What the heck is an EIFD and why does Sebastopol need one?
Hoping to solve its budget woes, the Sebastopol City Council votes to explore an EIFD, a new kind of funding mechanism
With its $1.6 million budget deficit and looming infrastructure repairs it can’t afford to make, the city of Sebastopol is looking at a new funding mechanism called an EIFD (Enhanced Infrastructure Financing District).
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.
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EIFDs impose no new taxes; rather they redirect a percentage of those property tax increases that would otherwise go, in this case, to the county.
At their meeting on Tuesday, the city council voted to work with the county to explore the creation of an EIFD. Fifth District Supervisor Lynda Hopkins sweetened the deal by offering the city $50,000 to pay for an EIFD consultant, who would help the city and the county through the long and complicated process of creating an EIFD. (That $50,000 is dependent on the approval of the Board of Supervisors at their January 23 meeting.)
Creating an EIFD was Hopkins’ idea in the first place, Mayor Diane Rich said. She said she’d reached out to Hopkins asking for creative ways to solve the city’s budget problems, and Hopkins had suggested an EIFD.
The city council then created an EIFD Ad Hoc Committee (made up of Rich and Councilmember Stephen Zollman, with staff support from the city manager and assistant city manager). At Tuesday’s meeting the Ad Hoc delivered a 23-page document reporting on their findings.
At the council meeting, Hopkins expressed her excitement over the potential of an EIFD.
“I think that pretty much everyone I know who works in the government is really tired of trying to fix old broken things with not enough money,” she said. “And that's honestly the spirit in which I approach this. I feel like now is the time to actually start building the new infrastructure for the future. And right now it just feels like we are using duct tape and baling twine to fix things that have been built 50 or 60 years ago, which is the era in which many of our buildings were built.”
“I also want to be really clear that one of the reasons that I would be really excited to work with Sebastopol on this project is that you truly are the commercial center of West County,” Hopkins continued. “There are more banks and grocery stores here than in any other part of western Sonoma County, and that's because so many of our unincorporated residents still consider Sebastopol their town. What I like about this model is it allows people like me who live on the outskirts of Sebastopol to actually contribute to community infrastructure improvements.”
How EIFDs evolved
EIFDs work through what's known as tax increment financing, which was historically used by redevelopment agencies to raise funds for infrastructure improvements, housing, etc. When redevelopment agencies were disbanded in 2012, the California legislature sought to create another mechanism that would allow localities to finance large, expensive improvements, such as roads, sewers, affordable housing, etc. Voila, the EIFD. This has led EIFDs to be called "Redevelopment 2.0."
How it works
The boundaries of the EIFD will be determined as a part of the formation process, however the county’s offer of $50,000 is dependent on potential EIFD maps encompassing a broad swath of west county.
As a financing district, EIFDs are governed by a Public Financing Authority (PFA), which is composed of representatives of the governing entities involved as well as citizens from the district.
According to the EIFD Ad Hoc Committee report, “For a West Sonoma County EIFD, with contributions from the County, a PFA of five is possible (two Councilmembers, one Supervisor, and two public members), but a PFA of seven members appears more likely…The City would appoint two Councilmembers plus one public member, the County would appoint two Supervisors plus one public member, and the final public member would be a joint City/County appointment.”
The PFA develops a governing document known as the Infrastructure Finance Plan, which, according to the EIFD Ad Hoc report, “specifies the projects the EIFD will fund, the tax revenues each participating entity will contribute, as well as many other details regarding the EIFD.”
How much money are we talking about?
As mentioned above, the PFA will have to decide how much each participating entity will contribute. Here is one scenario:
The numbers assume a 2% annual increase in property taxes in City and County and 25% of that increase is directed to the EIFD.
The report projects that the County’s would contribute $207,754,939 to the EIFD over a 45 year term. The City would contribute $16M over 45 years. (The total amount of the incremental revenue for the City is projected to be $64,427,272 over 45 years.)
(We confirmed the accuracy of these numbers with Mayor Diana Rich, who confirmed their accuracy with Erick Roeser, the Auditor-Controller-Treasurer-Tax Collector of Sonoma County.)
What can the money be spent on?
With regard to how the money can be spent, California’s EIFD statute reads as follows, “The Legislature finds and declares that with the dissolution of redevelopment agencies, public benefits will accrue if local agencies…are provided a means to finance the reuse and revitalization of former military bases, fund the creation of transit priority projects and the implementation of sustainable communities plans, fund projects that enable communities to adapt to the impacts of climate change, construct and rehabilitate affordable housing units, and construct facilities to house providers of consumer goods and services in the communities served by these efforts.”
The City of Santa Rosa, which is about two years ahead of Sebastopol in creating an EIFD, came up with this list of possible projects.
Roads, highways, streets/streetscapes, parking facilities and transit facilities
Internet access services
Parks, open space, and recreational facilities
Improvements related to fighting climate change
Brownfield restoration and other environmental mitigation
Transit priority facilities
Sewer, reclamation, and water facilities
Solid waste facilities
Flood control facilities, retention bases, and drainage channels
Many of these items could be on Sebastopol’s wish list as well. The Ad Hoc committee came up with an initial list, which can be found at the end of their report. There was general agreement that this list was uninspiring and needed a few more glamorous items to make it more persuasive. Ultimately, though, the list of projects will be developed by the PFA, the governing body of the EIFD.
Councilmember Jill McLewis was the toughest questioner of the evening, at one point expressing her frank distrust of Hopkins. She said this was based on her experience with the county’s takeover of the Sebastopol Inn and its plan to create supportive housing for the homeless there, which McLewis said had negatively affected her nearby business.
McLewis asked Hopkins why people in rural west county would be interested in funding infrastructure projects that primarily benefit Sebastopol. McLewis said she’d heard from several people in west county who didn’t want their tax dollars used in Sebastopol
“I think that there are two parts to that answer,” Hopkins said. “Number one, this is not new taxes for anybody so they're not facing an increase in their cost of living, which I think is really an important message to share. And then I would also say that I have certainly found it to be true in my role that you will often hear from people who are upset or opposed about something, and often that is actually not indicative of a majority of people's viewpoints.”
She also noted again how many people from west county use the resources and services of Sebastopol, and repeated that although many people may live outside its boundaries they still consider Sebastopol “their town.”
“I actually think that the majority of folks want to see improvements in their town,” she said. “A majority of folks want to see things get better. Also, there's less territoriality than some people express.”
McLewis asked why other cities—other than Santa Rosa—aren’t setting up EIFDs, and if any city had tried, then backed out.
Hopkins didn’t have an answer to that second question—she punted to the future consultant—but she did say that some other cities, like Sonoma, were considering EIFDs.
In general, however, she mentioned that the disasters of the last few years—fires, floods, pandemic—have just worn people down.
“I think everyone in local government is probably somewhat exhausted…just because there's been so much going on the last few years. So I would guess it's more about capacity, as opposed to lack of interest or desire.”
McLewis then asked about infrastructure needs of west county, wondering how the money would be shared out.
“So we have not done any analysis about that yet,” Hopkins said. “And I actually think that's why it's really important to sit down and find out what are your needs and hear also from your constituents about their wish lists. I mean you’ve got the things you have to do and then there's the nice-to-haves, right? Like, how many of those will fit in? We haven't even started that conversation.”
McLewis asked Hopkins why the supervisors would approve an EIFD, since the money would eventually come directly out of the county’s general fund.
“What would inspire the county board of supervisors to approve something like this? Why would they agree to it?” McLewis asked.
“What I have found is the way to get to three [votes] on the Board of Supervisors is to ensure there's something in it for everyone,” Hopkins said. “I want this for West County because I believe in it. I believe in making infrastructure investments that are, quite frankly, decades overdue in many cases. But I know that Chris Coursey is very supportive because he's currently working with the City of Santa Rosa and already serves on the Public Financing Authority for downtown Santa Rosa. And I know also that Susan Gorin is interested in this in East County. So that's three votes.”
McLewis pressed her. “Why wouldn’t the supervisors be concerned about this and not approve it? What are their concerns?”
“I would say that the concerns are that we [meaning the county] lose revenue, decrease our general fund capacity and that there wouldn’t be sufficient property tax growth to offset that loss,” Hopkins replied. “So I think that that's a really important portion of this analysis…And I think I can hear my colleague who is always our fiscal hawk on the Board, Supervisor Rabbitt thinking, ‘Well, what does this mean for the general fund? Will we have less money for Health and Human Services and the sheriff's office and etc. So I think that that's the main hurdle that the board is going to have to overcome.”
McLewis seemed like the sole skeptic on the council. Others seemed enthusiastic to be working with Hopkins to at least explore the possibility of creating an EIFD.
“You know, you can look at this a couple ways, but I’m always a glass-half-full kind of girl,” Councilmember Neysa Hinton said. “And I'm a collaborative person. I can remember when I joined Rotary many years ago, they said, when you work as a group, you get more done. I mean, it's just the way it works…So I don't see where we're in a losing situation. I just see it as a winning situation.”
Others also seemed swayed by Hopkin’s obvious enthusiasm for the project and the endorsement of new city manager Don Schwartz.
“It's a no-cost financial opportunity for us to pursue potentially significant funding towards our infrastructure,” Schwartz said. “We know, as the Vice Mayor pointed out, that there's a huge need. And if it does come to fruition, it's one of those few options—maybe the only option we have—where we don't have to raise taxes or rates to help us get out of the financial hole that we're in.”
In the end the council voted unanimously to move forward in discussions with the county toward forming an EIFD and to accept the $50,000 for an EIFD consultant. There were “Ayes” all around, including from Councilmember McLewis, who leavened her agreement with a commentary: “With caution and trepidation, aye.”
Read the City’s EIFD Ad Hoc Committee report here.
Here’s the estimated timeline for the project, according to the EIFD Ad Hoc report:
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