Agenda Item No: 3.a
PLACENTIA CITY COUNCIL AGENDA REPORT
Meeting Date: May 6, 2025
Submitted by: Jeannette Ortega
From: Administrative Services
Subject:
Study Session: Placentia Enhanced Infrastructure Financing District and the Old Town Streetscape Master Plan
Financial Impact:
Fiscal Impact:
Estimated range of $17 to $24 million in property tax increment over approximately 40 years.
Up to $59 million in net fiscal impact revenue to the City over approximately 50 years.
Summary:
In response to the elimination of redevelopment agencies, California Senate Bill 628, effective January 1, 2015, and California Assembly Bill 313, effective January 1, 2016, authorized public agencies to form Enhanced Infrastructure Financing Districts (“EIFDs”), which are public financing instruments designed to succeed former Redevelopment Agency financing mechanisms and provide more flexibility than Infrastructure Financing Districts (“IFDs”). An EIFD is a governmental entity, separate and distinct from the city or county that establishes it and is governed by a Public Financing Authority (“PFA”).
EIFDs can aid local government entities in funding public capital facilities, or other specified projects of communitywide significance, primarily by capturing Tax Increment (“TI”) revenue generated within the district. EIFDs provide an opportunity for agencies to issue bonds for an array of public infrastructure projects as well as supporting economic development efforts in specific areas. Those areas of particular interest to Placentia are in the Old Town Placentia Revitalization Plan area.
On June 18, 2019, the Placentia City Council, in accordance with EIFD law, adopted Resolution No. R-2019-28 approving the Infrastructure Financing Plan (“IFP”) for the EIFD.
The IFP specifically defines the boundaries of the EIFD, identifies the public infrastructure improvements, and the financial analysis of expected tax increment over the life of the EIFD to allow for the issuance of bonds to pay for the identified public infrastructure improvements.
However, a nascent EIFD bond market, the COVID pandemic, inflation, and related current economic conditions have contributed to delayed EIFD implementation and cost increases.
Specifically, the Old Town Streetscape Master Plan cost estimates have increased from approximately $8 million to $10.05 million, an increase of 25.6%. In addition, interest rates have risen, increasing the cost of debt service, particularly to a “first-time” debt issuer, such as 1 the Placentia EIFD. As a result, the existing financing structure approved by the City Council on June 18, 2019, will not facilitate private investment and will fall short of expected rate of Tax Increment (TI) growth. Subsequently, an amendment to the Infrastructure Financing Plan (“IFP”) for the EIFD was needed.
On April 18, 2023, the City Council held a Study Session to review the proposed amendments to the Infrastructure Financing Plan (“IFP”) for the EIFD. Since that time, City Staff, County Staff, consultants, and legal advisors have worked to formalize the proposed updates to the Amended IFP.
On March 5, 2024 the City Council adopted a resolution approving the amended Infrastructure Financing Plan (“IFP”) for the EIFD. The County Board of Supervisors (Board), at their Board meeting on March 12, 2024, unanimously approved a resolution to amend the Infrastructure Financing Plan for the City of Placentia EIFD. The amended IFP was approved by the Board of the Placentia EIFD Public Financing Authority on April 9, 2024 and May 14, 2024, respectively.
Tonight's Study Session is intended to review the recommendations by the Measure U Committee as well as review the status of the design of the Old Town Streetscape Master Plan and the EIFD financial analysis.
Recommendation:
Recommended Action: It is recommended that the City Council take the following actions to:
1. Receive and file the Staff Report and presentations; and
2. Ask any questions of the Measure U Committee and Staff; and
3. Provide direction to Staff as appropriate regarding the next steps in the EIFD Process.
Strategic Plan Statement:
This item is consistent with the City Council approved 5-Year Strategic Goal to Promote Community and Economic Development, under Objective #3.4, which is to Complete Financing Structure for Old Town EIFD.
Discussion:
In response to the elimination of redevelopment agencies, California Senate Bill 628, effective January 1, 2015, and California Assembly Bill 313, effective January 1, 2016, authorized the formation of EIFDs, which are public financing instruments designed to succeed the former Redevelopment Agency financing mechanism and provide more flexibility than IFDs. An EIFD is a governmental entity, separate and distinct from the city or county that establishes it and is governed by a PFA that is comprised of one or more members from the participating EIFD parties.
Unlike Redevelopment, other affected taxing entities are not required to forgo their TI for the district; participation is voluntary. Each tax sharing entity that chooses to join an EIFD has the option to allocate up to 100% of its portion of TI to the district. Under the EIFD law, school districts are precluded from participation.
EIFDs provide an opportunity for agencies to issue bonds for an array of public infrastructure projects as well as supporting economic development efforts in specific areas. The area of particular interest to Placentia is the infrastructure needed in and around the newly established Old Town Placentia Revitalization Plan. This area will require a significant investment of 2 infrastructure in order to attract developers to the area while improving the City’s housing stock and retail opportunities for the public. Land use designations in the area include residential, commercial, industrial, open space and parks. The area contains over 300 acres, which is approximately 7.1% of the City’s total 4,243 acres.
On June 18, 2019, the Placentia City Council, in accordance with EIFD law, adopted Resolution No. R-2019-28 approving the Infrastructure Financing Plan (“IFP”) for the EIFD.
The IFP specifically defines the boundaries of the EIFD, identifies the public infrastructure improvements, and the financial analysis of expected tax increment over the life of the EIFD to allow for the issuance of bonds to pay for the identified public infrastructure improvements.
However, a nascent EIFD bond market, the COVID pandemic, inflation, and related current economic conditions have contributed to delayed EIFD implementation and cost increases.
Specifically, the Old Town Streetscape Master Plan cost estimates have increased from approximately $8 million to $10.05 million, an increase of 25.6%. In addition, interest rates have risen, increasing the cost of debt service, particularly to a “first-time” debt issuer, such as the Placentia EIFD. As a result, the existing financing structure approved by the City Council on June 18, 2019, will not facilitate private investment and will fall short of expected rate of Tax Increment (TI) growth. Subsequently, an amendment to the Infrastructure Financing Plan (“IFP”) for the EIFD was needed.
Amended Infrastructure Financing Plan
The Amended Infrastructure Financing Plan (“IFP”) prepared by Kosmont Companies (“Kosmont”) for the Placentia EIFD includes tax increment revenue projections, a cap on the maximum tax increment revenue to be contributed to the EIFD by both the City and the County, bond authorization, a description of proposed facilities to be funded, a finding of communitywide significance, and a statement of the goals of the EIFD. As a participating taxing entity of the Placentia EIFD, the County Board of Supervisors had the opportunity to review the Amended IFP.
The key changes in the Amended IFP included the following:
1. Recalibration of the duration (term) of tax increment allocation:
Increase City maximum term from 20 to 40 years
Could end earlier if interest rates level out prior to bond issuance Increase County maximum term from 20 to 25 years, with option to extend to 30 only if needed
Provides adequate time for County to contribute its full share of tax increment (i.e., $3.547 million)
Additional 5 years only triggered if tax increment receipt levels perform worse than suboptimal projections
EIFD to terminate upon extinguishment of all EIFD debt, even if repaid early
2. Increase City’s maximum dollar allocation from $9,100,000 in tax increment up to $24,000,000 in increment (more likely $17-19M over 33-35 years needed), could be as low as $12M over 30 years in best-case interest rate scenarios Amount projected to enable full repayment of various financing structures evaluated, even under severely adverse issuance conditions
3. Limitation / focus on use of funds: EIFD tax increment limited to repayment of IFP projects costs & associated debt; excess amount would flow to General Funds of City and County.
3 On March 5, 2024 the City Council adopted a resolution approving the amended Infrastructure Financing Plan (“IFP”) for the EIFD. The County Board of Supervisors, at their Board meeting on March 12, 2024, unanimously approved a resolution to amend the Infrastructure Financing Plan for the City of Placentia EIFD. The amended IFP was approved by the Placentia EIFD Public Financing Authority on April 9th and May 14 th respectively.
Tax Increment Update
Kosmont prepared a tax increment analysis to determine district revenue potential based upon planned projects and future development potential. Based on this analysis, the City’s contribution is capped at 50% of its share of property tax increment (~6.8 out of 13.6 cents on the dollar) within the district boundary for a maximum of $24,000,000 total over the approximately 40-year district lifetime (estimated range of actual allocation is $17 to $24 million, depending primarily on interest rates). The County’s contribution is similarly capped at 50% of its share (~2.95 out of 5.9 cents) within the district boundary for a maximum of $3,547,000 total over the first 25 years of the district’s lifetime, with an option to extend to 30 years, only if needed. Both the City and County allocations would terminate sooner if project funding goals were achieved sooner than projected.
Below is a summary of the projected tax increment and the actual tax increment received since the formation of the EIFD:
Fiscal Year Projected TI Actual TI Difference
2021-22 $7,849 $13,408 $5,559
2022-23 $101,476 $51,291 ($50,185)
2023-24 $222,844 $212,187 ($10,657)
2024-25 $235,150 TBD TBD
TOTAL TI RECIEVED $267,886
Preliminary Bonded Indebtedness
K o s m o n t Financial Services provided a preliminary bonded indebtedness analysis with County’s participation and estimated EIFD revenues. The structure of the analysis is a City- issued 30-year lease revenue bond of approximately $10.5 million to net approximately $10.05 million in net proceeds. A total of approximately $19.1 million (principal and interest) would be repaid over 30 years with an average annual payment of approximately $676,000. The IFP amendment allows for up to 40 years to provide additional time for EIFD tax increment revenues to pay back debt service costs.
Financial Implication of Establishing Placentia EIFD
K o s m o n t concluded several regional financial implications for the establishment of the Placentia EIFD, including providing essential regional transportation infrastructure improvements, improved regional competitiveness for federal/state grant funds and support of the County’s Comprehensive Economic Development Strategy (e.g., job creation, quality of life improvement, promote environmental sustainability). Locally, based on the Kosmont gross economic impact analysis, approximately 5,364 construction jobs will be created, 258 permanent jobs will be created, $826 million in economic output from construction, and $38 million in annual ongoing economic output. Implementation of the Placentia EIFD is forecasted to create an acceleration of development and related fiscal revenues in the amount of 4 approximately $59 million in net fiscal impact to the City and $50 million in net fiscal benefit to the County (present value net fiscal benefit over 50 years).
Old Town Streetscape Master Plan Update
O n April 4, 2023, the City Council approved a Professional Services Agreement with HR Green Pacific (HR Green) for civil engineering design services related to the Old Town Placentia Streetscape Improvement Project. The agreement was authorized for a not-to- exceed amount of $608,594, with an additional 10% change order of $60,860. A total of $650,000 was budgeted in the FY 2022-23 Capital Improvement Program Budget for these design services.
As of now, HR Green is about 90% complete on the project design and has invoiced the City approximately $625,000 in services rendered.
To address necessary modifications related to fire truck turn radius requirements at specific locations on Bradford Avenue and Santa Fe Avenue, an additional $150,000 in funding is required to complete the remaining design services related to the Old Town Placentia Streetscape Master Plan.
Fiscal Impact Summary:
A s described above, preliminarily, it is projected that approximately $10.05 million could be generated in net bond proceeds utilizing City and County tax increment revenues over the approximately 40-year term of the Placentia EIFD to help fund core public infrastructure needed to support Placentia’s growth. The City’s contribution is capped at 50% of its share of property tax increment (~6.8 out of 13.6 cents on the dollar) within the district boundary for a maximum of $24,000,000 total over the approximately 40-year district lifetime (estimated range of actual allocation is $17 to $24 million, depending primarily on interest rates). The County’s contribution is capped at 50% of its share (~2.95 out of 5.9 cents) within the district boundary for a maximum of $3,547,000 total over the first 25 years district lifetime, with an option to extend to 30 years only if needed. Both the City and County allocations would terminate sooner if project funding goals are achieved sooner than projected.
The debt insurance structure approved by the County is for the City to loan $1 million to accelerate Project financing which would reduce bond issues size, debt service, improve security and reduce the bond interest rate. In this structure, the City would take the lead and issue its own 30-year Lease Revenue Bonds (“LRBs”) in lieu of the PFA. The City would provide property/building collateral for underlying LRB lease in this structure. The ultimate debt issuance structure would come before the City Council for separate approval at the appropriate time.
While the Placentia area would benefit from the infrastructure improvements, the formation of the EIFD results in a reallocation of TI (i.e., the City’s share of taxes levied on property within the district boundaries on that portion of the taxable valuation over and above the taxable valuation of the base year property tax roll) from the General Fund to pay for the Placentia infrastructure improvements.
The TI projections are based upon various assumptions made utilizing the future growth potential of the residential, commercial, and industrial development sectors in the area. Once the EIFD has terminated, the property tax increment revenue allocated to the EIFD will flow back into the City’s General Fund. The property tax generated up to the taxable valuation of 5 the base year tax roll will continue to flow to the City’s General Fund.
Las tly, an additional $150,000 in funding is needed to complete the civil engineering design services related to the Old Town Placentia Streetscape Master Plan.
Attachments
Citizens Oversight Committee Presentation
EIFD and Streetscape Presentation 5.6.2025.pptx
6 Enhanced Infrastructure
Financing District’s (EIFD) Potential
Impact on the City of Placentia’s
Fiscal Sustainability
May 6, 2025
Glenn Casterline
Bob McKinnell
Joe Rasic
1 Citizens’ Oversight Committee
Evaluation of the
Motivation to Form an Enhanced
Infrastructure Financing District (EIFD)
•EIFDs have been formed to
–Dedicate a portion of property tax revenues to a specific improvement purpose •Finance infrastructure remediation/maintenance
•Improve infrastructure to attract increased private investment/redevelopment •Offer the possibility of forming partnerships to gain investment from other entities with aligned priorities –Placentia EIFD is a partnership between City and County of Orange (the "County") 2 Purpose of the Placentia EIFD as it Relates
to Improving Fiscal Sustainability
•Formed in 2019 as a vehicle to finance
Enhanced Infrastructure Improvements in the
district’s identified boundaries
–In turn, increase/accelerate private investment
•Increase property valuation
•Increase property tax in perpetuity
•Provide sustainable source of increased revenue
•Improve fiscal sustainability
3 Note: The EIFD also may address other City non-financial goals, but those are outside this evaluation and not considered in the following analyses
Adopted Definition of Fiscal Sustainability
The City of Placentia will have achieved fiscal
sustainability when:
4 Forecasted revenues are able to fully
support forecasted expenditures
necessary to provide the desired level of
services for the foreseeable future while
maintaining adequate reserves to address
unforeseeable events
Reserves
•City Policy 460 establishes a desired unallocated cash reserve level of 25% of the operating budget
–Supports a minimum of 3 months expenditures
–Allows for year-to-year adjustments to budget
•Ability to cover unforeseen expenditure increases
–Provides a disaster recovery window
•Policy 460 provides a policy source to fund reserves
–Requires any new, ongoing, significant source of revenue to dedicate a specified amount of revenue to general fund reserves
5 History of General Fund Reserve Level
•In the original Measure U plan, it was going to take 6-8 years to reach original goal of 17% of general budget
•Goal was reached much sooner with unanticipated
revenues from the CARES Act
–Transitory levels as high as 40%
–Allowed the goal to be raised to the current 25% level •Recent trend is to draw down reserves to support
budget
–Current FY24-25 year end projection is 18%
6 Foreseeable Future
•Methodology chosen is to look at 10 year forecasts
–Ensures the ability to allow for at least one complete business cycle (downturn) •Future planning does not “plan” for a downturn, but allows for the downturn to be addressed by reserves •Assesses the ability of revenue growth rate to support expenditure growth rate •Current business cycle related to the pandemic is almost unprecedented in many ways (duration, level of government intervention, inflation effects) 7 Desired Level of Services
•Placentia residents have consistently expressed the desire to be a full services city – Public Safety
– Infrastructure Maintenance and Development
– Parks and Recreation Opportunities
– Community Services Programming
•Decisions have been made to provide these services internally, without using outside contract providers –Motivation was to maintain managerial control over costs as well as reap the economic advantages from “technology” or “model” improvements 8 Forecasted Expenditures
•City has varying levels of control over expenditures
–Legally mandated (“it is, what it is”)
–Market driven (“inflation driven”)
–Sole control (“ours to decide”)
•EIFD falls in this category
•Fiscal sustainability challenge is to control the absolute amount and growth of expenditures such that the
absolute amount and growth of revenues is adequate to
“pay the bills”
9 Forecasted Revenues
Problem - While expenditures are only partially controllable by the City, revenues are almost entirely uncontrollable by the City (City is the “tail” of the revenue dog)
10 Principal Revenue Sources
•Property Tax (growth rate largely statutorily determined by Prop 13’s 2% limit) –City's EIFD includes a partnership with the County of Orange allowing the City to receive a portion of the County's property tax received from the parcels within the EIFD ($3.5 million over EIFD lifetime) •Sales tax (growth rate tied to inflation, but not always in same direction) –Measure U is sales tax derivative
•Hotel Occupancy Tax (City sets the rate, economy determines the amount) •Franchise fees (City negotiations)
•Fee recovery revenues (City sets the rate, but can only recover identifiable costs)
Forecasted Revenues Growth Rate
11 •Calculated compounded growth rate consistent with entire City history under Prop 13
•Year -to-year variations due to inflation, business cycle dynamics (both positive and negative effects)
•Any expenditure growth rate that exceeds this level will require a compensating expenditure growth reduction to maintain
sustainability
•Absent an extraordinary revenue increase that is sustainable
Approach to Evaluating the Placentia EIFD
•Evaluate forecasted revenues, expenditures,
timeline, and effect on reserves for
reasonableness and completeness
•Identify financial risk areas and potential
magnitude of unfavorable outcomes
•Identify any risk mitigation strategies
•Draw conclusions/provide recommendations
where appropriate
12 What Was Not Evaluated
•Any non-financial costs or benefits of the plan
•Prioritization of EIFD relative to other City priorities •Any cross-benefits or expenditures related to the EIFD plan and other City plans •Oversight committee not in a position to effectively evaluate the validity of development forecast –Development forecast was generated with input and oversight from subject matter experts •Kosmont Financial Services
13 EIFD Timeline
•EIFD timeline is longer than the current fiscal sustainability forecast –Forecast shows net city-funded expenditures through year 10 –Net city revenues are generated after year 10 and will continue in perpetuity 14 Timeline takeaway – Can the existing 10 year sustainability forecast support the forecasted EIFD net expenditures to reap the ongoing net revenue benefit?
“Invest now to leave something to the kids”
EIFD Revenues
•EIFD revenue estimates were generated based upon anticipated increases in property tax base, resulting in property tax revenue increase –Highly dependent upon size and timing of anticipated development •Includes EIFD dedicated revenues associated with City as well as County tax levy (50% of increased tax revenue) –County revenue capped at $3,547,000, city revenue unlimited •Revenue takeaway – Revenue forecast seems reasonable with near year forecasts satisfied with already completed or easily identifiable projects – Parametric risk assessment should be performed using 20% reduction in development value and 2 year delay in out-year projects 15 EIFD Expenditures
•Cost of infrastructure improvements originally
estimated at $9M, current estimate (2 years later) is
$10M
•EIFD expenditures will need to be supported by City
General Fund expenditures
–Initial $1M City loan to EIFD
•EIFD plan forecast includes repayment in out-years with interest –Debt Service on $10M City-guaranteed EIFD Lease Revenue Bonds
•Average city-funded yearly debt service of $120K for 10 years –$675K total debt service less average EIFD proceeds of $525K per year •Debt service covered by EIFD proceeds after year 10
16 Expenditure takeaway
•Initial $1M loan is not supported by current General Fund budget
•Debt Service would require General Fund support for as long as ten years, forecasted total debt service exposure $1.2M •Risk Mitigation – Initial $1M could be supported by delaying project and accumulating initial tax increments to reach $1M.
Debt Service could be reduced by adjusting size of Project. –Recommend bottom-up parametric analysis of cost/revenue benefit for projects sized $6M and $14M
–Determine timing delay necessary to accumulate $1M in initial EIFD tax increments
17 EIFD Impact on Reserves
•Current reserve forecast does not have excess reserves to support EIFD project •Any benefit to reserves occurs in the out-years
•Difficult to estimate the size of any negative impact on reserves absent the previously discussed risk issues •Reserve takeaway- Reserves can not be part of baseline plan. Completion of previous risk mitigation tasks would provide an estimate of any unplanned need for reserve funding requirements 18 Top -Level EIFD Plan Evaluation Conclusions
•Finding ways to use tools such as the EIFD is imperative to the City achieving sustainability –Relieve the City’s reliance upon organic property tax revenue growth –Develop significant, sustainable, new revenue sources
•EIFD Financial forecasts are reasonable, but lack adequate parametric risk assessment analyses •Present plan probably requires adjustment in timing as well as scope •Plan is attractive given the outside support of County 19 EIFD Fiscal Sustainability Recommendations
•Given the importance of finding the City new
sustainable revenue sources, continue efforts to find
an EIFD plan that “closes”
•Perform recommended risk mitigation tasks to
possibly support adjusting the timing and scope of
the project
•Work with partners to ensure continued support and
overcome non-financial obstacles given possible
changes to plan
20 Synergistic Fiscal Sustainability
Recommendations
•Fiscal sustainability can not be properly assessed given the present state of the City’s Capital Improvement
Program forecasting
–Present methodology collects project needs and executes projects as funds are available or a crises dictates
–“Whack – a – mole” methodology
•Need to develop a multi-year Capital Improvement
Forecast to determine ability to support identified long- range capital needs
–Provide a capital reserve fund to avoid action dictated by crises –Assess the need for ongoing General Fund support of the Capital Improvement Budget / Capital Reserve Fund
21 Fiscal Sustainability Takeaway
•Generating a Capital Improvement Forecast
will determine if the City has a structural
budget deficit associated with our Capital
Improvement and Infrastructure Needs
•Consider the use of ad-hoc citizen group to
perform a bottom-up review of General Fund
expenditures
–Assess desired level of service adjustments that
would provide General Fund support for Capital
needs
22 Fiscal Sustainability Assessment Process
General Fund Characteristics
Non-Discretionary Schedule Timing
Personnel
Utilities
Debt Service
General Fund Budget Surplus
Measure U
Capital Improvement Characteristics
Discretionary Schedule Timing
Infrastructure Maintenance
Infrastructure Improvement
Discretionary Fiscal
Reserves
General Fund Budget Capital Improvement
Budget
General Fund Forecast Capital Improvement
Forecast
Sustainability is confirmed when balanced forecasts address all identified service needs over the long term while maintaining desired level of fiscal reserves to meet unanticipated circumstances
Questions
24 EIFD AND OLD TOWN STREETSCAPE
MASTER PLAN
City Council Study Session
May 6, 2025
City of Placentia
1 Presentation Overview
•Overview of the Old Town Placentia Revitalization Plan •Old Town Streetscape Master Plan
•Fundamentals of an Enhanced Infrastructure Financing District •Overview of Placentia’s EIFD
•Infrastructure Financing Plan/Debt Issuance Structure
•Additional Considerations
•Recommendation
2 Overview of
Old Town Placentia Revitalization Plan
Jeannette Ortega
Deputy Director of Administrative Services
33 Old Town Placentia Revitalization Plan
•In 2015, the City began working on the Old Town
Revitalization Plan to enhance and preserve the historic significance of Old Town Placentia. The City created
specific building standards and zoning requirements for this area. In addition, the Streetscape Master Plan was developed to enhance street improvements, pedestrian
connectivity, and landscape and lighting upgrades
•In 2017, the Old Town Revitalization Plan and Streetscape Master Plan was adopted by the City Council
•Immediately after the adoption of the Plans, staff
researched funding mechanisms that can facilitate the
construction of the public infrastructure improvements in this area as described in the Streetscape Master Plan
4 Old Town Placentia Zoning District
5 Old Town Streetscape Master Plan
Gabriel Guerrero Gabany
Deputy Director of Public Works
Old Town Streetscape Master Plan
The Purpose of the adopted Old Town Streetscape Master Plan:
•Revitalization of the City’s historic core
•Aims to create an active Old Town which will function as a central gathering space •Improve Mobility
•Infrastructure
•Streetscapes
•Special Events
•Attract visitors, increase revenues and enhance safety 7 Scope of Streetscape Master Plan
Landscaping
Lighting
Mobility
Bench
8 Street/Pedestrian Enhancements
Lighting
Lighting
9 Bollards
Pavers
Cost Estimate for Streetscape Master Plan
•Placentia EIFD provides $10M in funding for the Old Town Streetscape Master •Preliminary cost estimate is $13.5 million
•Potential cost saving measures
•Replacing concrete areas with asphalt
•Replacing pavers with asphalt
•Removing streets not directly along the main corridor
•Bid Package will include Alternative Bid schedules, which will allow us to remove or include certain aspects of the proposed improvements to ensure that the construction cost does not exceed $10M
10 Fundamentals of an
Enhanced Infrastructure
Financing District (EIFD)
Joe Dieguez
Kosmont Companies
Enhanced Infrastructure Financing District
An Enhanced Infrastructure Financing District (EIFD) is a special financing mechanism used by cities in California to fund infrastructure projects and community improvements without raising taxes. EIFDs were established under California law (SB 628, enacted in 2014) as a replacement for redevelopment agencies, which were dissolved in 2012
Purpose:
•EIFDs are designed to support a wide range of infrastructure projects, including transportation, streets and roads, affordable housing, parks, water systems, environmental improvements, and more
•They can also be used for economic development initiatives, such as revitalizing underutilized areas
12 Enhanced Infrastructure Financing District
•EIFDs rely on Tax Increment Financing (TIF). Tax increment revenue is generated from incremental growth of assessed property values within a defined boundary as new development occurs or as underutilized properties are rehabilitated
•When an EIFD is established, the “baseline property value” for all properties within the District is set, or frozen, at that year’s assessed value •A pre-designated percentage (Placentia’s is 50%) of this revenue establishes the fund that is administered by the Public Financing Authority (PFA) to be used for public infrastructure
•As public investments improve the area and catalyze private sector investment, property values rise. The increase in property tax revenue (the "tax increment") from this growth is captured by the EIFD
13 Enhanced Infrastructure Financing District
Placentia’s
EIFD Base
Year
(2022)
Placentia’s
Termination
Date is
40 Years
(2062)
50% of Tax
Increment
Collected from the
County & City goes
into the EIFD
14 Overview of Placentia’s EIFD
Overview of Placentia’s EIFD
•In 2019, the City of Placentia (City) and County of Orange (County), working with a grant provided by Southern California Association of Government (SCAG), established the Placentia Enhanced Infrastructure Financing District (EIFD) to fund infrastructure improvements within the City’s Old Town
o Building public improvements over multiple years/phases will not likely entice private sector investment sufficiently to fulfill original economic development goals and will delay increase to assessed valuation
o Goal: Install all aspects of the Old Town Streetscape Master Plan at one time (instead of in phases), which will better induce private investment to fulfil Tax Increment (“TI”) and economic benefit projections (fulfill Assessed Value A/V goals) o Accelerate timetable to meet regional housing needs, including affordable housing and save on construction costs
16 Placentia EIFD Boundaries for TI
Old Town
TOD Packing House
17 Amendment to the Placentia EIFD
•An emerging EIFD bond market, the COVID pandemic, inflation, and related economic conditions contributed to delayed EIFD implementation and cost increases
o Original Streetscape Project cost estimate of ~$8M increased to ~$10.05M, an increase of 25.6% o Interest rates have risen, increasing cost of debt service (particularly to “first-time” debt issuer) o Impact: Multiple debt issuances over 7-8 years would be needed to fund key projects •Original financing structure would not have facilitated private investment and would have fallen short of expected rate of tax increment growth
•Recalibrated duration (term) of tax increment allocation to reflect full payment of contributions o Increased City maximum term from 20 to 40 years
o Increased County maximum term from 20 to 25 years, with option to extend to 30 only if needed o Provides adequate time for County to contribute its share of tax increment (50%) (i.e., $3.547 million) o Additional 5 years only triggered if tax increment receipt levels perform worse than suboptimal projections •March 5, 2024 – City Council approved the Amended Infrastructure Financing Plan (IFP) •March 12, 2024 – County Board of Supervisors Approved the Amended IFP •May 14, 2024 – The EIFD Public Financing Authority (PFA) approved the Amended IFP 18 Estimated Economic Benefits
•1,600+ housing units
•5,364 construction jobs and 258 permanent jobs
•$423 million in construction-related wages and $16 million in annual, ongoing wages
•$826 million in economic output from construction and $38 million in annual ongoing economic output
•$59M in positive net fiscal impact to City general fund over 50 years •$50M in positive net fiscal impact to County general fund over 50 years •Greenhouse gas reduction/vehicle miles traveled reduction; improved and convenient transit to local universities and other destinations 19 Infrastructure Financing Plan (IFP)
Debt Issuance Structure
Dan Massiello
Kosmont Financial Services
Debt Issuance Structure
•City to issue its own 30-year lease revenue bonds (“LRBs”) (in lieu of EIFD) o EIFD bond market is new, and the Placentia EIFD specifically has no credit history as a new issuer
o City LRBs will benefit from City's excellent credit rating (AA), producing lower interest rates and no need for a cash-funded debt service reserve fund o Loan provided to EIFD would accrue interest to City General Fund at City’s LAIF rate
•EIFD to terminate upon extinguishment of all EIFD debt, even if repaid early 21 EIFD Tax Increment Projections vs. Actuals
•Below is a summary of projected tax increment versus actual tax increment received:
Fiscal Year Projected TI Actual TI Difference
2020 2021 $0 $0 $0
2021 2022 $7,849 $13,408 $5,559
2022 2023 $101,476 $51,291 ($50,185)
2023 2024 $222,844 $212,187 ($10,657)
2024 2025 $235,150 TBD (May)TBD
TOTAL TI RECEIVED $276,886
22 Debt Issuance Structure Scenario
Additional Considerations
Jennifer Lampman
Deputy City Administrator/Director of Finance
Additional Considerations
•City's Budget Challenges
•Continuing economic challenges caused by persistently high inflation and interest rates, unease over impacts of tariffs
•Reserve level dropped from 25% to 19% this Fiscal Year •$6M for the Public Safety Building
•City added $10M in debt for the Public Safety Building to be paid over 30 years •City issued $53M in lease revenue bonds in 2020 to pay pension debt •City has significant unfunded capital needs
•Federal Earmark request for the Old Town Streetscape Master Plan in the amount of $1M was not approved last year. City resubmitted again this year. •Design Costs
•The design process is approximately 90% complete. A change order is required to ensure adequate fire truck turn radius at specific intersections and streets in Old Town. The change order has an estimated cost of $150,000 25 Additional Considerations
•Interest Rate Volatility
•Future interest rates remain uncertain
•Tariffs naturally contribute to inflation, and ongoing tariff negotiations have created significant market volatility
•Rising Construction Costs
•Construction costs have steadily increased over time. As time progresses, this project is likely to become more expensive due to rising costs of materials and labor •Professional Services Costs
•The City has been working with Kosmont on the formation and amendments of the Placentia EIFD and the initial stages of bond financing. These costs are usually folded into the bond financing.
•Indirect Considerations
26 Options to Consider
Option #1
1.Allocate $150,000 to complete the Streetscape Master Plan
2.Go out to bid for the construction of the Streetscape Master Plan•Consider Alternative Bids to ensure construction is within $10M
3.Authorize a $1M loan from the General Fund to supplement the bond financing
4.Proceed with the bond financing to fund the construction 28 Option #2
1.Allocate $150,000 in existing TI received to complete the Streetscape Master Plan
2.Delay the bond financing until sufficient TI is accumulated to fulfill the $1M upfront needed to issue bonds
3.Go out to bid for the construction of the Streetscape Master Plan with Alternative Bids to ensure construction is within $10M
4.Receive approval from the City Council for the construction costs and bond financing structure Option #2 is Staff’s recommendation
29 Questions & Comments