A loophole in a decades-old California law could produce a windfall for venture capitalists pursuing a mega-development in the North Bay.
Venture capitalists have bought a lot of land in Solano County to build … something. The idea has been evolving. Maybe it will be a new city built from the ground up. Maybe a new port. Whatever it becomes, California should not allow the group behind it to exploit generous tax breaks meant to help preserve agricultural land. Senate Bill 5 would stop them.
At issue is the Williamson Act, a state law passed six decades ago that offers owners of agricultural land a significant discount on their property taxes. It helps keep open space open, holding encroaching development at bay. It is an investment by the public in agriculture today and tomorrow. There are legitimate questions about whether the Williamson Act still serves California well after all these years, but that’s a discussion for another time.
There’s a loophole, though. A different part of the law allows for Enhanced Infrastructure Financing Districts. EIFDs fund public works like roads and sewers in a development by capturing the higher property taxes that apply after development and using them to fund roads, sewers and the like for the project. EIFDs allow communities to encourage new housing and businesses by forgoing some tax revenue in the short term with the expectation of jobs and more tax revenue in the long term.
The trick is when the development takes place on agricultural land under the Williamson Act. Because the tax rate is artificially low to start, when, say, a new city or a port, goes up, the land generates vastly more property tax income. If developers can capture that difference — the increment — with an EIFD, they get a much bigger public subsidy than anyone ever envisioned. Adding insult, all of the tax revenue given up under the Williamson Act would have been for naught because the farmland would be gone.
Two well-intentioned laws have unintended consequences when combined. Public tax revenue that otherwise would fund parks, libraries, public safety and so on is lost.
This problem came into stark relief as venture capitalists — operating as California Forever — acquired more than 60,000 acres of Solano County farmland. Much of that land fell under the Williamson Act. If they build a city or a port under an EIFD, they could clean up.
State Sen. Christopher Cabaldon, a Democrat who represents Solano County and the rest of the area between Rohnert Park and West Sacramento, sponsored SB 5 to close the loophole. Parcels currently under the Williamson Act could only be included in an EIFD after their Williamson Act contract has been formally canceled or not renewed and the land has been rezoned for residential, commercial or industrial uses.
Ending the Williamson Act discount and rezoning would ensure that assessed value accurately reflects development potential before land can generate a tax increment for an EIFD. There would still be some subsidies under an EIFD, but not the artificially large one available now.
The Senate passed SB 5 with bipartisan support. The Assembly should follow suit and send it to Gov. Gavin Newsom for his signature.
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