LAND ECONOMICS AND

MANAGEMENT
ASSIGNMENT 2
TAX INCREMENT FINANCING – CASE OF CALIFORNIA

Submitted By:
Submitted To:
A.K.N.S.Priyanka
Dr. Prasanth Vardhan
2230400195

1 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
CONTENTS 1 OVERVIEW – VALUE CAPTURE TOOLS

TAX INCREMENT FINANCING -

2
INTRODUCTION

3 LEGAL FRAMEWORK FOR IMPLEMENTATION

4 HISTORY OF TIF IN CALIFORNIA

5 ASSESSMENT FRAMEWORK OF TIF IN

CALIFORNIA

6 BENIFICIARIES AND APPROPRIATION OF

VALUE

7 LA VERNE EIFD DISTRICT, CALIFORNIA

8 REFERENCES

2 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 OVERVIEW- VALUE CAPTURE TOOLS
WHAT ARE VALUE CAPTURE TOOLS ? VARIOUS TYPES OF VALUE CAPTURE TOOLS ?
Land value capture (LVC) is a toolbox for governments
Tax- or Fee- Based Development- based
to recapture some of the increased value land gains
Instruments Instruments
when public investment or actions lead to
development. This fund can be used to fund further • Property and Land Tax • Land Sale or lease
development or social programs.
• Betterment Charges and • Joint Development
Special assessment
• Tax Increment Financing • Air Rights sale

• Land readjustment

• Urban redevelopment
schemes
WHY FINANCING URBAN INFRASTRUCTURE IS
IMPORTANT ?
Map showing the urban population across globe
To meet the demand
for services, utilities
HOW LVC WORKS ? and infrastructure
conducive to an
• Infrastructure triggers rise in land value effective and
• Value-addition is retained sustainable
• Proceeds are used to fund infrastructure accelerated urban
projects growth 56% Urban Population ( as of 2022)
68% projected by 2050

3 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 OVERVIEW- VALUE CAPTURE TOOLS
Category Instrument Description Revenue Source
Tax- or Fee-Based Instruments Property and Land Tax Tax levied on estimated value Property Value
of land or land and buildings
combined
Betterment Charges and Taxes imposed by Increased Property Value due
Special Assessments governments on estimated to Public Investment
benefits created by public
investments
Tax Increment Financing Tax on properties within an Expected Increase in Property
area redeveloped by public Taxes after Redevelopment
investment
Development-Based Land Sale or Lease Sale of land or development Upfront Payment, Leasehold
Instruments rights with increased value Charge, or Annual Rent
due to public investment
Joint Development Coordinated development of Increased Property Value due
transit facilities and adjacent to Transit Investment
properties (Developer Contribution)
Air Rights Sale Sale of development rights Funds for Public Infrastructure
above land use regulations
Land Readjustment Pooling land for development Land Sale Proceeds
and selling a portion to raise
funds
Urban Redevelopment Cooperative development of Increased Property Value after
Schemes land parcels for a larger Redevelopment
project
4 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS
DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 OVERVIEW- VALUE CAPTURE TOOLS

Name of Tool Frequency of Incidence Scale of Intervention

Tax- or Fee-Based Instruments
Property and Land Tax Regular (annual or biannual) City-wide or regional
Betterment Charges and Special One-time (at the time of property Project-specific
Assessments improvement)

Tax Increment Financing (TIF)
Development-Based Instruments
Land Sale or Lease
Time bound ( until project costs are Project area or district
recouped )
One-time (at the time of sale/lease Site-specific or project-specific
agreement)

Joint Development One-time (at the time of joint Station area or district
development agreement)

Air Rights Sale One-time (at the time of air rights sale) Site-specific

Land Readjustment One-time (at the time of land pooling Neighborhood or district
and sale)
Urban Redevelopment Schemes One-time (at the time of redevelopment Neighborhood or district
project initiation)

5 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 TAX INCREMENT FINANCING - INTRODUCTION
Tax Increment Financing (TIF) is
an economic development tool
that allows developing urban
areas or reactivating specific
areas to attract private
investment and enhance urban
areas
6 TAX INCREMENT FINANCING – CASE OF CALIFORNIA
• TIF captures a part of the tax • Bonds are issued to raise
surplus resulting from the money upfront for building
increased property value new infrastructure.
brought about by the • This creates increased
development of the property values in the
infrastructure. The property surrounding area.
value on a specific date is • Taxes on those higher
set as a baseline. property values are then
collected.
• A TIF term is set, during • The increased tax revenue
which the property value pays off the debt from the
increase will lead to a original bonds.
surplus that may be
reinvested in urban
infrastructure.
LAND ECONOMICS AND MANAGEMENTS
DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 TAX INCREMENT FINANCING - INTRODUCTION
• TIF, which stands for Tax Increment Financing,
is a widely used tool by local governments in
the United States to finance development and
infrastructure projects in urban areas.
• Introduced in 1952 in California, TIF is legal in
almost all US states and has been
implemented extensively.
• Function: It captures the increase in property
tax revenue generated by a development
project and uses that revenue to finance the
project itself.
PROCESS:
• A designated area (TIF district) is created with
a fixed lifespan.
• The pre-project property value in the district
is established as the "Base Assessed Value."
• Any increase in property value within the
district is considered "incremental value."
• Taxes from the base value go to the usual
recipients (municipality, schools, etc.).
• Taxes from the incremental value are used to
repay debt incurred for the project. Financing Infrastructure Investments via Land Capture

7 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 TAX INCREMENT FINANCING - INTRODUCTION
• Complements traditional
Financing instruments to
foster urban development
• Allows taking on long-term
development projects ∙
The city spearheads the
investment and leverages
private sector resources
• Lower fiscal impact than
traditional debt
• Equality: the project’s
beneficiaries must pay
• Could promote the capital
market’s depth in
municipal financing
8 TAX INCREMENT FINANCING – CASE OF CALIFORNIA
General Framework for TIF
• Requires a solid real estate market and
positive economic conditions: not
suitable for all cities; not all the time; not
for all projects.
• Requires “expertise” in project
structuring.
• Accurate determination of costs and
capacity studies of the city to find the
one to be financed
• Requires a robust cadaster and tax
collection system ∙ Requires commitment
from the city and the institutions that is
credible in the long term (price).
• Project risks may affect the city’s credit
rating (implied warranty).
• High costs involved: Not suitable to
finance small projects.
LAND ECONOMICS AND MANAGEMENTS
DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 LEGAL FRAMEWORK FOR IMPLEMENTATION – STAGE 1 2

1 refers to items recorded on a 4 NDP - Neighborhood Development Plan

Identify the national
laws or statutes that
3 On-balance
company's financial statement, while off- Examines how the local legal
authorize local balance refers to items not recorded but still framework supports the creation and
governments to relevant for assessing financial health, often implementation of redevelopment
establish TIF districts requiring additional analysis to understand plans through TIF.
and use TIF financing. their impact.

Supervising Valuation Program

2a Review local ordinances or b Supervising Valuation Program 5 “Identification of scenarios" involves

regulations that provide specific
guidelines for establishing TIF
districts and implementing TIF
projects within the jurisdiction.
Provide
(SPV) involves analyzing legal
provisions related to property
valuation within TIF districts and
offering recommendations to
ensure accurate valuations.
the process of recognizing and
delineating potential future events,
situations, or conditions that could
impact a project, organization, or
strategy.

9 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 LEGAL FRAMEWORK FOR IMPLEMENTATION – STAGE 2 2

1 This stage assesses the purpose 3 This stage conducts a more detailed 4 This stage involves
and need for a project, and analysis to confirm the project's researching the market to
determines if it's feasible to feasibility, considering technical, understand potential demand
proceed. financial, and economic factors. for the project's outcomes.

2a This establishes the starting
point (baseline) for property
values in the designated TIF
district, and analyzes how
these values are expected to
increase due to project
improvements.
2b This assesses the financial
viability of the TIF project,
considering costs, projected tax
revenue increase, and how
captured funds will be used to
repay debt and support
development.
2c,d These tools identify potential
risks (like delays or lower-than-
expected property value growth)
and how sensitive the project's
success is to changes in key
factors like interest rates or
construction costs.

10 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 HISTORY OF TIF IN CALIFORNIA

Origin of TIF in California:

• First state to allow TIF districts (1945) and Redevelopment Agencies (RDAs) to use
TIF (1952).
California's Dominance in TIF:
• A leader in generating TIF development projects.
• 59 municipalities issued over $100 million in TIF bonds (2000-2013), dominating the
national market (2/3 of activity).
Controversy around TIF:
• Incremental Tax Revenue Capture: In TIF districts, any increase in property tax revenue
resulting from development or improvements is redirected to finance redevelopment
projects within the district, rather than being allocated to traditional recipients such as
schools.
• Tax Allocation Bonds: TIF districts often issued tax allocation bonds to finance Location of California
redevelopment projects. The revenue generated from these bonds, which would have
otherwise gone to schools and other public services, was used to fund infrastructure and
other improvements within the TIF district.
• Temporary Freeze in Tax Revenues: When a TIF district is established, the property tax
revenue generated within the district is typically frozen at the base year level. Any
increase in property tax revenue resulting from rising property values or new
development is diverted to the TIF district rather than being distributed to schools and
other taxing entities.
• Long-Term Commitments: TIF districts can have long durations, often spanning decades.
During this time, a significant portion of property tax revenue that would have otherwise
gone to education funding is redirected to finance redevelopment projects within the TIF
California map
district.
11 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS
DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 ASSESSMENT FRAMEWORK OF TIF IN CALIFORNIA
Project Eligibility: Before establishing a TIF district, local governments must identify areas in need of redevelopment or
economic revitalization. These areas are typically blighted, underdeveloped, or facing economic challenges. The
assessment involves evaluating the potential impact of redevelopment projects on the local community and economy.

Financial Analysis: Local governments conduct financial analyses to assess the potential tax increment revenue that
could be generated from the TIF district. This analysis includes estimating the increase in property values and property
tax revenue resulting from redevelopment activities within the district.

Budget Planning: Once the financial analysis is completed, local governments develop a budget and financing plan for
the TIF district. This plan outlines how tax increment revenue will be used to finance redevelopment projects,
infrastructure improvements, and other eligible activities within the district.

Community Input: Community input is an essential aspect of the assessment framework. Local governments engage
with stakeholders, residents, business owners, and other community members to gather input on proposed TIF projects
and their potential impact on the community. This input helps inform decision-making and ensures that TIF projects align
with community needs and priorities.

Legal Compliance: TIF projects must comply with state laws and regulations governing redevelopment and tax increment
financing. Local governments must ensure that TIF districts are established and operated in accordance with applicable
laws, including requirements related to blight designation, project eligibility, budget transparency, and public
accountability.

Performance Monitoring: Local governments regularly monitor the performance of TIF districts to assess their
effectiveness in achieving redevelopment goals and generating economic benefits. This involves tracking key
performance indicators, such as job creation, private investment, property value appreciation, and tax revenue
generation, to evaluate the impact of TIF projects over time.

12 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 BENIFICIARIES AND APPROPRIATION OF VALUE
California has several TIF tools that facilitate economic development and infrastructure improvements.
These include tools like ,
Enhanced Infrastructure Financing Districts (EIFDs): A type of special financing district that uses a portion of property
tax increment to fund public infrastructure and economic development projects.
These exclude public school districts from diverting any tax increment to a TIF project on a statutory basis. Other taxing
agencies within the project boundaries must opt-in before any tax increment revenue is diverted for development. EIFDs
don't impose new taxes or fees on property owners.
BENIFICIARIES :
• Local Governments: EIFDs empower local governments to finance and undertake infrastructure projects that support
economic development, community revitalization, and quality of life improvements within their jurisdictions.
• Developers and Property Owners: EIFDs can benefit developers and property owners by providing financing
mechanisms and incentives to support the development of projects within EIFD boundaries, including affordable
housing, commercial developments, and mixed-use projects.
• Community Residents and Businesses: EIFDs aim to improve the quality of life for residents and businesses by
funding infrastructure projects that enhance mobility, access to services, recreational opportunities, and
environmental sustainability.
• Public Agencies and Institutions: Public agencies and institutions, such as schools, parks and recreation
departments, transportation agencies, and environmental agencies, can benefit from EIFDs by accessing funding for
infrastructure projects that support their missions and objectives.

EXCLUSIONS:
Operating Expenses: EIFDs cannot fund ongoing operational expenses of local governments or public agencies. Funding
is typically limited to capital projects and infrastructure improvements.
State-Mandated Programs: EIFDs cannot use tax increment financing to fund state-mandated programs or projects that
would otherwise be funded by the state or federal government.

13 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 BENIFICIARIES AND APPROPRIATION OF VALUE
Projects Outside District Boundaries: EIFD financing is generally limited to projects located within the boundaries of
the EIFD. Projects outside the district may not be eligible for funding unless explicitly allowed by law.
Excessive Debt: Local governments must exercise caution to avoid excessive debt issuance within EIFDs, as
overleveraging can lead to financial instability and long-term fiscal challenges.
APPROPRIATION OF VALUE:
Funding Concerns:
The use of TIF was controversial due to its impact on school
funding.
TIF districts diverted all tax revenue above a baseline from other
entities (including schools) without their consent.

Mechanics of TIF:
Value of TIF = Increase in property tax revenue (increment) above
baseline within the district.
This increment was used for development projects in a special fund.

Assessment Process:
TIF value was based on expected future increases in property tax
revenue.
To qualify, an area needed to be considered "blighted" and unlikely
to develop without TIF.

Funding Access:
Few Location Of TIF Districts in California
Once established, developers could apply for TIF funds from the
local government or development agency.

14 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 LA VERNE EIFD DISTRICT, CALIFORNIA
PROJECT GOALS AND FORMATION
Goal: Fund infrastructure to support transit-oriented
development (TOD) near the Foothill Gold Line station.
Background:
• 2014: La Verne approved a plan (OTLVSP) to increase
development density around the station.
• The city explored creating an Enhanced Infrastructure
Financing District (EIFD) to pay for needed infrastructure.
Formation Process:
• City met with supportive property owners. Location of La Verna in California
• County initially declined to participate.
• La Verne decided to proceed with the EIFD in 2017 to capture
future tax increases.
County Participation:
• In 2017, the County passed an EIFD Participation Policy.
• This policy limits County involvement to districts where the
city collects at least 15% of general property tax (to protect
County revenue for basic services).
• La Verne (collecting over 18%) met this requirement.
• County formally joined La Verne's EIFD in January 2020.
Current Status (Summer 2020):
• La Verne is amending its Infrastructure Financing Plan (IFP) to
reflect County participation.
• The County will have a seat on the public financing authority
(PFA) governing the EIFD. Location of La Verna EFID

15 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
LA COUNTY EIFD PARTICIPATION POLICY THE FOLLOWING ARE GENERAL GUIDELINES FOR LA COUNTY
PARTICIPATION IN EIFDS.

• Proposed rental housing development must include 20 percent of affordable units onsite (with depth of
affordability not specified)
• The City’s share of the general property tax must equal at least 15%.
• The City’s contribution of property tax must be at least equal to the contribution from the County and its special
districts.
• The County must not contribute 100 percent of its property tax increment.
• There must be a positive impact to the County General Fund from the EIFD. (As demonstrated through a fiscal
analysis conducted by the County CEO Office.)
• The EIFD must support economic development and align with at least one of the following areas: affordable
housing, homeless prevention, workforce development, sustainability.
• The EIFD must be consistent with State EIFD law.

LA VERNE EIFD: DEVELOPMENT PROGRAM AND FINANCING PLAN

Development Program:
Aims to attract new transit-oriented development as envisioned by the Old Town La Verne Specific Plan (OTLVSP).

Expected outcomes:
1. 1,700 residential units
2. 150-room hotel
3. 100,000 sq ft of retail space
4. 150,000 sq ft of business park

16 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
AFFORDABLE HOUSING:
• Not directly included in EIFD, but expected through private development:
• OTLVSP requires 15% of new housing to be affordable (low or moderate-income)
• 40% of those affordable units must be for very-low-income households
• This satisfied Los Angeles County's requirement (20% affordable for rentals) because La Verne's plan applies to both
rentals and ownership.

EIFD FUNDED FACILITIES:

Total estimated cost: $33 million

Examples:
• Street improvements
• Pedestrian connectivity enhancements
• Utility upgrades
Key project: $4 million pedestrian bridge to the LA County Fairgrounds

FUNDING AND FINANCING:

Methods:
• Pay-as-you-go approach
• Bond sales (estimated $67 million in bonding capacity)
• Revenue source: Tax increment over 50 years (estimated $114.7 million)
• Additional funding sources being explored
• Secured $1 million from Los Angeles County Measure M for pedestrian bridge design

PHASING:
• Initial focus: Lower cost projects like pedestrian improvements (potentially funded through pay-as-you-go)
• Bonds will be issued for larger projects (water/sewer) once development generates enough tax revenue
• Current water/sewer capacity is sufficient for initial development phases
17 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS
DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
LESSONS LEARNED FROM LA VERNE'S EIFD

Stakeholder Engagement:
• Early engagement with property owners and the County is crucial.
• This allows education, garnering support, and smoother negotiation (especially with the County).

Manageability:
• A limited number of property owners simplifies the EIFD formation process.
• Lessens the workload for city officials and reduces the risk of opposition.

County Participation:
• Clear County policies for EIFD involvement are beneficial.
• This streamlines the process and ensures alignment with County goals.
• La Verne's EIFD aligns with regional goals (Fairgrounds access, sustainability, transportation, affordable housing).

Phasing and Funding:

• Limited upfront infrastructure needs are advantageous.
• Allows tax revenue to build before issuing bonds and reduces reliance on external funding.
• This may not be feasible in all locations requiring significant upfront investment.

18 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
 REFERENCES

• Case Studies Report

• TIF Case Studies: California and Chicago - The New School SCEPA (economicpolicyresearch.org)
• Tax Increment Financing - Tax Increment Financing (clarksvillepartnership.com)
• B1_PPT_Financing_Urban_Development_in_Colombia_TIF_ENG (ppiaf.org)
• (PDF) Financing urban infrastructure in India through tax increment financing instruments: A case for smart cities mission
(researchgate.net)
• Redevelopment Agencies in California: History, Benefits, Excesses, and Closure (huduser.gov)
• Land Value Capture — UNEP Neighbourhood Guidelines

19 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS

DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING
THANK YOU
20 TAX INCREMENT FINANCING – CASE OF CALIFORNIA LAND ECONOMICS AND MANAGEMENTS
DEPARTMENT OF PLANNING- MASTER OF URBAN AND REGIONAL PLANNING