CITY COUNCIL 9.A.1. City of Watsonville Community Development Department M E M O R A N D U M DATE: February 8, 2016 TO: FROM: SUBJECT: Charles A. Montoya, City Manager Keith Boyle, Acting Community Development Director Kurt Overmeyer, Senior Planner Resolution authorizing the City Manager to prepare and distribute a Request for Proposals (RFP) to hire a consultant to prepare a plan to establish a Community Revitalization and Investment Authority (CRIA) AGENDA ITEM: February 23, 2016 City Council RECOMMENDATION: It is recommended the City Council adopt a resolution authorizing and directing the City Manager to prepare and distribute an RFP to hire a consultant to prepare a plan to establish a Community Revitalization and Investment Authority (CRIA). BACKGROUND: On September 22, Governor Brown approved AB 2 which authorizes certain local agencies, including cities, to establish a Community Revitalization and Investment Authority (CRIA). These newly created bodies are designed to help struggling communities invest in infrastructure, economic revitalization, affordable housing and other activities that improve the quality of life in underserved communities. The bill would also authorize an authority to use funds to acquire real estate in order to redevelop underperforming areas. The Bill also authorizes the exercise of eminent domain in limited circumstances. AB 2 requires that Redevelopment Agencies have to settle any outstanding litigation before a new CRIA can be established. Currently the City of Watsonville does have some outstanding litigation in regards to 2.4 million dollars for 3 contracts that the Oversight Board authorized in June of 2012. With this litigation unresolved, the City can study the formation of a new district but cannot establish one until the litigation is complete. DISCUSSION: To create a CRI A it must be determined that a community meets the disadvantage community criteria listed in the Bill and then follow the established procedure to form the district: Following is a summary of criteria necessary for the City to consider a CRIA district. Page 1 of 7
Eligibility: Not less than 80% of the land within the area characterized by both of the following: An annual median household income that is less than 80% of the statewide annual median income (by census tracts or census tract groups); http://www.census.gov/geo/maps-data/ And three of the following four conditions: Non-seasonal unemployment that is at least 3% higher than statewide median unemployment; http://www.labormarketinfo.edd.ca.gov/ Crime rates that are 5% higher than the statewide median crime rate; https://oag.ca.gov/cjsc/spereq Deteriorated or inadequate infrastructure (Locally determined) Deteriorated commercial or residential structures (Locally determined) Currently, Watsonville s Median Income is 71% of the State median and the unemployment rate is 5.5% higher than the statewide average. While Watsonville s crime rate is less than 1% higher than the statewide rate, there are many areas that have inadequate infrastructure and deteriorated structures. Structure: A CRIA can be formed by a City or by a Joint Powers Authority. A City can form a CRIA without assistance from any other jurisdiction; however, the only Tax Increment (discussed below) available will be the City share of property tax, or 17% of 1% of the assessed valuation of properties for most of Watsonville. Should a CRIA need the County share of Tax Increment, then a Joint Powers Authority must be formed and the County must agree to give up all or part of their Tax Increment for the purposes of the CRIA Plan. In most areas the County share plus City share would equal 34% of 1% of the assessed valuation of the property. If the CRIA Plan is City created then the board must include three members of the City Council and two public members who live or work within the area. If the CRIA Plan is created by a Joint Powers Authority (JPA) then the board must include a majority of members from legislative bodies of public agencies that created the CRIA and a minimum of two public members who live or work within the area. Some key locations that might be a good fit for a CRIA include Downtown, parts of Freedom Boulevard, the special planning area near Main Street and Auto Center Drive, and the West End Industrial Park. Manabe-Ow would probably not be eligible due to only meeting 2 of the 3 required criteria in the second set of requirements above. Powers of a CRIA: Community Revitalization and Investment Authorities can: Purchase, lease, or otherwise obtain real property Sell, lease, grant or donate real property owned by the authority Rehabilitate and sell or lease property Acquire property by eminent domain (forcing an owner to sell at fair market value) within the first 12 years of an authority s creation. This is usually done as a friendly eminent domain action which allows a seller extra time for a tax free exchange. Page 2 of 7
Participate in joint ventures with property owners Develop plans to redevelop properties Bond against future revenues Build infrastructure Rehabilitate infrastructure Rehabilitate privately owned structures Authorities, however, do not have unlimited use of these powers. They are not allowed to provide direct assistance to: Car dealerships that are on undeveloped land A development on a 5 acre or greater parcel that has never been developed if it will be used, once developed, for activities that generate sales or use taxes (hotels, office and industrial are allowed) Any gambling related development Acquiring existing gambling uses One big advantage of a CRIA is that a district s revenue can be used to leverage other funding sources such as EDA grant funding and other programs from State and Federal Grant sources. Tax Increment Financing: Community Revitalization and Investment Authorities are funded by property tax increment (TI). Tax increment financing districts are set up so that the existing property taxes continue to be disbursed to all taxing entities, but when a new assessment is made due to reinvestment or new construction, the difference between the current taxes and the new property taxes generated by new investment is redirected to the Tax Increment Financing District (in this case, a Community Revitalization and Investment Authority. The increment, or the difference between the baseline taxes and new taxes, is then used to invest in infrastructure and other activities that support more future increases in tax base and economic activity within the District. Tax Increment Financing has been used throughout the United States successfully to draw investment into underserved areas and areas that have suffered significant disinvestment. Often funds are used for infrastructure or to purchase land in order assemble enough land for a development project. The main goal of this type of district is to improve employment, reduce crime rates, repair deteriorated or inadequate infrastructure, promote affordable housing opportunities, and to improve conditions in ways that increase employment opportunities. Since many areas in Watsonville were part of the former Redevelopment Agency (RDA) which is still paying off bonds, no TI can accrue to a new CRIA that is in the same area as Redevelopment was until those bonds are paid off. However, if the RDA bonds are refinanced, there is significant enough savings to add up to a Net Present Value of over $1.9 million dollars. If the Successor Agency were to refinance the bonds, it would free up potential TI immediately. Since nearly all potential sites were part of the former Redevelopment Agency, refinancing the existing indebtedness of the former RDA is recommended. Page 3 of 7
In the adoption of the CRIA, the authority can be established to use TI financing to accomplish certain goals of the plan. In order to use TI financing, the participating jurisdictions must determine the following: Plan may include provision for tax-increment financing City or County (or Joint Powers Agreement) that establishes CRIA + other entities that consent (not school district) by adoption of resolution, allocated a portion of the property tax based upon assessed valuation prior to effective date of the Plan. Increment allocated to CRIA to finance the work of economic revitalization, public infrastructure and housing. Consenting taxing entity may advance funds to the CRIA Consenting taxing entity and CRIA MOU for use of tax increment funds for administrative and overhead expenses Consenting taxing entity may withdraw consent for participation in tax-increment financing with 60 days notice (except for existing debt-repayment commitments) Economic Development Economic development often requires a local area to make significant investments in infrastructure to support new and emerging commercial markets. Economic development also requires that land and structures are available for the location of new businesses. In communities like Watsonville, where most of new development will come in infill areas (areas that have existing structures or that are surrounded by existing development), finding ways to assist the development community in creating opportunities is vital to community success. Community Revitalization and Investment Authority established by AB 2 has broad powers to assist in solving these problems and to improve economic development efforts. Affordable Housing Community Revitalization and Investment Authorities are required by law to set aside 25% of all revenues to support low and moderate income housing by creating a housing fund. This is similar to the former Community Redevelopment Act, which required that 20% of all funds were set aside for low and moderate income housing. In fact, the former Watsonville Redevelopment Agency still has a Housing Fund which can be used in a similar way to the set aside created by AB 2. These funds can be used to build new affordable housing, improve existing housing stock, to help seniors age in place, to relocate persons displaced by other development activities and to ensure that sufficient affordable housing stock is available to meet local demand. The housing set aside has no impact whatsoever on the local jurisdictions existing City Inclusionary Housing Ordinance or require affordable housing to be built as part of a project using fund from the district. The Authority must start spending this money within 10 years of adoption of the Plan, but there is broad authority in terms of how this money is spent. The new law allows agencies to engage in a number of activities to support availability of affordable housing, including: Acquiring property Improve property or building sites (including offsite improvements) Construct new housing Page 4 of 7
Rehabilitate existing housing Donate real property for the purpose of constructing affordable housing Finance insurance premiums for organizations that build housing Provide subsidies to or for the benefit of very low, low or moderate income families Develop Plans Pay principle and interest on bonds, loans, advances or other debts Pay carry costs Maintain current housing supply, including mobile homes Relocation of displaced persons The law also requires that any activity involving the CRIA that results in displacing individuals from existing housing include a plan for relocation and replacement of this lost housing. It also requires that any non-profit or community based organization that is displaced be provided with funds to offset relocation costs. In the event that permanent relocation is required, suitable accommodations must be provided within 2 years of dislocation. The law also provides income requirements for any housing that is built using CRIA funds. These limits are as follows: Prior to expiration of the Plan at least 30% of all new and substantially rehabilitated units developed by CRIA must be affordable. 50% of the 30% affordable to very low income households. Inclusionary Requirement: Prior to expiration of the Plan at least 15% of all new and substantially rehabilitated units developed by public or private entities (other than CRIA) must be affordable. 40% of the 15% must be affordable to very low income. Other Tools Enhanced Infrastructure Financing Districts (EIFD) are typically a better option for greenfield sites that do not have planned housing as part of the site, or for those areas that don t meet all of the requirements for a CRIA. An Enhanced Infrastructure Financing District (EIFD) was created by Legislature in 2014 (amended in 2015 by AB 313 (Atkins) as a new way to finance public infrastructure, affordable housing and other projects. An EIFD can be created by a vote of property owners after development of a plan and adoption of resolutions or creation of a JPA in the event that multiple taxing agencies are participating. The EIFD is available for the funding of infrastructure associated with the Manabe-Ow Business Park. Similarities between an EIFD and CRIA: Both are public entities Both can finance wide-range of public and private projects including affordable housing Creation requires finding of completion from DOF and compliance with State Controller s orders for former Redevelopment Areas (both complete for Watsonville) Both can use property tax increment financing with contributions from other taxing entities with their consent Page 5 of 7
Differences between the EFID and CRIA: CRIA operates solely within specifically defined area characterized by social and economic deterioration or a former military base CRIA is an agency for purposes of provisions of California Constitution used by former redevelopment agencies CRIA Plan adoption subject to majority protest and possible election CRIA issuance of bonds does not require voter approval; EIFD is 55% Different housing replacement obligations CRIA has 25% housing set-aside obligation CRIA relies on property tax increment revenue only as funding source. EIFD also authorized to use funding from property taxes in lieu of former VLF and a variety of assessment district laws and Mello-Roos Community Facilities Act PROCEDURE: CRIA Plan: In order to establish a CRIA, a City or JPA must establish a CRIA Plan. This plan must include: Principal goals and objectives Proposed Areas Description of deteriorated or inadequate infrastructure and program to construct, repair or upgrade Housing program Program to provide funding or facilitate economic revitalization Brownfield remediation Fiscal analysis [revenue and expenses; bonds] Time limits that do not exceed: o 30 years for establishing indebtedness o 45 years for repayment of debts and obligations o 45 years for fulfilling housing obligations Typically, a consultant would be hired to write the Plan and do the underlying economic analysis. While internal staff can and should do some of the work, if County participation is expected, a qualified consultant will be required. Staff estimates that this work would cost around $80,000. However as part of SB107, additional language was added that requires former Redevelopment Agencies to have settled any outstanding litigation before a new CRIA can be established. Currently the City of Watsonville does have some outstanding litigation in regards to 2.4 million dollars for 3 contracts that the Oversight Board authorized in June of 2012. With this litigation unresolved, the City can study the formation of a new district but cannot establish one until the litigation is complete. STRATEGIC PLAN: The proposed CRIA Plan is consistent with the Strategic Plan because it promotes economic development by establishing a mechanism to fund future infrastructure improvements that will promote new development in the City of Watsonville. Page 6 of 7
FINANCIAL IMPACT: Although it may cost $80,000 to hire a consultant to prepare the plan to create the CRIA, it is estimated that the creation of districts could bring in millions of dollars for future infrastructure improvements in the City, similar to the past Redevelopment Agency. ALTERNATIVES: The Council can choose not to prepare an RFP and wait until such time that litigation issues are resolved thereby not allowing the Plan to be prepared and the district to be created. ATTACHMENTS: None cc: City Attorney Page 7 of 7