Santa Rosa moves forward with new tax district to spur growth downtown. Here’s how it would work

Santa Rosa is pursuing a new economic development tool that city officials hope will drive more private investment into the city’s urban core.

The City Council on Tuesday unanimously adopted a resolution of intention — the first step in a lengthy process — to form a new financing district that would use a portion of property taxes to pay for infrastructure improvements and other projects.

It’s the latest initiative in Santa Rosa’s broader strategy to boost redevelopment in the aging downtown and speed new housing construction in the city center.

The city is looking to partner with Sonoma County on the proposal.

The mechanism is similar to the former public agencies in Santa Rosa and across the state that for decades used tax increment financing to spur redevelopment of so-called “blighted” areas. Facing a financial crisis driven by the Great Recession, Gov. Jerry Brown ended those agencies in 2012 and sought to recoup some of the money to help balance the state budget.

The city since 2016 has sought to incentivize construction in the area by streamlining permit requirements, allowing developers to build higher and reducing fees.

But construction has been slow amid an economic slowdown, rising interest rates and other market factors.

Just 130 units have been built downtown since 2016 but city leaders say efforts are finally paying off with more than 400 units under construction and 870 in the development pipeline.

“It did feel like a hurry up and wait situation for the past four to five years but it is a long game that we’re talking about and the momentum is happening,” said Raissa De La Rosa, Santa Rosa’s economic development division director.

City officials and proponents believe the revenue generated from the financing district could help make it easier for projects to get underway by paying for costly site work. It could also help beautify the area and make it more attractive to developers.

“There’s no one tool that will help us drive investment downtown,” De La Rosa said. “Anything that layers into that cake that makes Santa Rosa a delicious investment, we’re looking at all of those, and this is just one.”

The Downtown Action Organization, a group affiliated with the Santa Rosa Metro Chamber that oversees a taxing entity formed to promote downtown, and the Railroad Square Association supported the measure.

How would it work?

The financing district does not impose any new taxes or result in increased taxes for property owners, De La Rosa said.

Instead, districts use a portion of the property tax increment revenues generated by an increase in the assessed value from properties within the boundary that are redeveloped or sold to pay for infrastructure improvements and other projects.

Taxes already committed to schools are protected.

It isn’t expected to meaningfully impact city or county general funds, De La Rosa said.

The baseline property value is frozen for all properties in the district when the district is formed. Only a portion of taxes beyond that baseline can be set aside for projects, and how much the city and county contribute from the increased revenue is up to elected officials.

Who would be affected?

The new financing district spans the area just west of Railroad Square to Brookwood Avenue from College Avenue south to Highway 12.

Historic neighborhoods and established residential areas where city staff don’t anticipate redevelopment or tax growth are carved out of the district.

Establishing the district doesn’t require voter approval unless 25% of property owners in the district protest its creation.

City officials had weighed expanding district boundaries to include the Roberts Avenue area south of Highway 12 and other parts of Roseland.

The city will look at creating a standalone financing district in Roseland in the future instead.

Roseland was one of three county redevelopment areas, and Santa Rosa’s former redevelopment agency sought to invest in projects around downtown.

How much money could it generate and what will it pay for?

Properties in the district currently generate about $4.2 million in property taxes, about $2.9 million of which goes back to the city and county after a portion is set aside for schools.

Assuming a 5% growth in tax revenue from new development, the district could generate as much as $5.9 million over 30 years or $16.3 million over 45 years if the two governments commit 75% of the estimated tax increment to the fund, according to a city analysis.

The amount of money generated will depend on tax growth over the base year — the year in which the financing district is created — and how much the city and county contribute, De La Rosa said.

The funding can be used to build or improve roads, parking, water and sewer infrastructure and parks. It can also be used to tackle environmental restoration of a property or implement climate mitigation measures.

Funds can also be used to develop transit facilities, child care facilities, libraries and affordable housing.

Some local projects could include improvements to Old Courthouse Square, reconstruction of Jeju Way off Fourth Street and Comstock Mall off 2nd Street, and upgrades to the Santa Rosa Transit Mall. Improved connectivity from 7th Street to other parts of downtown and improved streetscapes and wayfinding could also be included.

Financing districts typically pay for projects through bonds and the revenue generated is used to repay the bond debt. Bonds can only be issued when enough revenue has accrued to pay for debt costs, which typically takes about five years.

De La Rosa said the tax increment should generate more money than the cost of the annual bond obligation over time and that excess revenue will go back to city and county coffers. The investment should also help generate additional tax and other revenue as housing and commercial projects get underway and are completed, she said.

Who would oversee district?

The financing district would be governed by a seven-member board comprised of elected officials and community members.

The council is expected to appoint members to the board next month.

The public financing authority will be tasked with developing a finance plan that outlines the types of investments the district will pay for and the fiscal impacts to participating jurisdictions and oversee its implementation in the future.

The district will operate for 30 to 45 years after the issuance of the first bond.

The city expects to finalize the creation of the financing district by the end of the year, according to a timeline presented by staff.

What are the benefits?

The idea to establish a financing district was raised as early as 2016 to bolster interest in infill development downtown.

De La Rosa said with so many projects in the development pipeline “now is really the time” to form the financing district to capture the most money.

Council member Chris Rogers, whose District 5 takes in most of the downtown, said this will help accelerate investment in the area.

Rogers said city studies have shown that downtown represents one of the largest economic engines in the county and investment in the area has far-reaching benefits.

“If you can rev that economic engine it will pay dividends across the county,” he said.

He said one of the things he heard from developers when he was first elected in 2016 was that they found it difficult to invest in Santa Rosa. Today, developers still face challenges accessing financing for projects downtown, he said.

Making infrastructure improvements and getting properties shovel ready can make it easier to develop land, he said.

That could especially help affordable housing projects which rely on public financing.

“It’s a little bit of a gamble but the city believes it will be an effective tool to drive more investment downtown,” he said.

You can reach Staff Writer Paulina Pineda at 707-521-5268 or paulina.pineda@pressdemocrat.com. On Twitter @paulinapineda22.