Why California Should Look to Little LaVerne

Joe Mathews
Connecting California Columnist and Editor, Zócalo Public Square, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010)

Officials in La Verne, a small city of 32,000 in east Los Angeles County, don’t like to be first in launching new policies. And the city didn’t set out to make itself a proving ground for the best new tool California communities may have to transform themselves.

But La Verne is about to become a California leader anyway.

That’s because this city — for its own reasons — has formed one of California’s first EIFDs. The acronym stands for Enhanced Infrastructure Financing District, a new government entity that the legislature has championed for addressing California’s massive housing shortage and infrastructure deficit.

But EIFDs are unproven, and only a handful of California places — La Verne among them — have established them.

In fact, EIFDs are a much weaker tool than the redevelopment agencies that local governments previously relied upon to fund major projects. Redevelopment agencies were eliminated by the state in 2012 because they grew too powerful — by capturing the growth in property tax dollars from redeveloped areas, they took moneys that should have gone to schools. In addition, many cities ended up using the “redevelopment” money for expenses that had nothing to do with invigorating neighborhoods.

EIFDs also are a form of “tax increment finance”—you designate a certain area for improvement and then capture the increased tax receipts. But state lawmakers put limits on the EIFDs, most importantly that they can’t grab revenues that otherwise would go to schools.

Which is why La Verne’s decision to create an EIFD is seen as a statewide test of whether the concept can raise funds and lure developers.  Among those watching are advocates of revitalizing the L.A. River and proponents of extending BART through downtown San Jose.

Outside of EIFDs, local governments have few good options for financing public projects. Despite the strong economy, California’s systems for pensions and budgets keep its cities cash-poor. Most places are thus wary of big new initiatives.

So is La Verne, as city manager Bob Russi and community development director Eric Scherer explained on my recent visit to city hall. “Trailblazing is not the La Verne way,” said Russi.

But opportunities have converged in La Verne in a way the city couldn’t ignore.

As part of L.A. County expansion of its Metro Rail system, La Verne is scheduled to get a new light rail station in 2026 at a site with maximum potential: next to its successful Old Town, near the University of La Verne, and across Arrow Highway from the massive Fairplex, home to the County Fair and other major events.

So the city combined its Old Town plan with the priorities of the Fairplex and the university to create a new vision for the area around the station. It includes 1,700 new residential units, 100,000-plus square feet of retail, a business park, and a 150-bed hotel that would produce new taxes to help the city budget.

But how could a small city fund something so big? A consultant advised that the state’s EIFDs legislation matched the things—transportation infrastructure, and housing—that La Verne wanted to develop. In 2017, La Verne became the first city in the county to establish an EIFD.

The EIFD will finance public infrastructure projects—totaling $33 million—to attract private developers to build the housing, retail, business park, and hotel. The moneys for those improvements should then be paid back by capturing some of the increase in taxes that results from the new development. The EIFD also could sell bonds, though 55 percent of voters in the district would have to approve.

La Verne’s EIFD is modest, but, since most California cities are small, it’s likely to become a model if it succeeds. But will the EIFD have the juice to produce the financing and development the city envisions? “Come back in five years and ask me,” said Russi.

The answer is more likely to be yes if La Verne’s EIFD — and any other EIFDs established by California cities — can build partnerships with other local governments (cities, counties, special districts), taking advantage of the fact that EIFDs have no geographic limitations and can cross jurisdictions.

La Verne is currently awaiting an answer on whether L.A. County will join its EIFD, which would make it easier to create the financing for infrastructure more quickly.

Gov. Gavin Newsom and other state officials are also considering enhancing EIFDs by allowing them to sell bonds without voter approval. This might encourage more local governments to establish their own EIFDs.

While cities typically resist new housing because it doesn’t produce local tax revenue, more powerful EIFDs might change their calculus. In other words, if the rest of the state would follow the lead of little La Verne, California may finally be able to make stronger progress on its most intractable barrier to growth — providing affordable housing for its people.

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