To: Sonoma County Board of Supervisors
Department or Agency Name(s): County Administrator’s Office
Staff Name and Phone Number: Christel Querijero, (707) 565-2431
Vote Requirement: Majority
Supervisorial District(s): Countywide
Title:
Title
Santa Rosa Enhanced Infrastructure Financing District (EIFD)
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Recommended Action:
Recommended action
A) Provide input to staff, if any, as to projects that should or should not be included in a Draft Santa Rosa EIFD Infrastructure Finance Plan (IFP).
B) Receive an assessment of the City of Santa Rosa Draft County Fiscal Impact Analysis (FIA) of the proposed Santa Rosa Enhanced Infrastructure Financing District (EIFD).
C) Consider and approve the County Contribution to the Santa Rosa EIFD.
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Executive Summary:
Through this item, staff seeks the Board’s input on projects and project categories that the City of Santa Rosa has proposed to include in the Santa Rosa Enhanced Infrastructure Financing District (EIFD) Infrastructure Finance Plan (IFP) that will be submitted by the Santa Rosa EIFD Public Finance Authority (PFA) at a future date for the Board’s consideration.
The Board is also receiving both the City’s Draft County Fiscal Impact Analysis (FIA) and the County EIFD Consultant’s assessment of this FIA. With this assessment, the Board may consider and approve a County contribution to the Santa Rosa EIFD. The Board’s input on projects and a decision on County contribution will provide the Santa Rosa EIFD Public Financing Authority with key information needed to move forward with developing a draft Santa Rosa EIFD IFP.
Discussion:
Background
Senate Bill 628 (2014) authorized the formation of Enhanced Infrastructure Financing Districts (EIFDs). EIFD legislation is codified in California Government Code sections 53398.50-53398.88 (EIFD Law). EIFDs replace the former Redevelopment Agencies that were disbanded in 2012 due to state budget challenges.
An EIFD is a type of special tax increment financing (TIF) district that uses a portion of property tax increment revenues generated by the established 1% of assessed property value tax rate under Section 1 of Article XIIIA of the California Constitution (Prop 13). The EIFD model relies on tax revenue increments generated by growth from within the boundaries of a proposed area.
On April 25, 2023, the City of Santa Rosa Council adopted a Resolution of Intention to establish the City of Santa Rosa Enhanced Infrastructure Financing District (Downtown Business Corridor), which is required to create a Public Financing Authority to serve as the governing body. Because the City and the County are the primary taxing entities within the boundary of the proposed EIFD area, the City has requested the County to join and serve on the governing board.
On July 17, 2023, the Board appointed Chris Coursey and David Rabbitt to the Public Financing Authority (PFA) established by the City of Santa Rosa. This Board action did not constitute an agreement to forgo future property tax growth. In order to guide the County’s participation in EIFD proposals, on February 23, 2024, the Board approved an EIFD Policy to establish the minimum requirements for the County to consider committing future tax revenue growth through an EIFD Infrastructure Financing Plan when requested by another taxing entity (Attachment A).
Proposed Santa Rosa EIFD Project Categories
On April 30, 2024, the Board held a workshop at which City of Santa Rosa (City) staff, along with the City’s EIFD consultant, DTA Consultants, presented an overview of the proposed EIFD. City staff also presented general information about the EIFD Infrastructure Financing Plan, the investment plan that must be approved by the PFA, and each taxing entity represented on the PFA.
City staff also shared with the Board potential public infrastructure projects that may be proposed for the Santa Rosa EIFD. Project categories included: improving connectivity between Downtown and Railroad Square, improving and making more accessible existing public space (Comstock Mall), beautification of existing public right-of-way, affordable housing development, and large-scale development projects such as a conference center. A link to the April 30, 2024 Board item and materials can be found here <https://sonoma-county.legistar.com/LegislationDetail.aspx?ID=6646039&GUID=3E5ADBBC-9AA6-4DB2-9BC7-A57CAF88D896>.
County EIFD Consulting Services Agreement
To support the County’s evaluation of EIFD proposals received thus far and the City of Santa Rosa’s EIFD proposal, staff requested bids from firms that specialize in special tax districts, including EIFDs. Staff received four proposals and selected Kosmont Companies based on their experience working with California jurisdictions on EIFDs, the quality of their work products, broad scope of advisory services. The contract with Kosmont Companies was executed under the department head delegated authority on May 1, 2024, and is effective for a three-year term at a cost not to exceed $50,000.
Consultant Analysis of Draft Santa Rosa EIFD Fiscal Impact Analysis (FIA)
Per the Board’s EIFD Policy (attachment A), a fiscal analysis must be conducted by the City and must demonstrate a positive net impact to the County General Fund that is attributable to the tax revenue increment generated from the proposed EIFD.
In July, at the County’s request, City staff shared a draft Santa Rosa EIFD County Fiscal Impact Analysis (FIA). See attachment B. The draft County FIA was prepared by the City’s EIFD consultant, DTA Consultants, in June 2023. Note the enclosed FIA memo to the County is dated July 5, 2024. The draft County FIA is based on fiscal year 2022-2023 County budget information and assumes a County contribution to the Santa Rosa EIFD of 50% of the County’s share of the growth in property tax revenue increment.
Kosmont, the County’s EIFD consultant, assessed DTA Consultants FIA. Kosmont’s full assessment of the FIA is included as Attachment C. Their higher-level findings are summarized below.
1. Projects to be Funded by the EIFD
In other EIFDs across the State, the level of specificity and detail on potential projects to be funded has varied highly at the formation stage. Kosmont has found that EIFD infrastructure financing plans have benefitted from flexibility, particularly given the long-term (40+ year) nature of EIFDs and the inherent nature of tax increment to need time to “ramp up” before there are significant revenues to expend.
It is difficult in most circumstances to exactly define the projects and their corresponding costs at the time of district formation. A more feasible approach has been to keep the project list more inclusive. Kosmont recommends prioritizing the types of projects that the City and County want to see funded first. However, most important is that the City or County be explicit about which projects each entity does NOT want to see on the list of potential projects to be funded (i.e., eliminate the non-starters).
2. Inflationary Baseline Discussion
Kosmont has evaluated the “inflationary baseline” concept for other EIFDs in the State. This is a concept whereby the County General Fund retains all property tax revenue growth within the EIFD boundary within a certain percentage growth range (e.g., 4% year-over-year growth), and only revenue growth above that inflationary baseline would be available to the EIFD at the determined percentage allocation (e.g., 25% or 50%).
This approach presents significant issues from a public finance underwriting perspective, due to the volatility of the resulting tax increment revenue stream (i.e., high variation in available revenues year to year and a debt issuance that would be hard to structure and not be appealing to municipal bond buyers). Kosmont does not recommend this approach.
3. Fiscal Impact Analysis (FIA)
Kosmont noted that while some assumptions in the City’s DTA FIA could be considered aggressive, others could be considered conservative. A fiscally conservative interpretation to the approach in the analysis would be that the aggressive assumptions may outweigh those that are more conservative.
Overall, the analysis as presented “cuts it very close” for the County General Fund. At $214,126 net fiscal surplus based on a X-year period with annual Property Tax General Fund? revenues of $2.8 million and annual General Fund? expenditures of $2.6 million, the resulting 1.08 revenue-expenditure ratio is does not leave much room or “fiscal safety buffer” for the County to achieve a positive General Fund return on investment, especially if reality does not exactly follow projections, which is usually the case.
Recommendation on County Contribution to the Santa Rosa EIFD
Should the Board approve a contribution to the Santa Rosa EIFD, Kosmont recommends an allocation percentage to the EIFD of 25% to 30%. A percentage allocation in this range would provide the County a “fiscal buffer” that aligns with the “inflationary baseline” concerns that the Board raised in earlier discussions while still supporting a County position as an active economic development partner to the City. It also considers the County’s financial policy for long range planning for fiscal year 2024-2025:
In order to avoid significant increases in deferred maintenance costs for County facilities, the Board of Supervisors will appropriate, forty percent (40%) of all new property tax growth, which is above the percentage growth assumed in the Adopted budget - to the Capital Projects Budget to be used towards addressing deferred maintenance of County facilities.
This means that initial budgeted growth would be divided between the County General Fund and the EIFD, while any subsequent growth would be divided between the EIFD, the General Fund, and the County Center Modernization Fund. So, for example, should the Board choose to commit 25% of growth to the EIFD, budgeted growth in this area would go 25% to the EIFD and 75% to the General Fund. Any additional growth above budget would go 25% to the EIFD, 30% County Center Modernization, and 45% General Fund.
A 25% to 30% range acknowledges that while a higher County allocation percentage such as 45%-50% may get the County closer to matching the City allocation percentage, the higher percentage does not account for the fact that the City will be a larger beneficiary of other significant revenues, such as sales tax and transient occupancy tax, while the County must still provide costly municipal mandated services countywide and to all incorporated and unincorporated residents that cities do not provide (e.g., health / human services, courts / probation / public defender / district attorney / detention). This range closely aligns with what Counties such as Los Angeles (20%-35%), Riverside (20%-25%), Madera (25%), and San Joaquin (20%-35%) have adopted, particularly in City/County partnership scenarios.
Next Steps
Staff seeks Board input on projects or project categories that should or should not be included (“non-starters”) in the Santa Rosa EIFD Infrastructure Finance Plan (IFP) that will be considered by the Board for approval. This input and the Board’s decision on a County contribution towards the EIFD are needed for the Santa Rosa EIFD PFA government entity to move forward with developing a draft IFP and establish a timeline for public hearings and the formal City/County decisions needed.
Should the Board provide this input today, the City’s preliminary timeframe for next actions below, could be implemented.
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ACTION |
TIMEFRAME |
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1. City/County identify projects to be funded by EIFD and percentage of tax increment allocated to EIFD |
August-September 2024? |
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2. Introduction of draft Infrastructure Financing Plan (IFP) at Public Financing Authority (PFA) public meeting |
IFP must be posted 10 days prior to meeting December 2024 |
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3. PFA Public Hearings (receive comments and modify, reject or accept IFP) |
First quarter of 2025 |
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4. City Council and Board of Supervisors (accept or reject IFP) |
• April/May of 2025 |
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5. PFA approves IFP and adopts Resolution of Formation |
• June of 2025 |
Strategic Plan:
N/A
Racial Equity:
Was this item identified as an opportunity to apply the Racial Equity Toolkit?
No
Prior Board Actions:
April 30, 2024 - Board workshop to hear City of Santa Rosa proposed Santa Rosa EIFD project categories
February 23, 2024 - Board approved an Enhanced Infrastructure Financing District Policy
July 17, 2023 - Board appointed Supervisor Coursey and Supervisor Rabbitt to the Santa Rosa Downtown Enhanced Infrastructure Financing District (EIFD) Public Financing Authority
Fiscal Summary
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FY24-25 Adopted |
FY25-26 Projected |
FY26-27 Projected |
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Additional Appropriation Requested |
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State/Federal |
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Fees/Other |
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Narrative Explanation of Fiscal Impacts:
None. If the Board approves a contribution, today’s discussion will inform the Santa Rosa EIFD draft Infrastructure Financing Plan (IFP) that will be prepared for the Santa Rosa EIFD Public Financing Authority. The draft IFP will include updated and more detailed projections of the fiscal impact to the County general fund. Any fiscal impact would be realized only if the Board approves the IFP and the Santa Rosa EIFD is formally established. Based on current timelines, FY 2024-25 would be the base year, and so impacts would be felt beginning in FY 2025-26.
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Staffing Impacts: |
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Monthly Salary Range (A-I Step) |
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Narrative Explanation of Staffing Impacts (If Required):
There are no staffing impacts for this item.
Attachments:
Attachment A - County Enhanced Infrastructure Financing District Policy
Attachment B- DTA Draft Santa Rosa EIFD County Fiscal Impact Analysis
Attachment C - Kosmont Memo - Assessment of Draft Santa Rosa EIFD County Fiscal Impact Analysis
Presentation
Related Items “On File” with the Clerk of the Board:
None.