Downtown revitalization and economic recovery financing districts.

Assembly Member Haney, with coauthors Kalra and Lee, advances a measure to broaden California’s downtown revitalization and economic recovery financing framework by authorizing cities and counties outside San Francisco to form downtown revitalization and economic recovery financing districts that fund commercial-to-residential conversion projects using the incremental property tax revenues generated within the district.

The proposal would authorize non-San Francisco jurisdictions to establish these districts with boundaries limited to downtown areas and to prepare a downtown revitalization financing plan that includes a map and description of the district, a description of proposed conversion projects, and project-specific requirements. Projects must be designed so that at least 60 percent of the square footage of the conversion is residential, and, if nonresidential development is included, at least 25 percent of the total planned units must be affordable to lower-income households and/or meet local inclusionary requirements. Affordability timing is specified: for rental units, at least 5 percent must be affordable to very low-income households or meet local inclusionary thresholds for a minimum of 55 years, or at least 10 percent must be affordable to lower-income households for at least 55 years; for for-sale units, at least 10 percent must be affordable to moderate-income households for a minimum of 45 years. For San Francisco, affordability requirements apply differently, with an exemption for the first 1.5 million square feet of opted-in projects. The plan must also identify each eligible existing commercial building within the district that could opt in to receive incremental tax revenue, and must describe how incremental revenues will finance approved development activities.

In governance terms, the bill would require the district board to include three members of the governing body and two public members (with the possibility of including a directly elected mayor), and would subject board members to standard conflict-of-interest and public-meeting laws. The district’s financing plan must be prepared after a correspondence with the district’s designated official, be consistent with the local general plan and specific plans, and be accompanied by a long-range financing schedule and related analyses. Projects may rely on a pay-go structure, with annual distributions to participating projects limited to the project’s own incremental revenues for up to 30 years, and with provisions to transfer distributions to new owners if a property is sold. Local administrative costs are capped at 5 percent of the district’s allocated tax revenues, excluding establishment costs and certain other statutory costs, and the district must prepare and present an annual report detailing project activity, revenues, expenses, and related metrics.

The bill would modify how incremental tax revenues are allocated between the district and the local government, requiring a plan-driven division of taxes that reflects both local government needs and district­-level financing goals. Notably, incremental revenues from eligible opted-in properties would be directed to the district to finance district-approved activities, with a baseline amount continuing to flow to the local government until the district’s opted-in property values exceed the baseline, after which incremental revenues may be directed to the district. If the district overlaps with former redevelopment areas, certain debts would remain subordinate to enforceable obligations from those former redevelopment activities. The measure would also require three public hearings for plan adoption, with notice requirements including online posting and mailed, emailed, or newspaper notices to landowners, residents, businesses, and labor representatives.

Implementation and accountability provisions are explicit: the district must hold an annual public hearing, release a draft annual report for public inspection 30 days beforehand, and publish the draft on its website. The annual report must cover project descriptions, progress comparisons, revenue and expense comparisons, amounts of tax increment received, details about projects that opted in and their revenue, progress toward project completion, and an accounting of revenues expended to assist private businesses. If the district fails to adopt the annual report, it may suspend further opt-ins until the report is completed. The measure also requires a comprehensive 10-year review to assess whether the district continues to meet division requirements and whether amendments to the downtown revitalization plan are needed.

Taken together, the proposals extend California’s district-based financing approach to a broader set of jurisdictions, establish specific project and affordability thresholds for commercial-to-residential conversions, align labor standards with statewide rather than city-specific requirements (while preserving SF’s distinctive treatment in some areas), and introduce tighter governance, transparency, and accountability requirements intended to illuminate how incremental tax revenues support downtown revitalization and housing outcomes.