Oakland (Special to ZennieReport.com) – Before 2011, the City of Oakland was an expert-user of California Redevelopment Law. It allowed the use of secured and unsecured property tax revenues in what is called a “tax increment financing district” (TIF) and was around since 1947. TIF formed Downtown Oakland Redevelopment, and was represented by project areas covering almost the entire flat-lands of Oakland.
Then, in 2011, California Governor Jerry Brown killed it. What follows is another effort of a City of Oakland almost devoid of institutional memory on this matter of tax increment financing to figure out what Enhanced Infrastructure Financing Districts are all about. As you will see, the organization selected to help Oakland left a lot to be desired in its report.
EIFDs Come To Oakland City Council
On January 19, 2024, the City of Oakland Finance Department took a report prepared by hired consultant Sperry Capital and HR&A Advisors Team. The report, called “Assessment of Enhanced Infrastructure Financing Authority”, was, according to the report itself, done because:
View-Attachment-1-1Kosmont Companies (“Kosmont”) completed a preliminary feasibility study of a proposed Citywide EIFD as well as the East Oakland and West Oakland focus areas.2 The City requested that the Sperry Capital and HR&A Advisors Consultant Team (“Consultant Team”) review the preliminary feasibility analysis prepared by Kosmont and provide a report on the results. The City has requested that the Consultant Team also provide guidance regarding EIFDs and their implementation.
This report was presented as part of the agenda on Enhanced Infrastructure Financing Districts (EIFDs) February 27th, 2025 Oakland City Council Finance & Management Committee. That agenda item had this title:
Subject: Enhanced Infrastructure Financing District – Kosmont Report Review From: Finance Department Recommendation: Approve A Report And Recommendation: (1) To Review The Sperry Capital, Inc. Analysis Of The Kosmont Proposal To Establish An Enhanced Infrastructure Financing District (EIFD) Exclusively For East Oakland, Exclusively For West Oakland, And For East And West Oakland Combined As Outlined In Resolution 89480 C.M.S.; And (2) To Develop An Enhanced Infrastructure Financing District Policy
Before I focus on the Sperry Capital Analysis, let me say that the subject of Enhanced Infrastructure Financing Districts is an economic development one, and not a financing one. To understand why, one has to know the history of events that caused the creation of Enhanced Infrastructure Financing District Legislation.
In brief, California Governor Jerry Brown worked to terminate the original California Redevelopment Law (which focused on the use of tax increment financing and project areas for urban revitalization and blight removal, and had been around since 1947) because (he claimed) it would shave $1 billion off of the State of California’s budget deficit in 2010.
After California Redevelopment Law was terminated in 2011, there was a hue and cry that such an action was not necessary and many cities lost their main tool to build affordable housing, let alone build new infrastructure to replace aging constructs.
The idea of SB628 Beall was give local leaders a far more “robust infrastructure investment tool than they currently have at their disposal” as one publication put it. “The elimination of redevelopment agencies doesn’t leave us with the flexibility to address a lot of local needs,” Senator Beall told a California Assembly committee. “This bill is a consolidation of ideas to expand the financing tools [used by redevelopment] to utilize IFDs for a broad array of uses…It also expands the opportunities for city governments to accomplish their economic development goals.”
So, on September 29th, 2014, Governor Brown signed SB628 Beall, creating Enhanced Infrastructure Financing District Legislation. But the main point here is that the focus of EIFD legislation was to “accomplish their economic development goals”, and not financial ones. So, really, the entire matter should go to the City of Oakland Oakland City Council Community and Economic Development Committee. Now, let’s turn to the Sperry Report.
Sperry Report First Problem: Incomplete Description of EIFD Funding Possibilities Ignoring Small Business
The Sperry Report writes:
EIFDs are one form of a tax increment financing (“TIF”) district. TIF districts provide a funding/financing mechanism to capture incremental property tax revenues that result from property value growth. This incremental property tax, called tax increment, is collected within the TIF district to fund designated public facilities and improvements, potentially including affordable housing. Current California law enables several types of TIF districts, of which the EIFD is one type.
While it’s true that EIFD is one type of TIF district, it’s the one that has the greatest TIF fiscal flexibility in California and the first one to basically bring back to life California Redevelopment Law objectives. What the Sperry Report fails to mention is that AB 464 Mullin, passed in 2021, allows for the following:
Authorized Enhanced Infrastructure Financing Districts (EIFDs) to fund the acquisition, construction, or repair of COVID-impacted small business structures. The intent of the bill is to provide financial support to small businesses that were negatively affected by the pandemic, allowing them to recover or adapt to the new economic realities.
Considering the major problem if Oakland small businesses needing financial support because they were negatively affected by the pandemic, for Sperry Capital to just leave out any mention of how small business can be helped has to be considered malpractice.
I interviewed the bill AB 464 Mullin’s actual creator Barbara “Bobby” Lopez three years ago, just after the legislation was approved:
Sperry Report Second Problem: Incorrect Explanation Of What TIF Is And Revenues Tax Increment Financing Can Be Used With
This is what the Sperry Report says:
Tax increment revenue depends on, and lags, assessed property value growth, so near-term revenue from TIF districts is generally limited. As a result, TIF districts, including EIFDs, are generally best suited where a significant amount of near-term revenue is not needed, in areas of high growth/significant private development activity, and/or in combination with other funding/financing tools.
That’s wrong. The correct answer is that tax increment financing revenue depends on incremental growth in assessed property value growth, and sales tax revenue can be used, as well. The idea that ” near-term revenue from TIF districts is generally limited” is 100-percent incorrect. The amount of revenue generated depends on the dollar-amount-size of the base-year-assessed value of the entire EIFD itself.
But the total assessed value consists of what is called “secured” and “unsecured” property. The latter, “unsecured” property, are things not affixed to the land, like trucks, cars, and airplanes. Not including that can cause a city to miss millions in tax increment financing revenue. Especially if the potential EIFD is near an airport, like the Oakland International Airport, and its private plane terminal, as well. This is also true for truck stops, or gas stations that allow large vehicles like trucks to park for an extended time. The Sperry Report didn’t even take that into account and yet the Oakland Airport is part of East Oakland.
So an EIFD with $2 billion in base-year assessed value at 4 percent rate of growth in that base-year assessed value would be the next year, minus that base year or $80,000,000 aka $80 million. So the increment is $80 million – one percent of that would be first year TIF revenue of $800,000.
Folks, that’s not small.
What the Sperry Report reflect is an inexperienced staff when it comes to tax increment financing. By contrast, I was hired by the City of Oakland as intern to the Oakland Redevelopment Agency specializing in tax increment financing starting September 9th, 1987. The City of Oakland, specifically Austin Penny, Jeff Chew, and Assistant City Manager Ezra Rapport, asked me to learn TIF, and I eventually created a giant spreadsheet model I called “The Area Redevelopment Economic Model.” But one thing I learned early on was how to design a redevelopment project area to pick up high-assesed value growth areas. The Sperry Report reflects an obviously inexperienced group.
By contrast, here’s my presentation to the Oakland Coliseum Joint Powers Authority:
The Idea Of TIF Is To Produce Financing For An Economic Development Bond Issue
The Oakland Economic Development Department is supposed to form an EIFD that produces enough projected tax increment financing revenue to pay for specific projects. These projects must be conceived and costed-out as part of a by-EIFD-law document called an “Infrastructure Financing Plan”. The City of Oakland actually has a draft-“Infrastructure Financing Plan” out, and it was written by Century Urban and released April of 2023.
That plan, which you can see here, shows a projected subsidy of $2.5 billion, assuming a tiny, government-allowed, two percent rate of growth in assessed value. One can quibble with that estimate, as I have done elsewhere, but the point is clear: EIFD are to be designed of such size as to produce revenue that can be used to finance an effective economic development effort.
If the Sperry Report holds that an EIFD “generally (is) best suited where a significant amount of near-term revenue is not needed” then I assert that EIFD is too small in land area and the total assessed value of the properties in it. As a rule of thumb, one does not create an EIFD for affordable housing strictly from a neighborhood of homes.
The assumption at play in the use of EIFDs is that there’s an existing commercial area with large buildings, or you’re going to construct a giant building like a stadium or skyscrapers, or warehouse or shopping center, or airport, nearby. EIFDs should not be small in land area – that defeats the purpose.
Sperry Report Problem Three: Incorrect Idea Of The Use Of TIF Revenue In A Bond Issue.
The Sperry Report states:
Participation of taxing entities in EIFDs by cities or counties is voluntary, and each taxing entity that chooses to join the EIFD and contribute tax increment has the option to allocate up to 100% of its tax increment (however, school districts and successor agencies are precluded from participating). Bonds can only be issued secured by tax increment revenue when a sufficient and mature enough tax increment revenue stream has built up over time.
The Sperry Report problem is in this sentence: “Bonds can only be issued secured by tax increment revenue when a sufficient and mature enough tax increment revenue stream has built up over time.” That implies that the Oakland economic development director did not design her EIFD of proper size so that the revenue stream would not be “adequate.” The EIFD has to be large enough to produce a bond issue proceed that pay for the cost of the projects as described in the Infrastructure Financing Plan.
As a general rule, I size my bond issue plan to the “cost of the projects as described in the Infrastructure Financing Plan” times 1.56 (which changes with the bond interest rate) to get my total bond cost. Simply put, in a straight-line annual debt picture, I take that total bond cost divided by years, and that gets me my annual bond debt.
California allows for 45 years of collection of property and sales tax revenue inside an EIFD for TIF revenue. I can “size” my bond debt payments to be small up front, and larger toward the end of the 45 year period. My point is, presenting the idea that one has to wait and get old as assessed value is growing is purely stupid, yet is done all too often. Time to stop it. Too many worthwhile and badly-needed projects are being killed under this wrong-headed notion.
Many times I asked my friend Oakland City Councilmember Rebecca Kaplan to stop advancing that idea. It’s just wrong. You don’t just DO an EIFD, you do the math and plan it for a predetermined specific economic development purpose.
The City of Oakland has the idea that it needs an “EIFD Policy”, but it does not. It needs to understand what EIFD really is, and the Sperry Report is not a good guide. EIFD is a tool used to implement economic development on a large scale, like a whole city district, and not for a single development – unless that project happens to be the size of a whole city district, like Howard Terminal Ballpark, or the Oakland-Alameda County Coliseum Complex.
The Sperry Report Is Not Good For Evaluating EIFD Use In Oakland Or Any City
The problem with the Sperry Report is that it’s lack of expression of a process-oriented approach to the formation of an EIFD makes it not useable. There are a lot of untruths and missing items in the Sperry Report, and where I start is the mischaracterization of property tax revenue in the failure to realize the difference between secured and unsecured property. And I end with The Sperry Report’s annoying idea that “property tax revenue takes time to grow” which tells me they don’t know how to size an EIFD to produce an effective revenue stream.
The Oakland City Council Needs To Reconsider EIFD Because The Sperry Report Is Inadequte
As I understand it the report was shelved and has not been called back for discussion. It should be and with my post here as an objection to it. EIFD law can be more than effective in East Oakland, but the way the Sperry Report looks at EIFDs, one will never see the use of the second-coming of California Redevelopment Law in a City, Oakland, that was once an expert in using it.
Stay tuned.