California Redevelopment Agencies receive the "increment" in increased tax revenue due to increased property value within areas designated as redevelopment areas.^[21] For example a Bay Area redevelopment agency might determine that an area of its city’s downtown which contains deteriorated housing, pawn shops, and vacant land can be redeveloped for high-tech firm corporate headquarters. If the redevelopment agency succeeds in having the area designated a redevelopment area under California redevelopment law the property tax revenue which existed at the time of the designation will continue to go to the city, school district, and other government entities which received the funding before the designation. The "increment" the increased property tax revenue generated by more valuable development will go to the redevelopment agency. Tax increment funding must be used to benefit the project. If the project succeeds and major new developments such as high-tech corporate headquarters buildings are built there can be a very large "increment" for many years.

Since 1976 California law has required that not less than twenty percent (20%) of the redevelopment tax increment must be set aside for "increasing, improving, and preserving the community’s supply of low and moderate-income housing".^[22] These Tax Increment Set-Aside (TISA) funds are held by each agency in a separate Low and Moderate Income Housing Fund until used. Bay Area redevelopment agencies use TISA funds in a variety of ways most frequently in partnership with nonprofit housing development corporations in projects that combine TISA and other funding streams. Some agencies are aggressive and enthusiastic about these projects; others resistant to them and slow to make them happen.

"Affordable" housing is defined as housing for low- and moderate-income households. Moderate-income households are defined as households having incomes between 80% and 120% of the median income of the Primary Metropolitan Statistical Area (PMSA) in which they are located, adjusted for household size. Because Bay Area household income is so high, households earning as much as $60,000 or $70,000 a year are eligible for units subsidized with TISA funds. So are low-income households with incomes between 50% and 80% of area median income, and very low-income households with incomes below 50% of median income. Homeless households usually fall at the low end of very-low-income and are classified as "extremely low income". Thus an important question is how much of the TISA funding redevelopment agencies may use to benefit homeless people they will use to benefit them rather than "creaming" tenants building housing for those at the high end of low/moderate-income spectrum.

TISA funds must be spent for housing. Permanent housing for the formerly homeless is clearly eligible. The law specifically permits expenditure on residential hotels. Social services for the homeless are not eligible for TISA funding. Transitional housing may be eligible depending on the precise nature of the housing. Shelters and facilities which provide only temporary housing and/or a mix of temporary housing and social services are generally not eligible.

Because of the booming Bay Area economy many Bay Area redevelopment projects are succeeding. Tax increment financing has been in place since 1976, so many Bay Area projects have moved through their initial money-losing start up phases and are now generating large and growing tax increments.

California redevelopment agencies are required to prepare annual reports on use of tax increment funding for the State Controller.^[23] They must also prepare annual reports regarding use of TISA funds for the California State Department of Housing and Community Development (HCD). HCD staff compile the reports into an annual report, which is the authoritative source on TISA funding.^[24]

Bay Area homeless organizations could pursue a number of different strategies to secure some tax increment financing for regional homeless housing projects. The Community Acceptance Strategies Consortium (CASC) could play a role with respect to TISA funds. CASC might extend its anti-NIMBY campaign work to a campaign to increase the proportion of TISA funds which go to homeless people.

BARI and other homeless organizations might consider working jointly with affordable housing development and advocacy organizations to change state law regarding reallocation of TISA funding from non-performing agencies or a campaign to assure the funds are used expeditiously and that homeless and formerly homeless people receive a fair share of TISA funds.

Affordable housing organizations statewide, including Bay Area organizations, have been involved in debates and politics around these and other issues for many years. These are summarized in a 1996 Senate Interim Committee on Housing and Land Use report on redevelopment agency housing programs.^[25]

California law requires tax increment funds to be used to "further the interests of the redevelopment plan."^[26] Ordinarily they must be spent within the boundaries of the redevelopment area itself unless the governing body of the jurisdiction makes special findings that the funds are clearly related to the interests of the project or the expenditure is related to a "transit village." A recent California Attorney General’s Opinion concluded that Culver City could not use TISA funds for a transitional housing project for Veterans outside of the project area.^[27]

Agencies may use TISA funds outside the project area itself if they adopt a finding before the redevelopment plan is approved, that the provision of low and moderate-income housing outside the area will be of benefit to the project.^[28]

The law contains very cumbersome provisions permitting transfer of TISA funds to other communities.^[29] These provisions reflect the conflict between affordable housing advocates  who believe affordable housing, wherever built, is of paramount importance and fair housing advocates  who feel that having affordable housing distributed through many jurisdictions is of paramount importance. Apparently no California redevelopment agency has ever transferred TISA funds pursuant to these provisions.^[30]

There is more than a ten-year history regarding special legislation to permit jurisdictions to spend TISA funds outside the city. Legislation passed in 1988 to permit the City of Indian Wells to spend its TISA funds outside the city^[31] was vetoed by Governor Deukmejian on the ground that "it would be difficult to deny other jurisdictions similar relief in the future."  This led to interim hearings by the Senate Local Government Committee in 1991 in which several communities and a task force organized by the Southern California Association of Governments (SCAG) and the Coachella Valley Association of Governments (CVAG) floated proposals to permit low and moderate income housing funds to be expended outside the jurisdiction.

The California redevelopment law was amended four times in 1992 to permit special regional pooling of TISA funds. Special provisions related to the cities of (a) Cerritos and Artesia, (b) the City of Industry and L.A. county, and (c) communities around the Los Angeles air force base, enacted by the legislature at that time all failed to produce results and/or ended in conflict.^[32] All are inoperative. The Statewide authority to allow funds to be expended outside the jurisdiction enacted in 1992 has never been used. A 1996 interim hearing by the Senate Committee on Housing and Land Use^[33] concluded "it is time to re-think the policy that allows L&M Fund transfers", "that none of the laws that allow a redevelopment agency to transfer its L&M Funds to another community has worked", and that "the legislature should make the laws work or revoke the policy."^[34]  In 1998 the legislature did pass one additional piece of legislation allowing the Solano County Redevelopment Agency and several surrounding cities to pool TISA funding to build affordable ownership housing near Travis Airbase.^[35] Thus, the legislature would likely not be receptive to any new proposal to pool TISA funds unless it is clearly differentiated from past failed attempts and strongly justified and supported.

Given the legal restrictions on pooling TISA funds and the history of failed attempts, it does not seem likely that homeless organizations could get new State legislation permitting cities to  pool TISA funds at the regional level for homeless housing construction passed. Organized affordable housing development organizations primarily based in a single local government area or single neighborhoods see this as their turf. Bay Area homeless organizations should monitor TISA funding in each of the four counties and 37 Bay Area cities where redevelopment agencies exist.

There is also a history to the issues of assuring that redevelopment agencies use their TISA funds in a timely manner and in appropriate ways. Critics of the agencies charge that agencies frequently fail to spend this money in a timely manner, devote an exorbitant amount to administrative expenses, and sometimes use the money illegally.^[36]

Several redevelopment agencies have been successfully sued on the grounds that they spent TISA funds on inappropriate offsite improvements such as overpasses, sidewalks, and soundwalls.^[37]

Under the California Redevelopment law an "excess surplus" in the housing fund exists when the unexpended and unencumbered amount in an agency’s housing fund exceeds the greater of $1,000,000 or the total amount deposited in the agency’s Housing Fund during the preceding four years.^[38] In 1988 California passed what is popularly referred to as the  "use it or lose it" law requiring redevelopment agencies to spend any excess surplus balances within seven years.^[39] If they did not, the law specified that the unencumbered balance could be turned over to County Housing Authorities or other affordable housing providers who could then build affordable housing in the jurisdiction. In 1993, before the seven year deadline, this law was changed to what is popularly referred to as the "use it or die" law which specifies that if redevelopment agencies do not spend their excess surplus funds within seven years their operations are essentially put on hold.^[40]

Agency records make it difficult to determine TISA balances and whether agencies are complying with State law. A 1997 report by the California Research Bureau (CRB) prepared for the Senate Committee on Housing and Land use concluded that "currently, the lack of complete, timely and reliable redevelopment agency housing fund information prevents legislators, as well as independent researches and other interested observers from assessing statute compliance and adequately evaluating program success."^[41] Among problems the CRB identified were too many forms, lack of electronic reporting, unclear questions, changing definitions, confusion about debt service reporting, calculation errors (particularly calculations based on net rather than gross tax increment), time lags in reporting and publication of data, lack of adequate detail concerning administrative costs, and differing reporting periods (calendar versus fiscal years). This study reported that some agencies simply do not report on their affordable housing funds.^[42] The State Controller  has convened a committee to improve reporting. A 1998 audit by the State Auditor concludes that TISA surplus balances have been overstated.^[43] This study concluded that "redevelopment agencies fail to provide accurate and consistent information on the mandated amount of property tax dollars they allocate and spend on low- and moderate-income housing. As a result the [California State Department of Housing and Community Development] has no way of knowing how much mandated money has not been spent."^[44]

Despite more than ten years of investigations, hearings, audits, studies, and statutory changes no California redevelopment agency has yet "lost it" or "died" as a result of failure to comply with the low income TISA requirement.

TISA money is earmarked for affordable housing, so there is a logical relationship to homeless housing. A good deal of TISA money already is used to construct housing for the formerly homeless. TISA money cannot be spent on non-housing homeless projects.

No new legislation would be required to create the funding source. This source already exists Existing State law already provides severe sanctions for non-performing agencies and there are already efforts to investigate and enforce the law. Getting funds pooled for regional homeless housing construction would require state legislation. Given constitutional restrictions and the history of failed pooling in the past it would be difficult to get legislative change at the State level.  Redevelopment agencies and the powerful city and county lobbying organizations would almost certainly oppose this change. Housing organizations view TISA funds as their money and would probably not be eager to share it with homeless organizations.

TISA funding is a large funding source.^[45] The California State Department of Housing and Community Development reports annually on TISA funds. The most recent year for which information is available is FY 1996-97. Table 4 below presents information on the unencumbered balance in the fund for Bay Area counties and the amount added to and expended from the fund in FY 1996-97. Almost $100,000,000 in TISA funds was expended in the Bay Area during FY 1996-97, the most recent period for which information is available.
 

Source: California State Department of Housing and Community Development, Redevelopment Housing Activities,
Fiscal Year 1996-97 (Sacramento: HCD, April, 1998), table C., pp. 1 - 9.

TISA funding should grow substantially over time. Redevelopment agencies receive tax increments over a forty-year period. Generally TISA funding declines in the early years of a project as agencies spend money to acquire property, relocate households, demolish structures, pay for the infrastructure costs of preparing land, and package the land to private developers. Once development starts to occur the amount of revenue increases as new projects are completed and go onto the tax roles. The tax increment from completed construction then continues to grow slowly and predictably for the balance of the specified TISA period. The amount of funds unencumbered at the end of a fiscal year depends upon the beginning balance plus total revenue added to the fund from additional tax increment funds, interest, land sales, and any repayments for loans, advances or grants, minus the amount expended during the fiscal year. While the annual amount added to the low-and-moderate-income housing fund should generally increase over time, the unencumbered balance may sharply decrease as a large amount of funding is encumbered or spent a sharply increase is the redevelopment agency receives a large lump sum payment for a large land sale or a large loan repayment.

Unless a generic change were effected through state legislation, accessing TISA funding would require jurisdiction by jurisdiction work directed at redevelopment agencies. Bay Area TISA funds are controlled by forty-one different redevelopment agencies - four county and thirty-seven city agencies. Four of these agencies held about half of the TISA unencumbered balance at the end of FY 1996-97.^[46]

TISA expenditure decisions are made by local governments, redevelopment agencies and local Housing Development Corporations (HDCs) which have mixed relations with homeless organizations. Some redevelopment agencies and city councils work well with local homeless organizations. Others oppose shifting funds from the higher end of the affordable spectrum which subsidizes nurses, firefighters, police officers, librarians, and teachers towards homeless people at the lower end of the spectrum. Many HDCs have cordial relations with homeless organizations and make common cause with them. Some HDCs focus on affordable ownership or rental housing for people with moderate incomes and have little or no interest in housing for homeless or very low income people. Bay Area homeless organizations might work with local governments, redevelopment agencies, and HDCs to get redevelopment agencies to spend available TISA money in a timely manner and to direct as much as possible towards homeless households on a jurisdiction-by-jurisdiction basis.

Recommendation

Bay Area homeless organizations, including BARI, should probably not attempt to obtain State level legislation to pool TISA funds for use on regional homeless housing projects. The legal obstacles, history of failed attempts, and competing agendas of powerful stakeholders make this option very difficult.

Bay Area homeless organizations, including BARI, might consider a campaign to get more Bay Area TISA funding allocated to homeless housing as opposed to higher-end affordable housing. CASC would be a logical existing BARI project to lead a regional campaign to increase use of TISA funds for homeless housing. They might work with local partners to get redevelopment agencies to allocate more funding to very-low- income projects which could house homeless people rather than higher income first time homebuyer housing or moderate-income rental housing projects.

Bay Area homeless organizations should also work to assure that TISA funds are spent efficiently and on a timely basis. Since Senate committee staff, affordable housing development and advocacy groups, analysts, the State Controller, and the State Auditor are already involved in this issue, State-level advocacy may not be necessary or a priority use of regional homeless organizations’ limited staff and funds.