CITY OF SALINAS COUNCIL STAFF REPORT
DATE: OCTOBER 24, 2023
DEPARTMENT: COMMUNITY DEVELOPMENT
FROM: LISA BRINTON, DIRECTOR
BY: MICHAEL GOMEZ, ECONOMIC DEVELOPMENT ANALYST
TITLE: ENHANCED INFRASTRUTURE FINANCING DISTRICT (EIFD) AND AN AGREEMENT OF PROFESSIONAL SERVICES WITH KOSMONT & ASSOCIATES TO SUPPORT EIFD FORMATION RECOMMENDED MOTION:
A motion to approve a Resolution:
directing staff to prepare a Resolution of Intention (ROI) to Form an Enhanced Infrastructure Financing District (EIFD) to fund backbone infrastructure at the Salinas Ag Industrial Center (SAIC); and authorizing the Mayor to execute an Agreement for Professional Services (Agreement) between the City of Salinas and Kosmont & Associates Inc, (“Kosmont”) for a total compensation amount not to exceed $129,000for EIFD Formation Advisory for the Salinas Ag-Industrial Center.
EXECUTIVE SUMMARY:
This report provides an update on the 2016 analysis prepared to evaluate the feasibility of using an EIFD to fund backbone infrastructure required to facilitate development of the SAIC. The 2023 analysis reaffirms that EIFD formation continues to be the most optimal and sustainable funding solution for the project. By capturing increased property tax revenue generated from future development within the designated district, an EIFD ensures financial resources to help support infrastructure development.
BACKGROUND:
In 2010, the Salinas City Council approved the SAIC project entitlements. The primary SAIC objectives are establishing opportunity sites for new and existing ag related industries in Salinas and to promote associated industrial job creation and retention. The SAIC provides 257 acres for agricultural industry expansion and cluster development with focus on food storage, warehousing, food processing, packaging suppliers and other ag support uses. Almost 13 years later, the SAIC remains undeveloped largely due to costs associated with building necessary backbone infrastructure. 2022 estimates calculate the cost of infrastructure required to support both Phase 1 and Phase 2 SAIC development to be over $69 million dollars, making any future development of the SAIC financially infeasible for developers or the property owner. Attachment 1 to this report is an aerial photo of the SAIC Project Area.
On October 10, 2023 staff took this item to the Finance Committee and received approval to move this item forward to City Council to request approval for staff to prepare a Resolution of Intention to form an EIFD and authorize the execution of an Agreement for Professional Services with Kosmont to prepare the analysis and documents required for Council consideration.
DISCUSSION:
How do EIFDs Work?
EIFDs can be used on both large-scale projects and smaller urban/rural in-fill projects with a focus on infrastructure improvements including:
roads, highways and bridges,
parking facilities,
transit stations,
sewage and water facilities,
flood control and drainage projects, and
solid waste disposal.
EIFDs are a “re-boot” of former redevelopment project areas and use the same funding tool, the gain in an identified area’s assessed value and resulting increase in property tax collected, to fund project area improvements. This gain is referred to as tax increment. Because development and the resulting increase in assessed property value occurs over time, tax increment revenue is not immediately available. Therefore, EIFD projects tend to be layered with several financial instruments such as bond issuance, other district/benefit assessments, development fees, and private investment to jump start the EIFD.
EIFD bonding capacity is based on 1) the projected tax increment in the District over time; and 2) the percentage of tax increment the City and County commit to the EIFD. The tax increment collected over time is used to pay bond debt service. A City and County partnership committing 100% of tax increment collected maximizes the bonding capacity of an EIFD to ensure sufficient funds to cover SAIC infrastructure cost. Another benefit of EIFD formation is the leveraging of private sector investment to facilitate needed infrastructure improvements. Therefore, should the Council direct staff to return with a ROI to form an EIFD, it is recommended that a potential EIFD boundary expansion to ag industrial areas beyond the SAIC be analyzed based on private stakeholder interest. 2023 EIFD Update Findings
In 2022 staff requested that Economic Planning Systems (EPS), as one of the approved On-Call Planning Consulting firms, update their 2016 Preliminary Feasibility Analysis for EIFD formation to support infrastructure development at the SAIC. Preliminary financial analysis confirms that that an EIFD is the most viable funding source to fund backbone infrastructure at the SAIC. Future assessed value was based on proposed development uses and timing of phased development outlined in the SAIC. Tables 1 and 2 below break down the uses identified in the SAIC and projected temporary (construction) and permanent jobs anticipated to be created.
Table 1: SAIC Uses
Table 2: Projected Employment Generation
Estimated funds and financing sources depend on the percentage of tax increment dedicated to the EIFD by the City and County and the participation of private investment in property owner participation in a Community Finance District (CFD) or advancement of funding. Table 3 below illustrates a Low and High EIFD Funding Scenario. It should be noted that these three funding sources are layered due to timing of funding availability and may not necessarily to be added together for a total sum. For example, a developer will expect to be reimbursed from bond proceeds from the EIFD, which are not immediately available upon EIFD formation.
Table 3: EIFD Funding Scenarios
Other benefits of EIFD formation include the opportunity to attract and leverage other public and private sources including state and federal funding and private investment such as CFD and revenue and development agreement.
Potential next steps include the recommendation that Council direct staff to prepare a Resolution of Intention (ROI) to Form an EIFD and authorizing the execution of an Agreement for Professional Services with Kosmont to prepare the analysis and documents required for Council consideration of EIFD formation. Attachment 2 is an EIFD Formation Process Flow Chart.
On October 17th the County of Monterey Board of Supervisors adopted an EIFD policy that sets criteria, expectations, and process for the County to consider participation in an EIFD. In summary, the City would be required to submit a proposal and agree to the conditions as detailed in the adopted EIFD policy which is provided as an attachment to this report.
Given the complexity of EIFD formation and its financial intricacies, technical assistance will be required to support the EIFD formation process.
Request for proposals. On April 2023, the City released a request for proposals (RFP) to the City’s On-Call planning list for the formation of the Enhanced Infrastructure Finance District. The RFP sought consultants with experience in forming EIFDs to finance large capital projects that can only come to fruition through the formation of such districts. Two proposals were received, one from Economic & Planning Systems, the other from Kosmont & Associates. Staff conducted a thorough evaluation process with the assistance of outside counsel. Through the review and recommendation of outside counsel, it was determined that Kosmont is the preferred partner for this project based on their extensive experience in implementing EIFDs, which aligns closely with our project's needs.
Kosmont, is a qualified expert in the field of public finance and economic development and is currently under contract, Kosmont is a certified Minority Business Enterprise (“MBE”) and Small Business Enterprise (“SBE”), with an award-winning track record of working with cities, counties, and other public agencies on economic development plans, infrastructure funding strategies, land use market analyses, business/industry attraction, and real estate projects and public finance transactions exceeding $12 billion. Kosmont is extremely well-suited to provide the requested advisory services to the City, with their extensive experience in the evaluation and formation of tax increment financing (“TIF”) districts and other innovative public-private funding sources and financing mechanisms.
Scope of Work and Schedule. Kosmont provided an updated scope of work on September 29, 2023, which is provided as an Exhibit to the Agreement for Professional Services attached to the Resolution.
In summary, the formation of the EIFD is projected to take 12-15 months from execution of the attached Agreement. The scope of work includes assistance with the evaluation and formation of a potential Community Facilities District (CFD) in parallel to the EIFD, if there is private sector landowner/developer support. The primary deliverables that will become part of the formation of this EIFD are:
Updated Financial and Fiscal Analysis
Stakeholder Outreach
Resolution of Intention and Establishment of the Public Financing Authority Preparation of Formation Documentation (and Preparation and Presentation at Required Public Meetings) CEQA CONSIDERATION:
The recommended actions are not projects as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378). Because the proposed actions and this matter have no potential to cause any effect on the environment, or because it falls within a category of activities excluded as projects pursuant to CEQA Guidelines section 15378, this matter is not a project. The Environmental Impact Report (EIR) for the SAIC was certified in 2010 and identified and analyzed potential impacts resulting from SAIC development, and established mitigation measures to reduce those impacts. Any subsequent discretionary projects resulting from the future development at the SAIC will be assessed for CEQA applicability.
STRATEGIC PLAN INITIATIVE:
Preliminary financial analysis confirms that that an EIFD is the most viable funding source to fund backbone infrastructure at the SAIC, which is critical to the future development of the SAIC. Implementation of the SAIC furthers City Council Strategic Goals of Economic Development and Infrastructure and Sustainability by providing the infrastructure needed for opportunity sites to develop at the SAIC for new and relocating ag related industries in Salinas. SAIC development will also promote associated industrial job creation and retention.
DEPARTMENTAL COORDINATION:
Community Development staff took the lead in coordination with Administration to coordinate revisiting an EIFD as a potential funding source for SAIC infrastructure. Community Development staff also coordinated with the City Attorney’s Office to finalize the Agreement for Professional Services with Kosmont.
FISCAL AND SUSTAINABILITY IMPACT:
Should the Council direct staff to return with a ROI to form an EIFD, professional services would be required to support formation. Kosmont has provided a scope of work and budget for a not to exceed amount of $129,000, which is available and appropriated in 1000.30.1355-63.5900. The cost of EIFD formation support is included in the approved FY 2023-24 Budget under the Community Development Department’s Economic Development Division - Other Outside Professional Services.
ATTACHMENTS:
Aerial Photo of Salinas Ag-Industrial Specific Plan Project Area EIFD Formation Process Flow Chart
Resolution
directing staff to Resolution of Intention (ROI) to Form an Enhanced Infrastructure Financing District (EIFD) and authorizing the execution of an Agreement for Professional Services between the City of Salinas and Kosmont & Associates Inc.
Exhibit A: Agreement for Professional Service with Kosmont & Associates Inc.
Kosmont & Associates Proposal dated September 29, 2023
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