDs best when he said that they “make an infeasible project feasible.” He cited the Treasure Island development as a prime example of successfully using a Tax Increment District to build out infrastructure (though Treasure Island is technically an “Infrastructure and Revitalization Financing District,” a slightly different designation from the very similar EIFD). The redevelopment of the former navy base will include thousands of homes but needs significant work on streets, utilities, and community facilities.
“If you didn’t have that, Treasure Island would still be just sitting there with nothing going on,” Cohen said.
Erickson had California’s second-ever IFD financing plan for the redevelopment of Rincon Hill. The area, formerly dotted with warehouses, needed a massive number of improvements. Because of the fallout from the Great Recession, he had to abandon the plan.
Gonzales cited the Port of San Francisco as having a successful EIFD in its capital plan, which includes the Pier 70 and Mission Rock redevelopments. He sees the upcoming Potrero Power Station redevelopment as a potential EIFD opportunity.
“If you’ve got a project that truly benefits the public, we should do everything we can to make sure that those projects are successful,” Gonzalez said.
Though complicated and best used in a targeted fashion, EIFDs could be the key to continued redevelopment in a slow economy and an answer to moving forward with more housing.
“It’s a good idea that should work, and I’m a big supporter of it,” Erickson said.