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Michael ColemanFiscal Policy Advisor
CSMFO / League of Calif [email protected]
CaliforniaCityFinance.com530.758.3952
Fundamentals of Fees, Assessments, and Parcel Taxes
Tim SeufertManaging Director
www.nbs.com800.434.8349
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• Fundamental Concepts of Government Revenue• User Fees and Regulatory Fees• Community Financing Districts (CFDs)• General v Special Benefit• Utility Rates and Property Related Fees• Development Impact Fees, Dedications and Exactions• Economic Development Tools - Post Redevelopment
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Cities Vary, Counties Vary, Special Districts Vary… and so do their finances
Geography: proximity, climate, terrain, accessCommunity Character / Vision: Land use
Bedroom? Industrial? Tourist? Rural? etc. Size – urban / ruralGovernance / service responsibilities
full service city - vs.- not full serviceCounties – amount of urban development in unincorporatia
Statewide generalizations often mask trends among sub-groups
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The Mechanics of Government Revenue
Who decides? oStatewide voters /
ConstitutionoState law / LegislatureoLocal votersoLocal law / City Council
Who pays?visitors, residents, businesses, etc.
What rate / base?
$per gallon, % per price, depreciated value, etc.
How’s it allocated?
situs; pooled / population, etc.
Who collects? &
enforces payment?
What is the $ used for? general, water,
roads, parks etc.
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TaxesCharges which pay for public services and facilities that provide general
benefits. No need for a direct relationship between a taxpayer’s benefit and the tax paid.Cities may impose any tax not otherwise prohibited by state law.
(Gov Code § 37100.5)The state has reserved a number of taxes for its own purposes including:
cigarette taxes, alcohol taxes, personal income taxes.General & Special
General Tax - revenues may be used for any purpose.• Majority voter approval required for new or increased local tax
Special Taxes - revenues must be used for a specific purpose.• 2/3 voter approval required for new or increased local tax• Parcel tax - requires 2/3 vote
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California Constitution: only two types of taxes may be imposed upon a parcel of property:
So a parcel tax requires two-thirds voter approval regardless of how (or if) the proceeds are restrictedFlat per-parcel rate or per use, size, number of unitsTo distinguish from property tax, ordinance should say excise tax for revenue raising purposes on the use of municipal services (rather than property ownership)Rates should show rough proportionality to use of services
1. an ad valorem property tax
2. a special tax receiving two-thirds voter approval
Parcel Taxes
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1. an ad valorem property tax
2. a special tax receiving two-thirds voter approval
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Any levy, charge or exaction of any kind imposed by a California government, is a taxexcept:
• User Fees and Assessments*: for a privilege/benefit, service/productPlanning permits, development fees, parking permits, user fees, copying fees, recreation classes, gas / electric utility services, security services, wholesale water services, transit services. etc.
• Regulatory Fees*: regulation, permits, inspectionsPermits for regulated commercial activities (e.g., dance hall, bingo, card room, check cashing, taxicab, peddlers, catering trucks, massage parlor, firearm dealers, etc.); fire, health, environmental, safety permits; police background checks; pets; bicycle licenses.
• Rents: charge for entrance, use or rental of government propertyFacility/room rental fees, room rental fees, equipment rental fees, on and off-street parking, tolls, franchise, park entrance, museum admission, zoo admission, tipping fees, golf green fees, etc
• Penalties for illegal activity, fines and forfeitures, etc. Parking fines, late payment fees, interest charges and other charges for violation of the law.
• A payment that is not imposed by governmentIncludes payments made pursuant to a voluntary contract or other agreement that are not otherwise “imposed” by a government’s power to coerce.
Fees and the Rest California Constitution per Prop218(1996, Prop26(2010), etc.
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Taxes and Fees/etc.Approval Requirements (California Constitution)
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Taxes Fees State/Fed Aid Rents, penalties Other
Source: CaliforniaCityFinance.com computations from data from California State Controller (revenues). Does not include data from the following cities that failed to report: Beaumont, Hawthorne, Imperial, La Habra, Lindsay, Placerville, Stockton, Taft, and Westmorland.
California City Revenues
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Source Author’s computations from State Controller reports
Other
Hotel Tax
BusnLic Tax
Utility User Tax
Franchises
Sales & Use Tax
Property Tax
OtherPlanningStreetsLibrary
Parks&Rec
Police
Fire
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Revenues Exenditures
Discretionary Revenues and SpendingTypical Full Service City
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California County Revenues
Source: CaliforniaCityFinance.com computations from data from California State Controller.
Counties are hybrid local/state
state/federal programs: Aid to families (CalWORKS), food stamps, foster care, In-Home Support Services (IHSS), alcohol & drug treatment.
countywide services: jails, courts, elections, property tax collection & allocation.
“city” services to . unincorporated areas
Taxes Fees State/Fed Aid Rents, penalties Other
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California Special District Revenues
Source: CaliforniaCityFinance.com computations from data from California State Controller.
Typical Non-Enterprise (e.g., Fire, Parks)
Typical Enterprise (e.g., Water, Sanitation)
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Regulatory Fees, User Fees and Other Charges
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Regulatory fee revenue may be used to mitigate the past, present, or future adverse impact of the fee payer’s operations, as long as the fee bears a reasonable relationship to the burden caused by those charged. The use of proceeds from regulatory fees does not have to confer benefits or privileges on the fee payer.
Regulatory Fees – examples
Sinclair Paint Co. v State Board. of Eq. (1997)
Waste hauler surcharge used to fund a no-costprogram to dispose of
household toxic materials(e.g., paint, solvents)
and appliances.
Fee for fire prevention brush management near
canyons, hillsides, etc. Some revenues fund
emergency preparedness education program.
Water conservation inspection fee, a
portion used to fund a rebate program for
the installation of low volume water fixtures.
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A charge imposed to recover the reasonable costs to a local government for issuing licenses and permits, performing investigations, inspections, audits, enforcing agricultural marketing orders, administration and enforcement of the regulations. -Regulatory Fee under Proposition 26Does NOT include: fees/charges to mitigate the past, present, or future adverse impact of the fee payer’s operations.
☞ OK if adopted prior to Nov 2, 2010
Proposition 26 Aimed at Sinclair
Waste hauler surcharge used to fund a no-costprogram to dispose of
household toxic materials(e.g., paint, solvents)
and appliances.
Fee for fire prevention brush management near
canyons, hillsides, etc. Some revenues fund
emergency preparedness education program.
Water conservation inspection fee, a
portion used to fund a rebate program for
the installation of low volume water fixtures.
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A charge imposed to recover the reasonable costs to a local government for issuing licenses and permits, performing investigations, inspections, audits, enforcing agricultural marketing orders, administration and enforcement of the regulations.
Regulatory Fee
A charge for specific benefit or privilege, service or product granted directly to the payor not provided to those not charged does not exceed the reasonable costs to the local government
of the benefit, privilege, service or product.
User Fee
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“The question of proportionality is not measured on an individual basis. Rather it is measured collectively, considering all rate payors. Thus, permissible fees must be related to the overall cost of the governmental regulation. They need not be finely calibrated to the precise benefit each individual fee payor might derive. What a fee cannot do is exceed the reasonable cost of regulation with the generated surplus used for general revenue collection. An excessive fee that is used to generate revenue becomes a tax.”
Calif. Farm Bureau Fed’n v. StateWaterRes.Control Bd., 51Cal.4th 2012
Fees: Calibrated to Precise Benefit?
User Fees: Differential Rates, Discounts, Waivers
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Smells like a tax if … the cost of providing the discount, fee waiver, or differential rate is
diverted to other fee payers who must pay for the same benefit, privilege, service or product, or
the fee or charge paid by the other fee payers exceeds the cost of providing the benefit, privilege, government service.
Permit fee for fishing in a public reservoir
(i.e., for a privilege or benefit) ◆ waived for local residents
Ceramics class fee (i.e., for a service or product)
◆ discounted for seniors / students
Gas service charge (i.e., for a service or product)
◆ discounts to low income customers
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A charge for entrance to or use of local government property, or the purchase, rental, or lease of local government property.
• “reasonable cost” and waiver/discount limits do not apply• may charge whatever the market will bear
• Rates do not have to be cost justified• Revenue may be used for general purposes
Rents
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Fee for use of community amphitheater
◆ discounted for non-profit groups
Fee for use of city owned boats at city reservoir
◆ discounted for local residents
Bridge toll◆ waived for high
occupancy vehicles
A fine, penalties, or other monetary charge imposed by a court or local government as a result of a violation of law.
Fines and Penalties
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Five percent charge for late
payment of water utility bill.
Fine of $1,500 for violation of regulation prohibiting
any person from throwing a lighted cigarette onto
park property
Water conservation fine on over users,
a portion used to fund a rebate program for the
installation of low volume water fixtures.
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CSMFO Revenue Fundamentals II:Special Financing Districts (SFD)
Tim SeufertNBS
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Develop Priorities
Choose SFD
Tool(s)
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The fundamental process
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Priorities
1Community needs and desires, fully vetted…
Priorities and policies
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PrioritiesSFD
Tools
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Choosing funding and financing tools
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Capital vs. services
Ongoing services
One-time capital
investment
SFD options
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Capital vs. services
Taxes vs. Assessments
California Constitution
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SFD revenue tools: The short list
1 Community Facilities District, or CFD
2 “Special” Parcel Tax
3 Special Assessment Districts
4 The others: Property-related fee, EIFD?
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Financing tools: A short list
1 Municipal bonds, taxable or exempt
2 State Revolving Funds/iBank/Other
3 P3?
4 Bank Loans
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Use of CFDs for developments…
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Community infrastructure or provision of services
Let’s talk economic development…
Downtown revitalization or conference center/hotels
Infill Development
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Downtown Burlingame Avenue
Source: LAO
• Years of neglect and lack of consensus
• Funding challenges
• Interests coalesce
• Special assessment passed
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San Francisco SOMA Plan Area
• Opt in CFDs
• Max revenues
• Trade off for increased height limits
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Let’s talk infrastructure…
Water/Wastewater/Recycled Water
Streets and Storm Drains
Civic Improvements
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Los Carneros Recycled Water
• Special assessment • Recycled water infrastructure• Strong community support
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Santa Cruz County Libraries
• CFD • Renovate and rebuild libraries• Community-wide support
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Let’s talk services…
Stormwater/NPDES
Schools and Libraries
Public Safety
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Let’s keep talking about services…
Groundwater (GSA/GMA)
Inspections/Code Enforcement/Prop 64/Etc.
???
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SF Bay Restoration Authority
• Parcel tax across 9 counties • Bay restoration, and sea level rise?• Voter approved tax
“Fun” facts: 36-66” sea level rise forecast, with 11,000,000 passengers per year at OAK, and 35,000 residents in Foster City…
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City of Culver City
• Parcel tax for stormwater/NPDES • Creek restoration/environmental perspective• Voter approved tax
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CFDs and Parcel taxes
NOT BENEFIT-BASED
•Reasonable metrics
•Achieves local goals and policies
APPROVAL MECHANISM
• Voter approved, still 2/3 required
• CFD landowner vote(s)
SAMPLEPROJECTS
• Schools and libraries
• New development
• Open space acquisition and maintenance
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Special Assessments
ARE BENEFIT-BASED
• General benefit
• Rigor of assessment engineering
• Still viable…
APPROVAL MECHANISM
• Property-owner
• Protest ballot
• 50% + protest?
SAMPLE PROJECTS
• Infrastructure, new and replacement
• Ongoing maintenance
• PBIDs/CBDs
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Property-related Fee (not water, sewer, trash)
ANALYTICAL RIGOR
• Voluntary nature?
• Analytical analysis
APPROVAL MECHANISM
• “Property-based fees” balloted
SAMPLES
• Palo Alto Storm drain fee
• CSA fees for roads, fire, etc.
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Examples
Case studies:
1. CFD for public safety
2. Parcel tax for recreation and park
services
3. Benefit assessment for fire services
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INITIAL FORMATION ONGOING
CFD: Vacaville (developer-driven)
NEEDS AND POLICY AIMS
•Provide public safety services
•Mitigate negative fiscal impacts
•Fairness to payers
FORMATION AND APPROVAL
• Research and analysis
• Develop RMA (tax formula)
• Ballot and waiver (2/3)
ANNUAL ADMIN
• Tracking, calculating, and collections
• Responding to inquiries
• Annual reporting
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INITIAL FORMATION ONGOING
Parcel tax: GVRD
NEEDS AND POLICY AIMS
•Maintain parks
•Provide services for many users
•Fairness to payers
FORMATION AND APPROVAL
• Research and poll
• Educate and inform
• Develop tax formula
• Mailed ballot election (2/3)
ANNUAL ADMIN
• Tracking, calculating, and collections
• Responding to inquiries
• Annual reporting
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INITIAL FORMATION ONGOING
Benefit assessment: ECCFPD
NEEDS AND POLICY AIMS
•Maintain fire suppression services (Post 13 district)
•Fairness to payers
FORMATION AND APPROVAL
• Community discussions
• Detailed research
• Educate and inform
• Dev assessment
• Protest ballot (50%)
ANNUAL ADMIN
• Tracking, calculating, and collections
• Annual Engineers Report
• Inquiries
• Annual reporting
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Annual administration process
Agency Reports
Customer Service
(inquiries)
State Reporting
Delinquency Management
AnalyzeBudgets
TrackParcels
Calculate Annual Charges
Funds Tracking
Continuing Disclosure
BondCalls
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Recommended resources
Additional Resources:
• League Municipal Revenue Handbook
• NBS’ SFD Primer and Compendium
• League and CSDA Proposition 218
Implementation Guides
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CSMFO Revenue Fundamentals II:Utility Rate Discussion
Tim SeufertNBS
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Utility rates and property-related fees
• Utility rates for water, sewer, trash• Other “property-related fees”• Capacity/connection fees
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What the heck?
• Terminology: Fee vs rate vs tax
• Three “exceptions”
• Who provides service?
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What is in the Gumbo?
• Drought effects
• Legal challenges
• Revenue instability
• Recycled water needs (DPR anyone?)
• Groundwater issues and challenges
• Critical capital infrastructure needs
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Legal challenges and more…
Bighorn case started it all…
• San Juan Capistrano tiered rate challenge
• Palmdale customer class case
• Wastewater challenges
• Town of Hillsborough penalties
• Etc.
[+ class actions?]
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Revenue instability
$9.67 Mil.$6.4 Mil.
$10.77 Mil.
$13.25 Mil.
$. Mil.
$5. Mil.
$10. Mil.
$15. Mil.
$20. Mil.
$25. Mil.
Cost Structure Rate Revenue
Cost vs. Revenue Structure
Fixed Variable
53% Variable47% Fixed
67% Variable33% Fixed
Risk!
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Fines and Penalties
Encouraging conservation, beyond tiers
Communication
Incentives and Rebates
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More on communication
What’s happening at the Utility?
Financial Updates
Capital Projects
Conservation Messaging
Rebate Programs
New Regulations
Customers
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• Infrastructure needs
• Revenue doesn’t cover costs
• Cost-of-service is out of balance
• Conservation impacts
• How does the increase affect customers?
• Who feels the most pain?
Keys to a successful rate setting process
Public Outreach Strategy
Tell a Complete Story
Prior Cost Cutting
Measures
Operational Efficiencies
Bill Impacts
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Senate Bill 814
Objective: During a state of emergency or local water supply shortage, establish a method to identify and discourage excessive water use.
Targeted water usage: Single-family residential customers or individually metered (or sub metered) multi-family residential customers.
How to comply: Rate structure or excessive use ordinance and penalties.
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Meeting SB 814 requirements
Rate Structure
• Addition to base rates to discourage excessive use
• Tiered rates
• Water budgets
• Rate surcharges
Excessive UseOrdinance
• Definition/procedure to identify and address excessive water use
• Process to issue written warnings and perform site audit
• Penalty or fine of up to $500/hcf used above excessive use threshold
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Draft Framework - Executive Order B-37-16
Four Main Objectives:
Use Water More Wisely
Eliminate Water Waste
Strengthen Local Drought Resilience
Improve Agricultural Water Use Efficiency and Drought Planning
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Anatomy of a water/sewer rate study
Financial Plan & Revenue
Requirements
Cost-of-ServiceAnalysis
RateDesign
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Developing a cost basis for rates
Accounting/Cost
Water Supply
System Design/Operation
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Case in point on wastewater…
City of Sausalito study
• Volumetric rates
• Enhanced analysis of customer classes
and usage data
• Better synchronicity between residential
and non
• Marin Grand Jury comments
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Storm drain fees?
Still need analysis and approval process
• Property-related fee?
• Parcel tax?
• G.O. bond?
• DIF?
• Etc.
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Trash, recycling, composting…
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Trash, recycling, composting…
Some of the issues:
• Conundrum of encouraging more recycling vis a vis cost
• Cost allocation/rate setting between different sizes of cans, and residential vs. commercial
• Developing [expensive] composting systems for green waste
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Connection fees or capacity charges
Some of the issues:
• Akin to Development Impact Fees (DIF)
• Cost-based fees, share of current infrastructure, portion of future improvements or hybrid
• ADU or “granny units” discussions
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Noteworthy possible developments
Coming soon?
• ACA – 1
• New legislation about ADUs
• Court cases
• What else?
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Recommended resources
Additional Resources:
• League Municipal Revenue Handbook
• League and CSDA Proposition 218
Implementation Guides
• NBS publications:
1. Special Financing District Primer
2. Rates & Fees Compendium
3. Stormwater 10-step funding plan
4. CFD booklet
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Tim Seufert
Questions and Comments
800-434-8349
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Capital Financing
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Examples of Capital Assets
Land and improvements
Facilities
Infrastructure (water, sewer,
streets)
Vehicles and Equipment
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Pay as You Go (Pay-Go) versus Pay as You Use (Debt)
Source/Tool Approval Rules NotesDeveloper fees & exactions
Condition of development
Limited, one time
User Fees (Revenue Bond)
Majority protest for water, sewer, refuse
Use limited to purpose of fee
General Obligation Bonds (property tax)
2/3 voter approval (citywide)
ad valorem tax increaseLowest interest costNeeds big communitywide interest
Special Benefit Assessment
Majority protest of payers (weighted)
“special benefit” to property that pays also for maintenance
C.F.D. Special (Parcel) Tax
2/3 voter approval -if
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New Infrastructure Financing Tools after the
Redevelopment Apocalypse
Uses: public facilities and “projects of communitywide significance” purchase, construction, expansion, improvement, seismic retrofit of real or tangible property with a useful life of 15 years or greater:
Enhanced Infrastructure Financing Districts (EIFDs)SB628 (Beall) in 2014 Gov Code Sec 53398.50
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Projects on a closed military base consistent with approved base reuse plans
Industrial structures for private use Transit priority projects Projects which implement a sustainable
communities strategy Mixed-income housing developments Facilities constructed to house providers
of consumer goods and services Child care facilities
Highways, interchanges, ramps and bridges, arterial streets, parking and transit facilities
Sewage treatment, water reclamation plants and interceptor pipes
Facilities for the transfer and disposal of solid waste, including transfer stations and vehicles
Facilities to collect and treat water for urban uses Flood control levees and dams, retention basins,
and drainage canals Parks, recreational facilities, open space and libraries Brownfield restoration and other environmental mitigation
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Property tax increment of city*
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Uses: May plan and fund: Rehabilitation, repair, upgrade or construction of public infrastructure brownfields cleanup low- and moderate-income housing seismic retrofits of existing buildings owner or tenant improvement loans assistance to businesses for certain industrial and manufacturing uses.
May issue long term debt, backed by property tax increment. Voter approval is not required
25% of tax increment must be used to increase, improve, preserve affordable housing
May use eminent domain
Community Revitalization and Investment Authorities (CRIAs)
AB2 (Alejo) in 2015 Gov Code Sec 62000
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May be used in a revitalization area w/ 80%: An annual median household income is less than 80% statewide annual
median income Three of the four following conditions:
1. A nonseasonal unemployment rate 3% higher than the statewide median2. Crime rate 5% higher than the statewide median3. Deteriorated or inadequate infrastructure: streets, sidewalks, water,
sewer, parks4. Deteriorated commercial or residential structures.
Or… a former military base.
Community Revitalization and Investment Authorities (CRIAs)
AB2 (Alejo) in 2015
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