To: Sonoma County Board of Supervisors
Department or Agency Name(s): County Administrator’ Office
Staff Name and Phone Number: Christel Querijero, 707-565-2431
Vote Requirement: 4/5th
Supervisorial District(s): All Districts
Title:
Title
City of Sebastopol/County of Sonoma Enhanced Infrastructure Financing District (EIFD) Update
End
Recommended Action:
Recommended action
A) Receive an update on preliminary City of Sebastopol/County Enhanced Infrastructure Financing District (EIFD) discussions and activities.
B) Approve the use of District Formation Funds in the amount of $7,500 for the County’s share of costs to develop an EIFD Fiscal Impact Analysis.
end
Executive Summary:
An EIFD is a type of special purpose financing district that utilizes a portion of incremental property tax revenues from new development and property value growth in a specifically defined area to finance public capital facilities or other specified projects of communitywide significance (e.g., infrastructure, public amenities). This item provides an update on discussions between the City of Sebastopol and the County, and the interest to explore the feasibility of forming an Enhanced Infrastructure Financing District (EIFD).
This item also requests the Board approve $7,500 from District Formation Funds for a consultant to prepare an EIFD Fiscal Impact Analysis, which is required by County fiscal policy.
Discussion:
An EIFD is a type of special financing district that utilizes a portion of tax increment revenue from a specifically defined area to finance infrastructure or other specified project of community-wide significance that provide benefits to the area within the EIFD or the surrounding community. There are no new taxes with EIFDs and EIFDs do not encumber existing revenue sources to the participating city or county. EIFDs allow a city or county to allocate a portion of its share of property tax growth generated by increased assessed values in the EIFD boundaries.
On January 23, 2024, the Board approved a grant agreement with the City of Sebastopol (City) to provide $50,000 in District 5 Community Infrastructure Funds for a professional services agreement with a consultant to evaluate the feasibility of an EIFD that encompasses both the City and unincorporated West County.
The County and City have had several discussions regarding the potential of an EIFD in Sebastopol, including:
§ November 7, 2023: City Council voiced support for the possibility of forming an EIFD.
§ December 5, 2023: City Council formed an EIFD Ad Hoc Committee to collect the initial information for the City Council to decide whether to pursue formation of an EIFD.
§ December 19, 2023: City EIFD Ad Hoc provided an initial report, including an estimate of $50,000 for consultant costs to cover the initial stages of EIFD formation. The Ad Hoc advised that Supervisor Hopkins would pursue a $50,000 funding request to support an EIFD evaluation if the EIFD under consideration included unincorporated areas of the County. The Council confirmed its general interest but did not take a formal vote.
§ January 16, 2024: The City EIFD Ad Hoc advised that Supervisor Hopkins would request the Board to approve $50,000 to cover consultant costs for the initial stages of EIFD evaluation, with the understanding that the City would include evaluation of EIFD boundaries in unincorporated West Sonoma County. The City Ad Hoc received an overview presentation on EIFDs, an update on current EIFD discussions between the City of Santa Rosa and the County, preliminary projections from the County Auditor-Controller-Treasurer-Tax Collector for hypothetical EIFD scenarios within the City of Sebastopol and unincorporated Supervisorial District 5, examples of potential EIFD infrastructure projects within the City of Sebastopol, and a targeted EIFD implementation timeline.
§ January 23, 2024 <https://sonoma-county.legistar.com/LegislationDetail.aspx?ID=6484841&GUID=676D8C24-DB67-459F-A99E-E6CFA6AA8684> (link <https://sonoma-county.legistar.com/LegislationDetail.aspx?ID=6484841&GUID=676D8C24-DB67-459F-A99E-E6CFA6AA8684> to Board item materials): The Board approved a grant agreement with the City of Sebastopol to provide $50,000 in District 5 Community Infrastructure Funds for a professional services agreement with a consultant to evaluate the feasibility of EIFDs encompassing both City and Unincorporated West County.
§ February 27, 2024 <https://sonoma-county.legistar.com/LegislationDetail.aspx?ID=6519237&GUID=F6DE4134-415E-4B92-9199-FB5216051296> (link <https://sonoma-county.legistar.com/LegislationDetail.aspx?ID=6519237&GUID=F6DE4134-415E-4B92-9199-FB5216051296> to Board item materials): The Board approved an Enhanced Infrastructure Financing District Policy. (Attachment A)
§ September 3, 2024: The City EIFD Ad Hoc, along with its EIFD advisor, Kosmont Companies, provided an overview of tax increment financing and EIFD fundamentals and facilitated a discussion with the City Council about potential EIFD infrastructure projects. (Kosmont was selected through a competitive request for proposals process conducted by the City.) Kosmont also shared its perspective on alternative approaches to defining EIFD boundaries and property tax increment revenue allocation scenarios.
§ November 19, 2024 <chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/www.cityofsebastopol.gov/wp-content/uploads/2024/01/Agenda-Item-Number-13-Enhanced-Infrastructure-Financing-District-EIFD-Feasibility-Analysis-Findings-and-Next-Steps.pdf> (link <chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/www.cityofsebastopol.gov/wp-content/uploads/2024/01/Agenda-Item-Number-13-Enhanced-Infrastructure-Financing-District-EIFD-Feasibility-Analysis-Findings-and-Next-Steps.pdf> to City agenda materials): Kosmont presented a summary of EIFD feasibility analysis findings to the City Council, along with alternatives for potential next steps for implementation. The City Council expressed its desire for an analysis of the potential EIFD City General Fund fiscal impacts, which is consistent with the County’s adopted EIFD Policy that requires a County fiscal impact analysis prior to County participation in a City-led EIFD.
§ December 17, 2024: The City’s Budget Committee agreed to recommend requesting funding for the fiscal impact analysis to the City Council. This is expected to be discussed at the City Council meeting on February 18, 2025. The City’s allocation is expected to cover the City’s portion of the fiscal impact analysis.
On November 19, 2024, Kosmont presented its Summary of Feasibility Analysis Findings to the City Council. The content below is excerpted from Kosmont’s findings and report to the City. Detailed findings were included in the City’s agenda packet (item 13) and can be found at this link <chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https:/www.cityofsebastopol.gov/wp-content/uploads/2024/01/Agenda-Item-Number-13-Enhanced-Infrastructure-Financing-District-EIFD-Feasibility-Analysis-Findings-and-Next-Steps.pdf>.
A. EIFD Boundary Alternatives
Kosmont suggests two different EIFDs for City and County consideration to support City and County general fund strength and equitable representation in the governing board composition:
1. Focused Corridor within the City (City and County financial participation for projects within City).
2. Larger unincorporated West County area (only County financial participation for projects outside of City).
Kosmont suggests two separate EIFDs, as opposed to a single EIFD, because community outreach thus far has indicated a clear need for transparency, balance, and equity in the future EIFD funding allocation and decision-making authority between the unincorporated County and the City. Kosmont received input from stakeholders to the effect that funding projects within the City should come from revenues generated within the City, and decision-making authority related to projects within the City should be more heavily weighted with City representation.
Similarly, Kosmont received input from stakeholders to the effect that funding for projects in unincorporated West County should come from revenues generated in unincorporated West County, and decision-making authority related to projects in unincorporated West County should be more heavily weighted with unincorporated West County representation.
City of Sebastopol EIFD. As it relates to a potential EIFD within the City, Kosmont suggests an EIFD boundary focused along the main transportation corridors within the City (Gravenstein Highway, Healdsburg Avenue, Bodega Avenue, Sebastopol Avenue), where future development is planned or proposed, which will provide the largest increases in assessed property values. This level of focus is suggested to balance the available funding capacity of an EIFD on the one hand, with the needs of the General Fund to provide ongoing municipal services for the community on the other hand. EIFD boundaries that are too large can over-encumber the future property tax revenues of the General Fund and prove fiscally unsustainable.
West County EIFD. As it relates to a potential EIFD within unincorporated West County, Kosmont found that an EIFD that only focused on specific development opportunity site areas in the unincorporated West County area (e.g., Guernewood Resort/The Lodge on Russian River, Hardware Store, Mobile Home Park, River Electric Camp, Freestone Hotel) would not generate significant funding capacity, sufficient to justify the County time and effort of forming such a financing district. In contrast to findings within the City of Sebastopol, in order to generate sufficient funding capacity in the unincorporated County area, Kosmont found that a much larger boundary on the scale of the entire unincorporated West County area would be necessary to generate material funding capacity. If a boundary this large were to be implemented, Kosmont suggests a much smaller level of tax increment revenue allocation, such as 5% or 10%. Kosmont additionally suggests carving out areas that overlap with former County redevelopment project areas and areas that are likely to experience future annexations into cities, as a matter of ease of administration.
B. Revenue Allocation Scenarios
Kosmont’s findings suggest that the City should only consider an EIFD revenue allocation scenario where (1) the City receives a match from the County for every dollar allocated to the EIFD by the City (i.e., bringing in net new dollars for projects in the City), and (2) the level of City allocation is fiscally sustainable for both the City General Fund and County General Fund. An example of this scenario is a “25% City allocation and County Dollar Match” scenario, which represents approximately 23% of the County’s share.
The County can independently choose its revenue allocation outside of City limits for County projects. The above considerations mirror the approach outlined in the County’s EIFD Participation Policy, where a finding that the EIFD will have a net positive general fund fiscal impact is required as a precondition to County participation in an EIFD. For a large EIFD boundary on the scale of the entire West County unincorporated area, the suggested level of tax increment revenue allocation would be in the range of 5% or 10%, in order to support a positive County General Fund fiscal impact or “return on investment.”
C. Targeted Infrastructure Projects to be Eligible for Future EIFD Funding
At this early stage in the potential formation of 45-50 year financing district, Kosmont suggests that the list of infrastructure projects to be considered for future EIFD funding remain inclusive, encompassing outreach and feedback thus far, as well as potential future additional outreach. In the future, if the City and/or County were to continue with EIFD formation, better practices to consider include contemplation of a framework for prioritization of projects for funding in the future, such as projects that catalyze private sector investment and/or deliver significant public benefit.
The next step in the City of Sebastopol/County of Sonoma EIFD exploration is to prepare a fiscal impact analysis based on the preliminary scenarios discussed by the jurisdictions. The scope of the City’s agreement with Kosmont Companies does not include fiscal impact analysis or funding for such analysis. The cost of the analysis is $15,000. The City will split this cost with the County equally. To continue EIFD exploration, Supervisor Hopkins requests the use of $7,500 from District Formation Funds for the County’s share of the fiscal impact analysis. The current District Formation Fund balance is $407,280.70. This item does not require a request for additional appropriations from this fund, as sufficient appropriations are available should the Board approve this request.
Strategic Plan:
This item directly supports the County’s Five-year Strategic Plan and is aligned with the following pillar, goal, and objective.
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
2/27/2024 - Board approved Enhanced Infrastructure Financing District Policy
1/23/2024 - Board approved County Administrator to execute a grant agreement with the City of Sebastopol to provide $50,000 in District 5 Community Infrastructure Funds towards the purpose of executing a professional services agreement with a consultant to evaluate the feasibility of Enhanced Infrastructure Financing Districts (EIFD) encompassing both City and Unincorporated West County.
Fiscal Summary
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Expenditures |
FY24-25 Adopted |
FY25-26 Projected |
FY26-27 Projected |
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Budgeted Expenses |
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Additional Appropriation Requested |
$7,500 |
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|
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Total Expenditures |
$7,500 |
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Funding Sources |
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General Fund - District Formation Funds |
$7,500 |
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State/Federal |
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|
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Fees/Other |
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Use of Fund Balance |
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General Fund Contingencies |
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Total Sources |
$7,500 |
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Narrative Explanation of Fiscal Impacts:
$7,500 is requested from District Formation Funds contingencies to pay for 50% of the cost of engaging a consultant to prepare a City of Sebastopol/County of Sonoma Enhanced Infrastructure Financing District Fiscal Impact Analysis. The City of Sebastopol will pay for its 50% share of the cost of the analysis.
Narrative Explanation of Staffing Impacts (If Required):
None
Attachments:
Attachment A - County Enhanced Infrastructure Financing District (EIFD) Policy
Related Items “On File” with the Clerk of the Board:
N/A