Can an EIFD help cash-strapped Sebastopol pay for big projects in the future?

The recently completed Enhanced Infrastructure Financing District Study explored EIFD boundaries and revenue scenarios

The city of Sebastopol began considering developing an Enhanced Infrastructure Financing District (EIFD) a year ago in November 2023. Supervisor Lynda Hopkins procured funding for an EIFD feasibility study, and the city hired a consulting firm, Kosmont, to carry out that study.

At the Sebastopol City Council meeting on Nov. 19, Consultant Joe Dieguez of Kosmont delivered the results of that study. Kosmont explored different EIFD boundaries and revenue scenarios, but it gave short shrift to what sorts of projects would be eligible for funding.

An EIFD is a special kind of financing district that captures a percentage of the increase in property taxes that result from rising property values and uses it to fund infrastructure improvements within the district. An EIFD siphons off a portion of those increases and sets the money aside in a restricted account that can only be used for certain purposes.

After doing their feasibility analysis, Kosmont is suggesting the creation of two separate EIFDs—one for Sebastopol and one for unincorporated West County.

In terms of the boundary of the Sbastopol EIFD, Kosmont is suggesting the following area, which includes 24% of the property in the city.

Proposed EIFD boundary for Sebastopol

“This is really the boundary that captures the primary opportunities,” Dieguez said, “focused on these key corridors where the primary assessed value growth is going to happen.”

The city wouldn’t want to take 100% of all future tax increments for the EIFD because it needs that money to run the city.

“Everything that we talk about is a balancing act,” Dieguez said. “We’d love to give this financing district enough capacity to actually do some of these things that we hear the community wants—roadways, bicycle improvements, water, sewer, parks, community pool, library, all these sorts of things—but it can’t be at the expense of bankrupting the city’s General Fund…These dollars are really locked into the financing district and no longer available to the General Fund. That’s a very important point here.”

Kosmont suggested that the city should only consider moving forward if the County makes a dollar-for-dollar match and if the percentage of property allocated to the EIFD is something that’s fiscally sustainable for the city’s General Fund.

The reason the city is considering an EIFD is that the potential financial rewards are relatively significant, not at first, but as the years roll on. EIFDs are typically very long-lasting—45-50 years—and the value of the EIFD grows over time. Here’s Kosmont’s estimate of how much money an EIFD based on the above map would produce.

The study was vague about how the money should be spent. The staff report reads: “At this early stage in the potential formation of a 45-50 year financing district, Kosmont is suggesting 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.”

Dieguez gave as an example, the County’s list of priorities, which included “economic development, affordable housing, climate adaptation and resilience, transit-oriented development, active transportation and advancing racial and social equity.”

Dieguez then laid out the next steps in the process.

• If the City decides to continue exploring the EIFD option, the city council would have to do a non-binding resolution to that effect.

• Next there would have to be a full fiscal analysis for both the City and the County, determining the allocation percentage, maximum dollar caps, and framework for project prioritization analyzing an EIFD’s financial impact.

Mayor Rich noted that the full fiscal analysis would cost $12,000-15,000, though she said that could be shared with the County or reimbursed by the EIFD once it was formed.

City Manager Don Schwartz said he’d like to see a full fiscal analysis done before a resolution of intention.

“I would suggest that we don’t put any more significant time into this unless we’re sure we’re going forward and that the full fiscal analysis has been completed as well, and that the County is clear on what our expectations are about the one-to-one match,” City Manager Don Schwartz said.

“I want to make it clear that the County has expressed an openness to a dollar-for-dollar match,” Mayor Rich said.

Schwartz replied that he would feel more comfortable once it had been approved by the Board of Supervisors. He said he was also a little gun-shy about moving forward because, despite the involvement of a paid consultant, this issue has taken up 30% of Associate Planner John Jay’s time since early July.

A long discussion ensued, the upshot of which was that the council unanimously voted to approve a motion that included the following items regarding the EIFD:

• Confirmation that the County was willing to do a dollar-to-dollar match or more;

• Completion of a full fiscal analysis;

• Staff to negotiate with the County to help pay for the fiscal analysis;

• Staff will nail down exactly how much more staff time it will require to get to the Resolution of Intention;

• The consultant will work with staff and the ad hoc committee to direct questions to the Board of Supervisors at their meeting.

Here’s Kosmont’s timeline of the project for the next year: