By Leni Zarate, Director of Special District Financing at Psomas
In the last couple of years, two new infrastructure-financing options have come on the scene. Legislation enacting Enhanced Infrastructure Financing Districts (EIFD) was approved in September of 2014 and Community Revitalization and Investment Authorities (CRIA) became law a year later in September 2015.
Basically, they are both vehicles to generate funding in the wake of the demise of redevelopment agencies. CRIAs use tax increment revenue to improve infrastructure, assist businesses, and support affordable housing in disadvantaged communities. EIFD’s are used to finance the construction of a wide variety of public infrastructure and must have a community-wide benefit.
Counties and cities are the only entities that can initiate these financing plans, however special districts can partner with either. Both require no money out of pocket, unless the project is being developed by a public/private partnership.
Since both financing vehicles are relatively new, they are not on the radar of many developers or public agencies. There is no difference in the amount that can be financed, but there are pros and cons to be considered when selecting which option to use. Some of the main differences are in terms of security of financing, flexibility, and voting requirements—all can have serious impacts on projects
The Main Differences
Security of Financing
One important difference between the two is that with an EIFD, the parties are entering into an agreement that cannot be changed. Therefore it provides security for long-term financing. When it comes to CRIA districts, they have to be reevaluated every 10 years. In fact, subject to certain restrictions, the agency can withdraw its pledge at any time.
The financed capital infrastructure requirement for an EIFD is very flexible. Any type of infrastructure qualifies— the only requirement is that it has to have a community benefit with a useful life of a minimum of 15 years.
A CRIA is very restrictive and subject to a number of penalties if the requirements are not adhered to. Some of the restrictions include: the project has to be in a high unemployment area, 80% of the District has to be designated as low income, and 25% of future proceeds must be spent on affordable housing.
Although an EIFD has the higher voting requirement, 55% approval, the voting is done only once.
With a CRIA, while it requires only a simple majority for approval, the fact that it can be opened up for a vote every 10 years presents a serious problem in terms of security of long-term funding.
Which Financing Option is Preferable for Your Project?
It is difficult to make a blanket statement recommending one option over the other. It depends on the circumstances. An EIFD appears to be more flexible with fewer restrictions, making it more user-friendly. In certain circumstances, however, a CRIA would be the preferable financing vehicle. In the end developers, agencies and their advisors must do their homework and decide which option is best for their projects.