City Council Study Session on Infrastructure Financing Tools for Economic Development

On October 2, 2026, the San José City Council held an informational study session to explore two primary infrastructure financing tools: Enhanced Infrastructure Financing Districts (EIFDs) and Community Facilities Districts (CFDs). The session was led by staff from the City Manager’s Office of Economic Development and Cultural Affairs, Public Works, and the city’s municipal advisory firm Fieldman & Rolapp. The goal was to provide councilmembers with a common understanding of how each tool functions, when each is most effective, and their limitations in financing public infrastructure that supports economic development and private investment.

Presentation Overview

• CFDs are special tax districts created by property owners or voters (two-thirds approval if more than 12 registered voters reside in the district) to pay for local public infrastructure and services. They can be formed relatively quickly (less than a year) and can issue bonds early. Bonded CFDs fund roads, public parking, parks, water/sewer, flood control, and other horizontal infrastructure. However, San José’s Council Policy 1-14 (last amended in 1993) requires a minimum of $10 million in bonds and 1,000 single-family homes, which may conflict with current Envision 2040 goals for higher density. Staff noted the policy is outdated and could use an update.
• EIFDs use future property tax growth (tax increment) to fund public infrastructure without raising new taxes. The city’s share of property tax increment is approximately 13.5% of the 1% property tax levied on the assessed value. School district shares (44%) are statutorily excluded; other taxing entities (county, special districts) may voluntarily opt in. EIFDs require a lengthy formation process (feasibility study, public financing authority, two public hearings, protest period) and take years for assessed value to accrue before bonds can be issued. A hypothetical $10 billion mixed-use development could yield roughly $9 million per year in city increment, generating about $138 million in bond capacity over 30 years at a 5% interest rate.
• When to use each tool: CFDs are better suited for early-stage infrastructure needs because they can be bonded quickly against special taxes. EIFDs are a longer-term tool, best layered with CFDs as development progresses. Examples from Sacramento (Aggie Square), West Sacramento, Placentia, Eastern Coachella Valley, and San Francisco (Treasure Island) illustrated varying scales and partnerships.

Council Questions and Discussion

• Councilmember Casey asked about who bears issuance and compliance costs. Staff clarified that bond issuance costs are paid from bond proceeds, and ongoing administration costs are covered by the special tax revenue; however, those administration costs reduce the capacity available for debt service. He also questioned whether the 13.5% share of increment makes EIFDs worthwhile, noting that a $10 billion project yielding only $138 million in bonded capacity over 30 years seemed modest.
• Councilmember Kamei expressed skepticism, stating that these tools may not be appropriate at this time. She suggested going directly to voters for specific infrastructure measures (like Measure T) as a more practical path. She also noted the challenge of using EIFDs for affordable housing since affordable housing does not generate significant property tax return.
• Councilmember Tordillos probed the flexibility of using tax increment for housing. He noted that moderate-income housing is listed as an eligible use under Government Code 5398.52 and asked whether mixed-income developments could qualify. Staff clarified that if tax increment is used and bonded for housing, it must be affordable (very low, low, or moderate income), but private developers building market-rate housing within an EIFD without using tax increment bonds are not restricted. Tordillos also raised the potential of using pay-as-you-go models to support projects that are stuck in the pipeline, similar to alternative financing models being explored locally. He emphasized the need to update local CFD regulations and align internal policies so the city can act quickly when large-scale developments (e.g., downtown West, Berryessa) are ready.
• Councilmember Mulcahy asked whether staff had modeled specific areas of the city. Staff declined to discuss specific geographies to avoid influencing landowner behavior, but noted they are prepared to dive in when development projects reach sufficient sophistication. He also clarified the Aggie Square example: the city of Sacramento formed a city-only EIFD with partners (UC Davis, Wexford) and layered a CFD. In the Eastern Coachella example, the county committed 20% of its share, not 20% of the whole county increment.
• Councilmember Doan asked for a concrete local example where an EIFD would be preferable to a CFD. Staff responded that a CFD could initiate momentum for a broader EIFD project in a complex mixed-use district. He also asked about operating both tools simultaneously and what metrics would measure success after 5–10 years. Staff indicated that at the 45-year sunset of an EIFD, the city would look for assessed value and other revenues exceeding the cost of investment. They noted that developers can benefit from tax-exempt borrowing and prospective reimbursement, which can accelerate project timelines.
• Councilmember Cohen asked about county participation in examples and whether the city’s 13.5% share could be increased through state legislation. Staff confirmed that school districts cannot participate by law, and there has been no recent statewide effort to rebalance tax increment ratios. Some project-specific bills have been passed, but generally the ratios are fixed.

Public Comment

• One speaker (via Zoom) encouraged the council to consider using these financing tools for parks, trails, tree canopy, pedestrianization, and transit-oriented development along the BART corridor and East Santa Clara Street. They noted that 33 miles of trail network remain incomplete and that such investments demonstrably improve property values.

Key Takeaways

• No formal actions were taken; the session was informational and educational. No votes, resolutions, or directives were adopted.
• Staff acknowledged that updating Council Policy 1-14 for bonded CFDs would be a necessary step to align with current density and housing goals.
• Councilmembers expressed mixed views: some skeptical of the tools’ value given San José’s low increment share, others interested in using them in combination with other financing mechanisms for mixed-income housing and catalytic infrastructure projects.
• Staff highlighted the importance of stress-testing any financing plan against slower growth, lower values, and higher interest rates, and warned that forming an EIFD without a strong partner with a larger share can lead to underperformance (citing cautionary examples from around the state).
• The city will need to invest staff time and consultant resources to properly analyze any future proposals; no immediate next steps were identified beyond continuing to monitor market opportunities.