About That ‘Subsidy’ for Midway Rising

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I was caught off guard this week when the Union-Tribune broke the news that city officials and the development team negotiating a plan for the city’s nearly 50 acres of land in Midway were going to explore an Enhanced Infrastructure Financing District, or EIFD.

“Midway Rising May Get Subsidy” blared the U-T front-page headline. This was always the case: Housing projects that set aside, in this example, thousands of units of homes for low-income residents by default rely on taxpayer subsidies.

But what are we looking at here? Is the government giving billionaire Stan Kroenke new money? I have since taken a crash course in EIFD’s so you don’t have to.

What they are: EIFDs are part of a group of several similar structures California authorized after the Legislature and governor dismantled redevelopment 12 years ago. In short, they allow cities to draw a boundary around the area and mark the property taxes collected within it. Those property taxes will continue to flow to the city, county, state and school districts as normal.

Any growth, however, in those property taxes is called “increment” and the city would forego the increment and keep that money within the new district. If the county decides to participate as well, the county would forego its share of increment. Importantly, and unlike redevelopment, school districts cannot participate and would continue to collect their property tax revenue as the properties improve and grow.

In this case, the city owns the Midway land and if it retains ownership of the land, the people who rent it will have to pay property (or possessory income) taxes on improvements on it and the enterprises they run on it and as new units or restaurants or whatever are built on the land, they would pay those taxes and that increasing revenue would be “increment” and stay in the EIFD.

If the city alone runs it, then the city would have three members on the board overseeing it and two from the public. If the county participates, it would have trustees on the board (called a public financing authority) as well.

Then they can borrow money: At first, the state required cities to get a vote of the people before they could borrow money. Now they can borrow money without a vote – they project how much new property taxes their developments will create and then they can imagine the payments they could make with it and calculate how much they can borrow.

“Projections are inherently speculative,” said Larry Kosmont, the CEO of Kosmont Companies, which has helped set up EIFDs across the state. “But it’s not that hard to figure out what a project will be worth once it’s delivered.”

They use what they borrow to build anything the EIFDs allow, from libraries to sustainability measures to improvements needed to support affordable housing.

What Midway Rising wants it for: Brad Termini, the CEO of Zephyr and leader of the Midway Rising team, said he wasn’t sure exactly what the EIFD would fund in Midway.

“That’s part of this exploration stage. We want to establish which improvements would apply. The first thing that comes to our mind is connectivity to the Old Town transit station and other last-mile transportation solutions are obvious potential investments,” he said.

Not a bait and switch: The breathless way the news came out that the city and Midway Rising team were exploring a “subsidy” made it seem like they were backtracking on commitments and changing expectations. But creating an EIFD was part of all three final bidding teams’ proposals.

I checked in with a former competitor of the Midway Rising team, Andrew Malick, who was part of the Neighborhood Next team. Malick’s group did not advance because they did not promise to fully rebuild the Sports Arena.

“It’s really easy to be cynical about these large scale developments,” Malick said. “I’m going to defend them a little bit. It doesn’t matter if you have a billionaire backing you. He’s not going to invest if there isn’t a financial model which balances out. You have to justify moving a development forward … you’re not toing to throw money down the drain no matter how rich you are.”