LOS ANGELES -- Lingering legal questions surrounding a new infrastructure financing method have prompted California's local bond issuers to shy away from the tool, according to redevelopment agency officials.
More than 150 redevelopment specialists gathered Friday in Los Angeles at a conference that included a discussion of the pitfalls and benefits of creating infrastructure financing districts, a funding method created by the state Legis- in 1990 to help local governoments pay for the needs associated with the state's population growth.
"It's still a new process which hasn't been utilized yet, and it hasn't been challenged in the courts," said Allan Robertson, a vice president of Katz Hollis & Coren, the sponsor of the conference.
Mr. Robertson noted that the state legislature counsel, citing ambiguities in the law governing such arrangements, issued an opinion that the districts were not valid, pending further clarification. No court has yet ruled on the validity of the districts.
Infrastructure financing districts can be created with a two-thirds voter approval of district members. Landowners also can create a district when there are fewer than 12 residents in a targeted area.
Incremental property tax increases in the district can be used to pay for infrastructure improvements. The tax increments also can secure bonds.
The districts are similar to those set up by the redevelopment agencies. One difference, however, is that an area does not have to be identified as "blighted" to be declared an infrastructure district. One of the legal concerns cited by the state legislative counsel is whether it is proper to use the incremental property tax increases to finance these types of improvements when no blight is present.
Some redevelopment experts said legal concerns were not the only problem, adding that it may be difficult to sell bonds backed by taxes from such districts.
"I'll make a prediction that you'll never see [these districts] issue bonds on their own" using only incremental property taxes, said Mark Northcross, a senior vice president of Kelling, Northcross & Nobriga.
Mr. Northcross said the districts would most likely be created on undeveloped land, to avoid both the two-thirds voter approval requirement and redevelopment agency boundaries. Accordingly, he said the property tax increment collected in these districts would be insufficient to back bond issues.
"But sales tax increment is where the juice is," said Mr. Northcross. "A share of that would make a significant difference."
Other redevelopment experts predicted infrastructure financing districts will become a useful tool.
"I think you will see one that will go out for validation and be taken up by the courts so they can decide," said Lawrence Arcenaeaux, president of Katz Hollis. "That will clear things up."