On January 19, 2015, Catherine Saillant writes in the Los Angeles Times:
Los Angeles leaders are hoping to use a new tax-sharing law to help finance ambitious plans to transform the city’s namesake river into a ribbon of recreational areas and vibrant new developments.
As of Jan. 1, local officials have the authority to direct a greater share of future property taxes to revitalization efforts, public works projects and environmental cleanup. The law is intended to replace some of the billions of dollars cities lost when Gov. Jerry Brown and the Legislature shut down more than 400 redevelopment agencies during the recession-driven budget crisis.
L.A. officials wasted no time, taking initial steps last week toward creating what is believed to be the state’s first Enhanced Infrastructure Financing District. At a City Hall hearing, council members voiced eagerness to explore the steps needed to form a district and ordered a detailed report, due back in 45 days.
Councilman Mitch O’Farrell, who asked for the analysis, said the city’s first infrastructure district would be focused on projects to restore and improve a 31-mile portion of the Los Angeles River.
Revitalizing the river is one of Mayor Eric Garcetti’s top initiatives, and the city got a boost last year when the Army Corps of Engineers agreed to a $1-billion restoration plan. But the city has been trying to come up with its share of funding. Retaining more property taxes within the city is one possibility, O’Farrell said this week.
“I’ve been chomping at the bit for the better part of a decade to identify a permanent source of revenue for improvements along the river,” he said. “And tax-increment financing can be a very good vehicle for that.”
The L.A. River is an example of what municipal analysts say could be a wave of new and stalled economic development projects that could gain momentum as a result of the state’s tax-sharing law.
In addition to public works projects, the infrastructure districts can be used to remake former military bases, rehabilitate private industrial buildings and leverage transit-oriented development, said Jon E. Goetz, a San Luis Obispo attorney who specializes in municipal law. Unlike those of the now-defunct redevelopment agencies, qualifying projects and districts don’t have to be in blighted areas, he said.
“Redevelopment was a power tool, and this is more like a hand tool,” he said. “It’s not as powerful, but with creativity it can be used for economic development, for infrastructure and for affordable housing.”
Taxpayer groups opposed the infrastructure district legislation because it permits local jurisdictions to create the zones without a vote of affected property owners. They also objected to a 55% voter-approval requirement to issue bonds and raise money for the districts. Many other tax-related measures require a two-thirds majority of voters to become law.
Diverting more property tax dollars to capital projects would shrink money available for ongoing services, such as public safety and paving roads, which in turn would “drive the demand for higher local taxes,” the California Taxpayers Assn. said in a letter outlining its concerns.
There are key differences between the new law and legislation that created redevelopment agencies more than 60 years ago. Those entities, mostly run by cities, were empowered to capture virtually all property tax growth in designated, blighted areas. That cost counties, schools and special districts billions.
Critics and warring local officials accused the agencies of stretching the definition of “blighted” to siphon away needed property tax dollars.
Under the new law, property taxes going to schools can’t be diverted to the infrastructure districts. And dollars allotted for counties or special districts would be redirected to the new districts only if all the affected agencies agree.
Los Angeles County Supervisor Hilda Solis, who represents areas northeast of downtown where the initial river projects are envisioned, said she strongly backs the revitalization effort. But city leaders will have to convince the county to part with a portion of its future property tax collections, she said.
“There will have to be a good case for that,” she said.
Before their 2012 dissolution, California redevelopment agencies received more than $5 billion in property tax revenue annually. In Los Angeles County, cities shared about one-third of that through their redevelopment agencies.
The new funding zones are expected to raise a fraction of that. On average in Los Angeles County, the infrastructure districts could collect close to 60% of what redevelopment agencies were able to capture in designated areas, said Tom Sakai, a local government consultant. But the share would be significantly less if counties and special districts declined to participate, analysts say.
Goetz and others say local governments may look favorably on the potential of infrastructure districts, despite the limitations.
“It does force more cooperation between layers of government, particularly between the city and county,” he said. “And it forces local governments and developers to put their heads together and come up with plans to benefit everyone.”
O’Farrell’s staff said his office hasn’t yet done a revenue projection or identified what L.A. River projects would be included. But an estimated $1 billion worth of improvements have been listed in the city’s master revitalization plan, including widening bridges, restoring wetlands, cleaning up industrial waste and acquiring privately held parcels.
Lawmaker support in the council’s Arts, Parks, Health, Aging and River Committee, where creation of a infrastructure district was discussed, was generally strong.
But there could be fights ahead over how to use any windfall of tax money. As rents climb, Councilman Gil Cedillo signaled he would like some of the money earmarked for affordable housing.
“It’s great to talk about how great the river can be,” he said. “I’ve got four of the six major projects in my district. But I’m concerned that we would be doing river work in lieu of housing.”
http://www.latimes.com/local/cityhall/la-me-la-river-financing-20150118-story.html
The so-called “tax-sharing law” to create a so-called “Enhanced Infrastructure Financing District” to “direct a greater share of future property taxes to revitalization efforts, public works projects and environmental cleanup” will result in a wealth ownership class of “investors” to end up owning the redevelopment improvements on which they will either sell off at a profit or lease the use thereof at a profit.
Already tax-payer monies have been pledged through the Army Corps of Engineers as part of a $1-billion restoration plan. The city, on the other hand, is exploring means to come up with its share of funding. Retaining more taxes on property owned by individuals and associations of individuals within the city is one possibility being explored as well as raising money through bond issues.
The plan includes using eminent domain powers of the State. The taxpayers will pay for an estimated $1 billion worth of improvements listed in the city’s master revitalization plan, including widening bridges, restoring wetlands, cleaning up industrial waste and acquiring privately held parcels.
As usual, the question of “Who will own the properties, once improved, is NEVER addressed, but smart people know that it will be wealthy investors who will end up with the prized income-producing capital assets.
As an alternative the City of Los Angeles should use a Citizens Land Bank (CLB), a for-profit, professionally-managed, citizen-owned-and-governed community land planning and development enterprise, designed to enable every citizen of a community of any size to acquire a direct ownership stake in local land, natural resources and basic infrastructure.
A Citizens Land Bank is a social vehicle for every man, woman and child to gain, as a fundamental right of citizenship, a single lifetime, non-transferable ownership interest in all the Bank’s assets, share equally in property incomes from rentals and user fees from leases or use of the Bank’s assets, accumulate appreciated equity values from enhanced land values, and gain an owner’s voice in the governance of future land development.
The Bank is an innovative legal and financing tool empowered to borrow on behalf of all citizen-shareholders and service the debt with pre-tax dollars to meet the land acquisition, capitalization and operational needs of the Bank. The CLB shelters from taxation the equity accumulations of citizen-shareholders and protects the outside assets of the citizens in the event of loan default or if the enterprise fails.
A Citizen Land Bank is a social tool designed to encourage a just, free and non-monopolistic market economy. It applies the democratic principles of equal opportunity and equal access to the means to participate as an owner as well as a worker. It demonstrates that anything that can be owned by government can and should be owned, individually and jointly, by the citizens.
The provisions and unique aspects of the Citizens Land Bank are:
- Make debt service on a leveraged CLB (a special kind of REIT) established within an eligible Super Empowerment Zone a tax-deductible business expense (as with an ESOP), so that area voters without savings can purchase a major block (up to 100%) of a CLB’s voting, full-dividend-payout common stock on borrowed funds repayable out of pre-tax CLB corporate profits and dividends. To the area voter, the principal payment on their stock acquisition loans would be treated as deferred income until CLB benefits are distributed as consumption incomes.
- Give the CLB tax-free status (as with an ESOP trust or an REIT) so that shares of CLB stock acquired by area voters and CLB earnings can be accumulated within individual CLB accounts free of taxes until the benefits are distributed to participants, generally on leaving the area. When distributed, the CLB benefits would be taxed the same as distributions from an ESOP or IRA.
- To create an in-house market for CLB shares, require the CLB to plan for the repurchase of distributed shares through a tax-free liquidity fund within the CLB, thus adding to the shares of remaining participants.
- Encourage the CLB to pay out dividends to area voters as supplementary incomes from their growing equity stakes in local real estate development by allowing CLB dividends (as with dividends on ESOP shares) to be taxable at the personal level but deductible at the corporate level. Together with the incentives of #1 and #2 above, this feature, by eliminating the discriminatory double tax on corporate profits, helps to restore private property in corporate equity.
- Defer personal income taxes on CLB-sheltered stock accumulations of area voters until the stock is distributed, sold and converted into spendable income. Allow the CLB participant a tax-free “roll-over” into a tax-exempt “Individual Retirement Account”, i.e., to further delay paying personal income taxes if the cash proceeds are re-invested into securities of other private sector equity investments. The objective here is to encourage savings and investment and to provide new sources for financing new ventures.
- Similar to #5 above, provide a tax deferral to the seller of stock to a CLB (e.g., joint venture partners and other CLB investors) from any proceeds on the sale, provided that the seller re-invests the cash proceeds in securities of other productive enterprises within the Super Empowerment Zone. This simultaneously reinforces both the goal of expanded share ownership opportunities and of providing new sources for financing development within the zone.
- Require an annual independent professional appraisal of the fair market value of CLB shares and provide regulatory oversight of CLBs to minimize abuses, promote understanding, disseminate reliable information on the CLB among area voters, and generally protect the property rights of CLB participants.
- Monetize private sector productive credit by making “eligible” CLB and ESOP loans (as determined and allocated by local banks) within Super Empowerment Zones eligible for discounting under Section 13 of the Federal Reserve Act. New money issuances would be subject to 100% reserve requirement and made at a discount rate limited to a low Fed “servicing fee.” This reform would radically reduce capital credit costs, accelerate private sector growth rates and increase the competitiveness of enterprises within Super Empowerment Zones, reduce dependency on tax subsidies, and broaden citizen participation in capital ownership and profits.
For more information on the Citizen Land Bank see http://cesj.org/resources/articles-index/citizens-land-bank-what-it-is-and-is-not/, http://cesj.org/learn/capital-homesteading/ch-vehicles/citizens-land-banks-clbs/tax-incentives-and-infrastructural-reforms-needed-to-encourage-citizens-land-banks-clbs/, and http://cesj.org/learn/capital-homesteading/ch-vehicles/citizens-land-banks-clbs/.
