City of Park Ridge Uptown Tax Increment Finance (TIF) District Review And Options for Future Action. Prepared by: Kane, McKenna and Associates, Inc.

Transcription

1 City of Park Ridge Uptown Tax Increment Finance (TIF) District Review And Options for Future Action Prepared by: Kane, McKenna and Associates, Inc. Prepared for: The City of Park Ridge January, North Wacker Drive T: Suite 1600 F: Chicago, Illinois 60606

2 City of Park Ridge Uptown TIF District Review and Options for Future Review Table of Contents SECTION TITLE PAGE (i) EXECUTIVE SUMMARY (i) I. INTRODUCTION/BACKGROUND 1 II. REVIEW OF TIF REVENUES 3 A. Current Revenue Assessment B. Cook County TIF Practices C. New Property Assumptions and Calculations D. Other Revenues/Sources III. EXPENDITURE/COST ANALYSIS 11 A. Debt Service Current Assumptions B. Potential Debt Service Restructuring Options C. Intergovernmental Agreements (IGAS) and Review IV SUMMARY POTENTIAL NEXT STEPS 14 EXHIBIT A B C D E F G H I TITLE Cook County TIF Distribution Reports Tax Parcel Analysis Parcels Below Base EAV City Calculation of New Property Residential Tax Parcels Current Debt Service/Remaining Debt Service Payments Scenario 1 Refunding Analysis Scenario 2 Refunding Analysis Without TIF Extension Scenario 3 Refunding Analysis With TIF Extension Key Notes to Preliminary TIF Debt Service and Expense Analysis

3 (i) EXECUTIVE SUMMARY The City of Park Ridge, Illinois (the City ) has designated certain property in the City s downtown as part of a redevelopment project area as defined in the Tax Increment Allocation Redevelopment Act, 65 ILCS 5/ , as amended (the TIF Act ). The Uptown Redevelopment Plan and Project (the Plan ) was designated on September 26, 2003 (the TIF District ) thereby allowing the City to use the property tax increment generated thereby and available in the Special Tax Allocation Fund created for the TIF District (the STAF ) to pay for certain eligible redevelopment costs (the Incremental Property Taxes ). The Plan included the redevelopment of the property bounded by Touhy Avenue and Northwest Highway for mixed commercial and residential uses, and also included other properties located along Touhy Avenue and Northwest Highway as well. The City has also entered in several Intergovernmental Agreements (IGAs) with School Districts 64 and 207, as well as the Park Ridge Recreation and Park District. The City entered into a Redevelopment Agreement dated January 5, 2005 (the Redevelopment Agreement ) between the City and PRC Partners, LLC (the Developer ) to provide for the construction of various retail/commercial, townhome and multi-story condominium residential development (the Development ). In order to provide for the payment of certain eligible redevelopment costs, including but not limited to various infrastructure improvements in the TIF District, as provided in the TIF Act, the City issued several series of bond issues from 2004 to 2006 (the Outstanding Bonds ). The Development is completed (per discussions with City staff) and stabilized property tax increment was projected to continue to the termination of the TIF District or 2026 (with a final payment in 2027). In recent years, the economic downturn has adversely affected property values, particularly in Cook County, and this had resulted in reductions of Incremental Property Taxes received by the City. In relation to future planning efforts, the City requested Kane, McKenna and Associates, Inc. ( KM ) review the current fiscal condition of the TIF District, as well as City financing documents (the bond ordinances and debt service schedules), the District 64 IGA, the District 207 IGA, the Park District IGA, and other City planning documents associated with the TIF District. KM also reviewed historical Equalized Assessed Values (EAVs), projected 2012 values, and such other information made available to KM by City staff or by the Cook County Assessor and Cook County Clerk s Office. As part of said review, KM has developed an action plan for the City to consider. The plan includes multiple components, many of which can be undertaken concurrently, or independently, based on City policy preferences and the evaluation of such options. i

4 Since the TIF District was designated in 2003, the Cook County Clerk s office has calculated the following incremental property tax distributions for the City based upon growth in the EAV of the properties within the TIF District. Incremental Property Taxes Levied City Receipts Tax Year TIF EAV (received in subsequent year) (collections -net) ,437,541 $ 78, $ 77, ,590, , , ,367, , , ,215, , , ,412,985 1,658, ,613, ,661,276 2,046, ,969, ,265,143 2,611, ,501, ,610,913 2,605, ,568, ,934,171 2,253, ,177, Source: Cook County Clerk, Cook County Treasurer, City of Park Ridge. The analysis included in Sections II and III herein suggests several areas for future City review. 1) Size of TIF District and Review of the Creation of Tax Codes. Much of the decrease in EAV of the TIF District is attributable to existing non- Development parcels for which the current EAV for such parcels is below the Base EAV for such parcels. As a result the increase in EAV of other parcels (primarily new property ) is negated by the decrease in EAV of such parcels below the Base EAV resulting in a decrease in the amount of Incremental Property Taxes. Secondly, the EAV of the Development has also been largely reduced since 2009, which has uncovered a flaw in the basis for the original new property calculation in that adjustments are not made for decreases in the EAV of such property. Furthermore, the County s reduction in assessment levels for the tax year 2009 and thereafter, coupled with the economic downturn, have resulted in lower property valuations (or incremental tax receipts) than originally forecast. The City can consider reduction in boundaries (a one-time event) in order to minimize the impacts of properties with values below the Base EAV, or may consider the creation of new tax codes to segregate certain parcels and then improve the overall TIF increments. The creation of new tax codes would require the Cook County Clerk s office to assist in such designation. Depending on the properties included and no future reductions in EAVs, it may be possible to improve annual amount of Incremental Property Taxes by $270,000 to $448,000 by the segregation of such properties into new tax codes. ii

5 2) Review of New Property Requirements and the Existing Intergovernmental Agreements The 2009 changes in County assessment levels (reducing assessment levels for all property classifications), as well as the economic downturn, have resulted in valuations that are not only below original forecasts but also below the original new property calculations. IGA payments are based on calculations that do not reflect current economic conditions. In addition, the Base EAV is included in the new property calculation and this also overtakes the new property calculation by approximately $80,000 (versus the current amount of approximately $909,000). The TIF redevelopment plan was primarily to assist in the provision of certain improvements and public funding necessary for the improvement of the area. Given the unanticipated decreases in EAV for the properties in the TIF District leading to a reduction in forecasted Incremental Property Tax revenues, the City may seek to (i) re-open the IGAs for amendment, and request that the make whole payments (not the tuition payments) be structured on a subordinate basis after debt service obligations or reduced until Incremental Property Tax revenues achieve the levels of previous forecasts and/or (ii) restructure the IGA payments to allow for the TIF revenues to be allocated to debt service payments on a priority basis. This restructuring would serve to reduce the advances from the City s General Fund. In the alternative, the City would need to review the requirements for an increase to the tax levy or continue the advances from the General Fund. 3) Review of TIF Extension and Debt Restructuring Options Certain of the Outstanding Bonds could potentially be refunded to achieve savings on future debt service. However, due to the federal tax provisions relating to refundings, if an advance refunding is considered - such refunding of any of the Outstanding Bonds would only be allowed once under federal tax law. Therefore any refunding currently contemplated should be weighed against any need for the restructuring of the debt service payments. The potential for the extension of the TIF term by up to 12 years could allow for the restructuring of debt obligations, and potentially manage Incremental Property Tax revenues/cash flow to match debt service obligations, based on current conditions. This would also have the advantage of reducing other fund advances and/or the need for using other revenue sources of the City. However, there is still a need for the potential restructuring of the IGAs if the City wants to reduce overall losses or to protect the City in the event that revenues do not achieve the levels forecast herein. The extension scenario does not include the make whole payments beyond the original TIF term, as the current sources of TIF revenue are not adequate for payment of all obligations. The analysis of options to restructure the debt service on the Outstanding Bonds includes three scenarios. The first refinancing scenario (Refunding Scenario #1) includes solely the refunding the certain of the Outstanding Bonds to maximize the amount of savings with the savings to be level throughout the same term of the Outstanding Bonds. The second refinancing iii

6 scenario (Refunding Scenario #2) provides for the refunding of certain of the Outstanding Bonds to both restructure the principal repayment on the Outstanding Bonds in order to achieve a level amount of debt service, extending the maturity to take advantage of the current remaining years of the TIF District and to achieve maximum savings from the refinancing. The third refinancing scenario (Refunding Scenario #3) provides for the refunding of certain of the Outstanding Bonds by extending the maturity of the Outstanding Bonds to potentially take advantage of the 12 year extension of the TIF District. The following is a summary of the additional projected debt service costs and the effect on the Special Tax Allocation Fund balance: Total Projected Additional Special Tax Total Other Remaining Amount of Alloc. Fund Revenues Req. Scenario Debt Service Debt Service Ending Balance for IGA Payments Current 39,788,099 N/A (20,385,023) (7,350,000) Refunding #1 38,185,314 (1,602,785) (18,782,238) (7,350,000) Refunding #2 39,946, ,120 (20,543,143) (7,350,000) Refunding #3 43,863,596 4,075,497 (113,312) (7,350,000) Note: the amounts in the Special Tax Allocation fund also assume deductions for School District 207 and Park District IGA payments as well as the statutory tuition payments for both school districts. In the Current Scenario, Refunding #1 Scenario and the Refunding #2 Scenario, projected TIF revenues (if flat) total $33,294,635 which is less than actual debt service requirements and any IGA payments. The projected 12 year TIF extension results in $57,701,843 of revenues (assuming current uses remain in place). The three refunding scenarios above are only a sample of the potential structuring options. Further discussion would be necessary with the City to identify other potential refunding structuring options to achieve the City s goals. The imbalance between TIF revenues and obligations both debt service and IGA payment is significant. Some of the action plan recommendations offer alleviation of a portion of the imbalance, but are not a complete remedy. The action plan recommendations can be implemented individually or as a whole and some of the individual action plan recommendations can be further adjusted to achieve all or a part of the City s goals. In the absence of new redevelopment projects or a more robust growth rate in valuations, the City will need to coordinate review of a TIF based action plan in conjunction with the broader fiscal management and debt management policies. Careful monitoring of the revenue flows as well as cooperation between the taxing districts offer the potential to address some of the imbalance but difficult decisions will be required from a fiscal management perspective in the event that there is limited cooperation relating to the TIF extension or relief from the provisions of the IGAs. iv

7 I. INTRODUCTION/BACKGROUND The City of Park Ridge, Illinois (the City ) has designated certain property in the City s downtown as part of a redevelopment project area as defined in the Tax Increment Allocation Redevelopment Act, 65 ILCS 5/ , as amended (the TIF Act ). The Uptown Redevelopment Plan and Project (the Plan ) was designated on September 26, 2003 (the TIF District ) thereby allowing the City to use the property tax increment generated thereby and available in the Special Tax Allocation Fund created for the TIF District (the STAF ) to pay for certain eligible redevelopment costs (the Incremental Property Taxes ). The Plan included the redevelopment of the property bounded by Touhy Avenue and Northwest Highway for mixed commercial and residential uses, and also included other properties located along Touhy Avenue and Northwest Highway as well (refer to Map 1 attached). The City has also entered in (i) an Intergovernmental Agreement dated September 8, 2003 and an Intergovernmental Agreement dated April 26, 2010 (collectively, the District 64 IGA ) each with Park Ridge-Niles Consolidated Community School District No. 64 ( District 64 ) to make certain payments to District 64 based on the development within the TIF District, (ii) an Intergovernmental Agreement dated September 2, 2003 and an Intergovernmental Agreement dated April 5, 2010 (collectively, the District 207 IGA ) each with the Board of Education of Maine Township High School District 207 ( District 207 ) to make certain payments to District 207 based on the development within the TIF District, and (iii) an Intergovernmental Agreement and Lease dated February 19, 2004, together with a First Amendment to Intergovernmental Agreement and Lease (collectively, the Park District IGA ) each with the Park Ridge Recreation and Park District (the Park District ) to make certain lease payments to the Park District to provide for the development within the TIF District and to reimburse the Park District for certain costs of construction. The District 64 IGA, the District 207 IGA and the Park District IGA are collectively herein referred to as the IGAs. The City entered into a Redevelopment Agreement dated January 5, 2005 (the Redevelopment Agreement ) between the City and PRC Partners, LLC (the Developer ) to provide for the construction of various retail/commercial, townhome and multi-story condominium residential development (the Development ). In order to provide for the payment of certain eligible redevelopment costs, including but not limited to various infrastructure improvements in the TIF District, as provided in the TIF Act, the City issued its (i) $4,910,000 General Obligation Bond, Series 2004A with an outstanding principal amount of $95,000 (the Series 2004A Bonds ), (ii) $7,005,000 General Obligation Bonds, Series 2005A with an outstanding principal amount of $6,905,000 (the Series 2005A Bonds ), (iii) $10,530,000 General Obligation Bonds, Series 2006A with an outstanding principal amount of $10,530,000 (the Series 2006A Bonds ), and (iv) $10,055,000 General Obligation Bonds, Series 2006B with an outstanding principal amount of $10,055,000 (the Series 2006B Bonds )(the Series 2004A Bonds, the Series 2005A Bonds, the Series 2006A Bonds and the Series 2006B Bonds are hereinafter collectively referred to as the Outstanding Bonds ). 1

8 N ALDINE AV N WESTERN AV N GRACE AV LEONARD ST W SIBLEY ST CEDAR ST BUTLER PL V COURTLAND AV S PROSPECT AV S CRESCENT AV VINE AV S SUMMIT AV EUCLID AV RIDGE TER S WASHINGTON AV S NORTHWEST HWY W TOU BUSSE HWY BUSSE HWY EDAR ST N SEMINARY AV N ALDINE AV N WESTERN AV N KNIGHT AV N LINCOLN AV CEDAR ST N DELPHIA AV N GREENWOOD AV N CHESTER AV MEACHAM AV TOUHY AV W TOUHY AV GARDEN ST PRAIRIE AV GARDEN ST PLAINES AV MARLOWE AV RESCENT AV ND AV V V S LINCOLN AV S DELPHIA AV S GREENWOOD AV S CHESTER AV S CLIFTON AV N SUMMIT AV CLINTON ST N WASHINGTON AV WISNER ST GRAND BL N NORTHWEST HWY N PROSPECT AV GRANT PL N ASHLAND AV W TOUHY AV SIBLEY ST HERRY ST N CUMBERLAND AV BUSSE HWY MORRIS ST N ALDINE AV N KNIGHT AV N LINCOLN AV N SEMINARY AV BUSSE HWY N GREENWOOD AV N NORTHWEST HWY HASTINGS ST HASTINGS ST CHERRY ST ROOT ST MEACHAM AV GRAND BL N PROSPECT AV CHERRY ST ELM ST N ASHLAND AV N ASHLAND AV N WASHINGTON AV WISNER ST CHERR N DELPHIA AV BUSSE HWY N NORTHWEST HWY HANSEN PL ELM ST ELM ST ELM ST City of Park Ridge Uptown TIF District W TOUHY AV THIRD ST MAIN ST GARDEN ST S FAIRVIEW AV PRAIRIE AV Legend Uptown TIF District Ê W CRESCENT AV W CRESCENT AV S PROSPECT AV Uptown TIF District Parcels W CRESCENT AV Feet 2012 City of Park Ridge. All Rights Reserved _DRMMGP OAK ST

9 The Development is completed (per discussions with City staff) and stabilized property tax increment was projected to continue to the termination of the TIF District or 2026 (with a final payment in 2027). In recent years, the economic downturn has adversely affected property values, particularly in Cook County, and this had resulted in reductions of Incremental Property Taxes received by the City. In relation to future planning efforts, the City requested Kane, McKenna and Associates, Inc. ( KM ) review the current fiscal condition of the TIF District, as well as City financing documents (the bond ordinances and debt service schedules), the District 64 IGA, the District 207 IGA, the Park District IGA, and other City planning documents associated with the TIF District. KM also reviewed historical Equalized Assessed Values (EAVs), projected 2012 values, and such other information made available to KM by City staff or by the Cook County Assessor and Cook County Clerk s Office. As part of said review, KM has developed an action plan for the City to consider. The plan includes multiple components, many of which can be undertaken concurrently, or independently, based on City policy preferences and the evaluation of such options. The action plan is presented based on concerns over the amount of projected TIF revenues, current debt service requirements and the requirements of the IGAs. Cumulatively, these factors combined, indicate that the City carefully evaluate options to either restructure current requirements or develop a strategy for funding of these obligations in the near future and to the term of the Uptown TIF District. II. REVIEW OF TIF REVENUES The Uptown TIF District contains over 350 tax parcels (2011 tax year) and the equalized assessed value of all property in the TIF District as designated by the Cook County Clerk determined as the initial equalized assessed value as of September 26, 2003 is $37,158,476 (the Base EAV ). Each of the parcels of property within the TIF District are grouped into a tax code by the Cook County Clerk. That is, the current year Equalized Valuation ( EAV )* and the Base EAV for each parcel within the TIF District is aggregated by the Cook County Clerk by tax code. The aggregated Base EAV established for each tax code is then subtracted from the most recent tax year s aggregated EAV for such tax code to determine the amount of the incremental EAV for the subject tax year. The composite tax rate relevant to each tax code with the TIF District is then applied to the incremental EAV for each respective tax code to determine the amount of Incremental Property Taxes due to the municipality in which the TIF District has been established. Each tax code includes tax parcels that usually share a common tax rate (or group of taxing districts), but there are additional considerations for the creation of a tax code to be reviewed below. The Cook County Clerk utilizes data compiled by the Cook County Assessor s Office. *EAV is derived by multiplying a property market value by the assessment rate then by the State multiplier and then subtracting any exemptions. 3

10 The Incremental Property Taxes are required to be deposited in the City s Special Tax Allocation Fund (STAF) annually. The calculation described above is undertaken by the Cook County Clerk for each tax code located in the TIF District. Since the TIF District was designated in 2003, the Cook County Clerk s office has calculated the following Incremental Property Taxes that were levied and incremental property tax distributions by the Cook County Treasurer to the City based upon growth in the EAV of the properties within the TIF District. (Exhibit A includes year by year reports). The difference between Incremental Property Taxes Levied and City Receipts is due to adjustments including but not limited to property tax appeal rebates and non-payment of property taxes in such year. Incremental Property Taxes Levied City Receipts Tax Year TIF EAV (received in subsequent year) (collections - net) ,437,541 $ 78, $ 77, ,590, , , ,367, , , ,215, , , ,412,985 1,658, ,613, ,661,276 2,046, ,969, ,265,143 2,611, ,501, ,610,913 2,605, ,568, ,934,171 2,253, ,177, Source: Cook County Clerk, Cook County Treasurer, City of Park Ridge. Actual City receipts for each distribution are shown in the column to the far right. At this point in the original life of the TIF district (23 years), the TIF term is approximately 40% completed. Our understanding is that the primary redevelopment project (the Uptown mixed use redevelopment) is also substantially completed. Looking forward, it is important to determine (i) if additional projects are to be included (together with the timing of any such projects), (ii) the projected amount of Incremental Property Taxes that may be generated by any such projects, and (iii) the projected future Incremental Property Tax revenues associated with current properties in the TIF District. 4

11 A. Current Revenue Assessment Based on review of the TIF District area, the Uptown project redevelopment agreement, and future project potentials, KM assumed the following parameters as part of the analysis of Incremental Property Tax revenues. (i) Flat growth in Incremental Property Taxes is forecast to the term (tax year 2026 with a final collection in 2027 without any extensions to the life of the TIF District and tax year 2038 (final collection year 2039) with a 12 year extension to the life of the TIF District). In part, this is based on the impacts of the current economic downturn and the Cook County Assessor s assumptions regarding market values in the last two (2) years. It also appears that preliminary 2012 assessed valuation (AVs) are slightly lower ($500,000+) in relation to 2011 values. However, potential increases in the multiplier or tax rate applicable to the TIF properties may result in incremental taxes similar to tax year 2011 (collection year 2012). (ii) (iii) The City should monitor future year growth annually and adjust assumptions based on new data as it becomes available. However, for purposes of our report, we begin with the flat revenue growth in order to evaluate options that the City may consider, on a conservative basis, using current data. The current IGAs prohibit the City from adding new property to the TIF in order to potentially increase revenues. As part of discussions with the taxing districts, this limitation should be reviewed, given the recent downturn. For purposes of the analysis herein, the stabilized annual Incremental Property Taxes of $2,033,934 for the 2011 tax year (as identified by City staff) are projected for tax year 2012 (collection in 2013) and held constant over the term of the TIF District. The City would adjust the revenues annually based on Cook County growth patterns or the introduction of new redevelopment projects. B. Cook County TIF Practices As stated previously, the Cook County Clerk s Office calculates incremental EAV based on the properties in the area as a whole, as opposed to a parcel by parcel method. Normally, the approach is neutral unless there are conditions resulting in widespread reductions in the EAV for tax parcels that result in a current tax year EAV below the Base EAV of any such parcels. The example below illustrates the potential impacts of the area as a whole methodology in a period of widespread EAV reductions. 5

12 1) Cook County Tax Code Area as a Whole TIF Base and Increment Calculations Base Base EAV Current EAV Incremental EAV Parcel 1 100,000 80,000 (20,000) Parcel 2 100, ,000 20,000 Parcel 3 100, ,000 20, , ,000 Incremental EAV is based on aggregate current year EAV less Base EAV for the 20,000 entire TIF or Tax Rate 10.00% Incremental Taxes 2,000 2) Parcel by Parcel Base Base EAV Current EAV Incremental EAV Parcel 1 100,000 80,000 0 if Current EAV is less than Base EAV Parcel 2 100, ,000 20,000 Parcel 3 100, ,000 20,000 Incremental EAV is based on individual parcel data 40,000 Tax Rate 10.00% Incremental Taxes 4,000 Creation of a separate tax code in Cook County approximates parcel by parcel calculation 6

13 3) Create new tax code Base Base EAV Current EAV Incremental EAV Parcel 1 (New Tax Code) 100,000 80,000 0 if Current EAV is less than Base EAV Parcel 2 100, ,000 20,000 (original Tax Code) Parcel 3 (original Tax Code) 100, ,000 20,000 Incremental EAV is based on individual parcel data 40,000 Code 2 - Incremental EAV 40,000 Tax Rate 10.00% Incremental Taxes 4,000 Note in tax cap county, tax extension will reduce the TIF base for PTELL calculation. Reference to the tax year 2011 parcel by parcel property tax report for the TIF District prepared by the Cook County Clerk s Office and comparison of the EAV for each of the two procedures parcels in the TIF District for the 2011 tax year to the respective Base EAV for each parcel in the TIF District (also prepared by the Cook County Clerk) indicates that approximately 56 tax parcels are below their original Base EAV as determined in In reference to the area as a whole calculation, this results in $5,723,048 of other tax parcel TIF EAVs making up the difference in EAV and reducing increment by approximately $448,000. Exhibit B includes this parcel information for the TIF as a whole and the segregation of tax parcels below the base. Over 60% of the reduction is attributable to two (2) uses: Napleton and Chase Bank/Commercial Office Building. Map 2 attached identifies parcels below the Base EAV. In the event that separate tax code(s) could be structured, it may be possible to improve annual TIF revenues by $270,000 to $448,000 depending on which properties are included and assuming no other decreases in TIF valuations. Many of the parcels in Exhibit B are non Development parcels and their current condition has resulted in revenue loss within the TIF District. In the event the City determines that no further redevelopment is to be associated with such properties, or that the prospects for increase are minimal, the City could also consider amending the TIF District to remove some of the properties from the TIF District (but this is a permanent event and would require a formal amendment or a new TIF designation should the City wish to redevelop these properties in the future). 7

14 ELM ST GRANT PL RIDGE TER W T BUSSE HWY CEDAR ST S CLIFTON AV MEACHAM AV GRAND BL N PROSPECT AV CLINTON ST N WASHINGTON AV WISNER ST N ASHLAND AV W TOUHY AV HWEST HWY ELM ST BUSSE HWY N CUMBERLAND AV N SUMMIT AV MORRIS ST City of Park Ridge Below Base Parcels 2012 City of Park Ridge. All Rights Reserved _DRMMGP N NORTHWEST HWY W TOUHY AV THIRD ST MAIN ST Legend Below Base Parcels Ê PRAIRIE AV GARDEN ST S FAIRVIEW AV S PROSPECT AV S SUMMIT AV EUCLID AV Feet

15 C. New Property Assumptions and Calculations The IGAs provide for the City to identify and calculate new property as defined in the Property Tax Extension Limitation Law ( PTELL ) on an annual basis. However, in practice there are several limitations with this requirement. First and foremost, the Cook County Assessor does not provide this information on a parcel by parcel basis, or for the TIF area specifically. As a result, the City has identified a methodology as a proxy for the determination of new property utilizing site survey review, the identification of new parcel numbers, and review of EAV growth from one year to the next for certain parcels. Map 3 attached identifies tax parcels that the City has identified as new property. The chart attached as Exhibit C indicates that cumulative new property EAV from 2005 to 2010 is $35,929,588. Although, the intent of the City s review seems reasonable, as most of the new property is associated with the Development project, the EAV totals listed as new property also include the Base EAV for such properties as well. The TIF designation currently separates the Base EAV as available for inclusion in each of the taxing district property tax levies. However, the inclusion of the base seems to be contrary to the intent of IGA. Currently, the Base EAV accounts for $2,592,828 or 7% of the new property EAV. Of greater concern is the IGA requirement that keeps the new property static over future years revised only by other new property additions as identified by the City. Although we could recommend some improvement to the City methodology by using permit data to identify candidates for new property growth, the current downturn results in a situation where the new property calculations is held static at $35,929,588, but the actual 2011 incremental EAV for the TIF District is significantly lower at $28,775,695. There appears to be an imbalance in the calculation due to the reduction in TIF property values and the lack of a mechanism in the IGAs for adjustment to reflect current economic realities. Also, much of the new property calculation relates to residential development associated with the Development. Those uses accounted for approximately 60% of the new property calculations, but have experienced declines in the range of 15% to 30% since (Exhibit D includes an estimate of all residential uses within the TIF District). Overall, all residential properties in the TIF District account for approximately 40% of total TIF EAV. At the high point in tax year 2009, the total TIF EAV was $78,265,143 and incremental EAV was $41,106,667 of the EAV for the properties in the TIF District. New property EAV of $32,520,864 (in tax year 2009) accounted for approximately 80% of incremental EAV, and over 95% of incremental EAV in the following tax year (2010). The Development represents the prime generator of incremental EAV and taxes in the TIF District to date. The economic downturn has significantly impacted these properties. 9

16 CEDAR ST N CUMBERLAND AV MEACHAM AV GRAND BL City of Park Ridge Uptown TIF District Legend N PROSPECT AV Uptown TIF District Boundary New Property Locations Other TIF Parcels Feet Ê BUSSE HWY MORRIS ST N SUMMIT AV N NORTHWEST HWY W TOUHY AV ST 2013 City of Park Ridge. All Rights Reserved _DRMMGP

17 An additional item for discussion relates to the stabilized Incremental Property Taxes. If prior projections assumed greater amounts, the current reality needs to be reviewed in addition to City debt obligations, and the ability to service such debt. Review of requirements that place debt service and student payments in a primary position would be helpful for the overall fiscal portion of the City and links Incremental Property Taxes to the payment of redevelopment project costs as provided for in the TIF Act. This would include adjustments to prior year payouts that included the base EAV in the total new property calculations. D. Potential TIF Term Extension In order to deal with redevelopment project delays or situations where the restructuring of TIF obligations is required (due to delays, unexpected market conditions, reductions in valuation, unfinished redevelopment projects, etc.), several Illinois municipalities have pursued the extension of the TIF term by an additional twelve (12) years - from twenty three (23) years to thirty five (35) years. This process requires the municipality to obtain the approval from all of the taxing districts affected by the TIF District, and then request the Illinois legislature to amend the TIF Act in order to include the extended time period for the TIF District. As such, the entire amendment process can take several months including introduction and action by the legislature (when in session) of the TIF extension. The City may also be required to amend the Plan based on any changes, in budget, land uses, or boundaries, and this process is similar to the designation of a redevelopment project area (or TIF District). The TIF extension allows the City to potentially restructure debt over a longer time period and/or utilize additional revenues to apply to such obligations due to the extended term of the TIF District. The process also involves all taxing districts as they must concur in the extension. The next section includes analysis that projects the impacts of a twelve (12) year extension of the TIF District on both the restructuring of TIF obligations and the financial condition of the TIF District. It is important to note that the City has flexibility in the overall approach, and may adjust the term or revenue allocation based on future events (e.g., the TIF revenues increase at levels originally forecast and/or reverse the general decline currently experienced). III. EXPENDITURE/COST ANALYSIS A. Debt Service Current Assumptions Attached hereto as part of Exhibit E is a summary of the remaining principal and interest payments for the Outstanding Bonds. The principal and interest payments are to be paid from Incremental Property Taxes available after payments from Incremental Property Taxes are made pursuant to the IGAs. 11

18 Also included in Exhibit E is a Preliminary TIF Debt Service and Expense Analysis which includes a summary of the (i) projected Incremental Property Taxes and expenditures to be paid from Incremental Property Taxes together with the balance of the STAF after such payments are made and (ii) projected other revenues of the City that will be necessary to pay the amounts due under the IGAs that are not payable from Incremental Property Taxes based on the current debt service payments for the Outstanding Bonds ( Current Scenario ). The analysis in Exhibit E assumes that the current balance of the STAF is $5,551,151. B. Potential Debt Service Restructuring Options The TIF Act allows the City to issue bonds that are payable from Incremental Property Taxes for a term not to exceed 20 years. However, the City can issue additional bonds or bonds to refinance bonds on an ongoing basis as long as the term of such bonds does not exceed 20 years. Certain of the Outstanding Bonds could be potentially refinanced to achieve savings. The analysis herein includes three potential refunding structuring options. The debt service analysis in the attached Exhibit F that provides for the refunding of certain of the Outstanding Bonds in Exhibit F ( Refunding Scenario #1 ) provides a projection of savings of approximately $1,103,894 with refinancing certain of the Series 2005A Bonds and Series 2006A Bonds and at approximately $498,891 with refinancing certain of the Series 2006B Bonds based on current market interest rates for general obligation bonds and the assumption that the savings would be level for each year the refunding bonds are outstanding. The refinancing would be considered an advanced refunding since the Outstanding Bonds are not callable. Even though the analysis reflects significant savings, once the City advance refunds the Outstanding Bonds, the City will be precluded from refinancing the bonds issued to refinance the Outstanding Bonds until the bonds issued to refinance the Outstanding Bonds are callable. Also included in Exhibit F is a revised Preliminary TIF Debt Service and Expense Analysis which includes a summary of the (i) projected Incremental Property Taxes and expenditures to be paid from Incremental Property Taxes together with the balance of the STAF after such payments are made assuming Refunding Scenario #1 and (ii) projected other revenues of the City that will be necessary to pay the amounts due under the IGAs that are not payable from Incremental Property Taxes assuming Refunding Scenario #2. The analysis in Exhibit F assumes that the current balance of the STAF is $5,551,151. In order to achieve more level debt service payment and to take advantage of the remaining life of the TIF District, the debt service analysis in Exhibit G provides for the refunding of certain of the Series 2005A Bonds, the Series 2006A Bonds and the Series 2006B Bonds ( Refunding Scenario #2 ). The analysis in Exhibit G provides that principal payments on the Series 2005A Bonds due from 12/1/16 through 12/1/24, principal payments on the Series 2006A Bonds due from 12/1/19 through 12/1/21 are restructured to provide that the principal would be due from 12/1/19 through 12/1/26 and principal payments on the Series 2006B Bonds due from 12/1/15 through 12/1/18 are restructured to provide the principal would be due on 12/1/15 through 12/1/19 in order to achieve a level debt service on such refunding bonds. The 12

19 analysis in Exhibit G also indicates an increase of approximate $158,120 in the total additional amount of debt service that would have to be paid on the refinanced Outstanding Bonds based on current market interest rates for general obligation bonds due primarily to the extension of the term of the Bonds. Also included in Exhibit G is a revised Preliminary TIF Debt Service and Expense Analysis which includes a summary of the (i) projected Incremental Property Taxes and expenditures to be paid from Incremental Property Taxes together with the balance of the STAF after such payments are made assuming Refunding Scenario #2 and (ii) projected other revenues of the City that will be necessary to pay the amounts due under the IGAs that are not payable from Incremental Property Taxes assuming Refunding Scenario #2. The analysis in Exhibit G assumes that the current balance of the STAF is $5,551,151. In order to achieve level amount of Incremental Property Taxes available after the provision of any debt service and to take advantage of a 12 year extension of the remaining life of the TIF District, the debt service analysis in the attached Exhibit H provides for the refunding of certain of the Series 2005A Bonds, the Series 2006A Bonds and the Series 2006B Bonds ( Refunding Scenario #3 ). The analysis in Exhibit H provides that principal payments on the Series 2005A Bonds due from 12/1/16 through 12/1/24 and principal payments on the Series 2006A Bonds due from 12/1/18 through 12/1/21 are restructured to provide that the principal would be due from 12/1/19 through 12/1/32 and the principal payments on the Series 2006B Bonds due from 12/1/14 through 12/1/18 are restructured to provide that the principal would be due from 12/1/15 through 12/1/22 in order to achieve a level amount of Incremental Property Taxes that would be available after debt service to provide for other eligible costs. The analysis in Exhibit H indicates an increase of approximately $4,075,497 in the total additional amount of debt service that would have to be paid on the refinancing of the Outstanding Bonds based on current market interest rates for general obligation bonds. Also included in Exhibit H is a revised Preliminary TIF Debt Service and Expense Analysis which includes a summary of the (i) projected Incremental Property Taxes and expenditures to be paid from Incremental Property Taxes together with the balance of the STAF after such payments are made assuming Refunding Scenario #3 and (ii) projected other revenues of the City that will be necessary to pay the amounts due under the IGAs that are not payable from Incremental Property Taxes assuming Refunding Scenario #3. The analysis in Exhibit H assumes that the current balance of the STAF is $5,551,151. Attached hereto as Exhibit I are notes that provide a detailed explanation of the columns in the Preliminary TIF Debt Service and Expense Analysis in Exhibits E, F, G and H above. The three refunding scenarios above are only a sample of the potential structuring options. Further discussion would be necessary with the City to identify other potential refunding structuring options to achieve the City s goals. 13

20 IV. SUMMARY POTENTIAL NEXT STEPS The analysis in Section II suggests several areas for future City review in relation to the TIF District revenues and its obligations: 1) Size of TIF District and Review of the Creation of Tax Codes. Much of the decrease in EAV of the TIF District is attributable to existing non- Development parcels (see Exhibit B) for which the current EAV for such parcels is below the Base EAV for such parcels. As a result the increase in EAV of other parcels (primarily new property ) is negated by the decrease in EAV of such parcels below the Base EAV resulting in a decrease in the amount of Incremental Property Taxes. Secondly, the EAV of the Development has also been largely reduced since 2009, which has uncovered a flaw in the basis for the original new property calculation in that adjustments are not made for decreases in the EAV of such property. Furthermore, the County s reduction in assessment levels for the tax year 2009 and thereafter, coupled with the economic downturn, have resulted in lower property valuations (or incremental tax receipts) than originally forecast. The City can consider reduction in boundaries (a one-time event) in order to minimize the impacts of properties with values below the Base EAV, or may consider the creation of new tax codes to segregate certain parcels and then improve the overall TIF increments. The creation of new tax codes would require the Cook County Clerk s office to assist in such designation. Depending on the properties included and no future reductions in EAVs, it may be possible to improve annual amount of Incremental Property Taxes by $270,000 to $448,000 by the segregation of such properties into new tax codes. 2) Review of New Property Requirements and the Existing Intergovernmental Agreements The 2009 changes in County assessment levels (reducing assessment levels for all property classifications), as well as the economic downturn, have resulted in valuations that are not only below original forecasts but also below the original new property calculations. IGA payments are based on calculations that do not reflect current economic conditions. In addition, the Base EAV is included in the new property calculation and this also overtakes the new property calculation by approximately $80,000 (versus the current amount of approximately $909,000). The TIF redevelopment plan was primarily to assist in the provision of certain improvements and public funding necessary for the improvement of the area. Given the unanticipated decreases in EAV for the properties in the TIF District leading to a reduction in forecasted Incremental Property Tax revenues, the City may seek to (i) re-open the IGAs for amendment, and request that the make whole payments (not the tuition payments) be structured on a subordinate basis after debt service obligations or reduced until Incremental Property Tax revenues achieve the levels of previous forecasts and/or (ii) restructure the IGA 14

21 payments to allow for the TIF revenues to be allocated to debt service payments on a priority basis. This restructuring would serve to reduce the advances from the City s General Fund. In the alternative, the City would need to review the requirements for an increase to the tax levy or continue the advances from the General Fund. 3) Review of TIF Extension and Debt Restructuring Options Certain of the Outstanding Bonds could potentially be refunded to achieve savings on future debt service. However, due to the federal tax provisions relating to refundings, if an advance refunding is considered - such refunding of any of the Outstanding Bonds would only be allowed once under federal tax law. Therefore any refunding currently contemplated should be weighed against any need for the restructuring of the debt service payments. The potential for the extension of the TIF term by up to 12 years could allow for the restructuring of debt obligations, and potentially manage Incremental Property Tax revenues/cash flow to match debt service obligations, based on current conditions. This would also have the advantage of reducing other fund advances and/or the need for using other revenue sources of the City. However, there is still a need for the potential restructuring of the IGAs if the City wants to reduce overall losses or to protect the City in the event that revenues do not achieve the levels forecast herein. The extension scenario does not include the make whole payments beyond the original TIF term, as the current sources of TIF revenue are not adequate for payment of all obligations. The analysis of options to restructure the debt service on the Outstanding Bonds includes three potential refunding scenarios. The first refinancing scenario (Refunding Scenario #1) includes solely the refunding the certain of the Outstanding Bonds to maximize the amount of savings with the savings to be level throughout the same term of the Outstanding Bonds. The second refinancing scenario (Refunding Scenario #2) provides for the refunding of certain of the Outstanding Bonds to both restructure the principal repayment on the Outstanding Bonds in order to achieve a level amount of debt service, extending the maturity to take advantage of the current remaining years of the TIF District and to achieve maximum savings from the refinancing. The third refinancing scenario (Refunding Scenario #3) provides for the refunding of certain of the Outstanding Bonds by extending the maturity of the Outstanding Bonds to potentially take advantage of the 12 year extension of the TIF District. 15