Tax Increment Finance Course. November 1-2, 2007 Doubletree Hotel, Washington, D.C.

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1 November 1-2, 2007 Doubletree Hotel, Washington, D.C. 1

2 TIF Financing Variations TIF mechanics are wide in scope. TIF financing is available using revenue or general obligation bonds, pay-as-you go financing, developer financing and combinations of various tools. This session will address how TIF deals can be financed in various ways outside of traditional tax increment-backed bonds. Presenters will discuss additional sources for the repayment of TIF debt including: property tax, sales tax and special assessments. Speakers: Ken Powell, Managing Director Stone & Youngberg LLC Bill Calderon, Partner Hawes Hill Calderon Alan C. Cason, Managing Partner McGuireWoods LLP Marc Hughes, Director (Moderator) DEPFA First Albany Securities LLC 2

3 Alan C. Cason 3

4 MORE MONEY SOONER Additional governmental revenue sources to supplement or back-up traditional property tax increment revenues 4

5 ADDITIONAL REVENUE SOURCES 1) Special Taxes and Assessments 2) Special Hotel Occupancy Taxes (SHOT) 3) Sales Tax Revenues 4) Enterprise Zone Tax Credits 5) Personal Property Taxes 6) PILOT Revenues 7) State and local grants or contributions 5

6 SPECIAL TAXES AND ASSESSMENTS 6

7 SPECIAL HOTEL OCCUPANCY TAXES Gaylord National Harbor Hotel Prince George s County, Maryland Hilton-Baltimore Baltimore s Publicly Owned Convention Center Hotel 7

8 SALES TAX REVENUES DISTRICT OF COLUMBIA ALABAMA 8

9 ENTERPRISE ZONE TAX CREDITS East Baltimore Research Park (legislation pending) 9

10 PERSONAL PROPERTY TAXES 10

11 PILOT REVENUES (Payments in-lieu of taxes) The New Yankee Stadium Tenant: New York Yankees Groundbreaking: August 2006 Construction began: August 2006 Opening: Spring 2009 Capacity: 51,800 Style: Open air Surface: Grass Owner: New York Yankees Cost: $1.02 billion Public financing: $220 million from New York City for parking facilities ($75 million), parkland along The waterfront ($135 million) and other work related to the Stadium Private financing: $800 million from the Yankees 11

12 STATE AND LOCAL GRANTS OR CONTRIBUTIONS (to off-set costs of infrastructure improvements) National Harbor Prince George s County, Maryland 12

13 LEGAL CONSIDERATIONS 1) Legal authority to pledge additional revenue source. 2) Contractual availability of additional revenue source. 13

14 Ken Powell 14

15 3. Special Assessments A. Variation of TIF B. Rate and Method Reasonableness C. Priority / Recordation / Foreclosure D. Examples 1. The Farms of New Kent CDA 2. Eastridge CFD (Prescott Valley, AZ) 3. Reynolds Crossing CDA 15

16 The Farms of New Kent (New Kent County, Virginia) September 2006 Bond Issue: $85,666,000 The Farms of New Kent Community Development Authority Special Assessment Bonds, Series 2006A, B, & C Location: New Kent County, VA - Approximately 30 miles east of Richmond on I-64 Development: 1,450 age-restricted units 300 estate lots 450 single family homes 100 resort cottages 830,000 sq. ft. of commercial space 18-hole Rees Jones Golf Course Winery, vineyards, polo complex, farmer s market Developers: Boddie-Noell Enterprises, Republic Land and K. Hovnanian Use of Proceeds: Public infrastructure improvements including road, water and wastewater improvements. Primary Security: Special Assessment Revenues Special Features: Second largest non-rated special district financing in Virginia. Unique bond structure in which prepayments used first to call Series A Bonds, then the Series B Bonds and finally the Series C Bonds. Alleviated County s problem of limited existing wastewater treatment capacity restraining development in County 16

17 The Farms of New Kent (New Kent County, Virginia) September

18 Eastridge (Prescott Valley, Arizona) September 2003 Bond Issue: Location: Development: Developers: Use of Proceeds: Primary Security: Special Features: $2,500,000 Eastridge Community Facilities District Special Assessment Lien Bonds, Series 2003 Prescott Valley, AZ - Approximately 80 miles northwest of Phoenix 12 parcel, 40 acre development on Highway 69 frontage property commercial retail banking auto sales and repair Eastridge Investments Public infrastructure improvements including major roads that intersect with Highway 69, water lines, sewer lines, storm drains and street lighting. Special Assessment Revenues Ownership: 7 different landowners 2 own over 30% each. 100% landowner support Five Year Sales Tax rebate (portion) to encourage development 18

19 Eastridge (Prescott Valley, Arizona) September

20 Reynolds Crossing (Henrico County, Virginia) May 2007 Bond Issue: Location: Development: Developers: Use of Proceeds: Primary Security: Special Features: $14,594,000 Reynolds Crossing Community Development Authority Special Assessment Revenue Bonds, Series 2007 Henrico County, VA - 5 miles northwest of downtown Richmond, Virginia. Borders I-64 and is 3 miles West of I acre mixed-use development 250-room Westin hotel 480,000 sq. ft. of new office space 170,000 sq. ft. of restaurants and retail tenants 230,000 sq. ft. seven-story office building 64,000 sq. ft. medical office building Reynolds Holdings, LLC Public infrastructure improvements including road improvements (curb, gutters, paving, striping, sidewalks and traffic signals), a storm water drainage system, public water and sanitary sewer lines and facilities, development signage and landscaping. Special Assessment Revenues Public improvements enhanced existing development to attract national tenants such as Westin hotel. Former site of Reynolds Metals Company headquarters. 20

21 Reynolds Crossing (Henrico County, Virginia) May

22 William Calderon 22

23 Council of Development Finance Agencies 2007 Workshop: TIF Financing Variations Presented by

24 Workshop Outline w 1. Introduction w 2. Revenue Tools Sales Tax Corporations Assessment Based Mechanisms Municipal Utility Districts Development Corporation (or Local Government Corporation) 380 Programs Other Tools 24

25 Introduction This discussion will provide an overview of various economic development tools available to supplement TIF Financing. All have the following characteristics in common: Governmental (public) entities subject to state/local statues Oversight provided by local governing authority May engage in partnerships with private sector to finance public projects 25

26 Sales Tax Corporations w Purpose: To promote economic development through programs to encourage new and expanded industry and manufacturing, and civic and commercial projects, within the municipality and its vicinity. w Eligibility Criteria: 26

27 w Powers and Duties: Use of tax proceeds for authorized purposes Sales Tax Corporations Limited power of eminent domain Powers of nonprofit, non-stock corporation Exempt from federal, state, local taxes Compliance with Open Meetings Act, Public Information Act Board of directors subject to municipal oversight 27

28 Sales Tax Corporations w Permitted Services and Projects: Provision of land, buildings, equipment, facilities Targeted infrastructure improvements for job creation Transportation, research, manufacturing, industrial facilities Solid waste disposal, recycling, pollution control facilities Professional and amateur sports parks Parking, entertainment, convention, tourist facilities 28

29 Sales Tax Corporations w Revenue: Derived from economic development sales tax equal to between one-eighth and one-half of one percent. w Bonds: A Corporation may issue bonds, notes, and other contractual obligations to fund projects. However, a bond or debt issued by the Corporation is not an obligation of the city. 29

30 Assessment Based Mechanisms w Purpose: Created to finance public improvements and facilitate economic growth within a defined area and in a manner that equally distributes costs and benefits among property owners subject to the assessment. w Eligibility Criteria: Created through State Legislature or Municipality pursuant to stakeholder petition 30

31 Assessment Based Mechanisms w Powers and Duties: May levy taxes, assessments, impact fees in accordance with a Service Plan and Assessment Plan authorized by petition of affected property owners and its board of directors 31

32 Assessment Based Mechanisms w Permitted Services and Projects: w Such districts may provide services and improvements related to: economic development business recruitment promotion of health and sanitation public safety, traffic control, recreation landscaping, lighting, signs streets, walkways, drainage 32

33 Assessment Based Mechanisms w Administration: Board of directors appointed in legislation or by governing authority New appointments/reappointments administered by board and approved by local governing authority Terms vary w Duration: Districts generally exist until dissolved by: Petition of property owners 33

34 Municipal Utility District Purpose: To finance water, wastewater, and drainage facilities to support development. Powers and Duties: Created by petition of the landowner(s). Empowered to construct, finance and operate water, wastewater and drainage facilities to serve land within their boundaries. May be created inside or outside the boundaries of a municipality. 34

35 Municipal Utility District Typical Uses: MUDs are typically used to finance and operate water, wastewater, and drainage facilities for residential and commercial development. Revenue, Bond Capacity MUDs typically finance facilities through the issuance of tax-exempt bonds, secured by property taxes assessed on land within the MUD. 35

36 Municipal Utility District In-City MUDs: In-City MUDs are also subject to the oversight of the city in addition to a state regulatory body. The city must approve of bond issuances by in-city MUDs. Because the city tax is also levied within the boundaries of an in-city MUD, the bonding capacity of the MUD is often diminished. Administration 36

37 Development Corporation (or LGC) w Purpose: To perform on behalf of a city/county any of the functions of the sponsoring local government. w Eligibility Criteria: City/county resolution finding that: Articles of incorporation meet criteria Specific public purpose of corporation exists Creation of the corporation is advisable 37

38 Development Corporation (or LGC) w Powers and Duties: Promote and develop transportation facilities and systems Enter into contracts and developer reimbursement agreements Land Assembly (not by condemnation) Enter into public/private partnerships Manage TIRZ Projects and Services 38

39 Development Corporation (or LGC) w Bonds Corporation may issue bonds as allowed by the city/county w Administration: Board consists of three or more directors. Terms vary Appointed by local governing authority (city/county) 39

40 Other Economic Development Tools w Enterprise Zones: Purpose is to identify severely distressed areas of the state and provide incentives by state and local government to induce private investment, provide tax incentives and economic development program benefits. w Neighborhood Empowerment Zones: Promote the creation of affordable housing, increase economic development, increase quality of social services, d ti bli f t t id t 40

41 Guiding Principles 1. Consider Impact of Revenue Streams derived by Various Mechanisms Ad Valorem Tax Sales Tax Hotel Occupancy Tax Special Assessments Municipal Bond Proceeds Development Corporation (or LGC) Bond Proceeds 41

42 TIF Financing Variations w Southwest Houston 1. City of Houston TIRZ #20 Commercial Corridor Enhancements Mall Redevelopment Developer infrastructure reimbursement 2. City of Houston Public Improvement District Maintenance of Infrastructure Supplemental Security Business District Promotion 42

43 TIF Financing Variations w Kendall Lakes - Lake Houston 1. Municipal Utility District Water Sewer Drainage 2. City of Houston TIRZ #10 Streets, Sidewalks Landscaping Public Amenities 43

44 TIF Financing Variations w Aldine - Harris County 1. Municipal Management District Water, Sewer, Drainage Transportation Environmental Design Public Safety & Security Economic Development 2. Public Improvement District New development infrastructure reimbursements for projects that enhance the greater water/sewer system 44

45 Q&A, Discussion Houston P.O. Box Houston, Texas (713) Arlington 805 E. Abram, Suite 200 Arlington, Texas (817) Rio Grande Valley P.O. Box McAllen, Texas