Creation of Tax Increment Financing Districts. John Stalfort, Miles & Stockbridge P.C.

Transcription

1 Creation of Tax Increment Financing Districts John Stalfort, Miles & Stockbridge P.C.

2 Presentation Topics Project-Specific TIFs vs. District-Wide TIFs Public Policy Considerations Pre-District Due Diligence by TIF Proponent(s) Creation of TIF Districts in Maryland and Other Jurisdictions Blight and the But for Test TIF Districts Encompassing Multiple Local Governments Jurisdictions Due Diligence and Long Lead-Time Documents for TIF Districts Post-Closing Issues/Continuing Disclosure Agreements

3 Types of TIF Approaches Project-Specific Single project or single piece of property. Funds typically used for public improvements necessary to support the project. District-Wide Large area of land or entire neighborhood is targeted for redevelopment. Funds typically support major infrastructure projects.

4 Project-Specific TIFs Pros Smaller scale means fewer participants and faster timeline. Rarely involves eminent domain or similar legal complications. Useful for communities wishing to commit fewer financial resources. Effective in providing gap financing for a particular improvement. Cons Greater risk when only one landowner is involved. Broader long-term visioning may not be considered in plan. Community may perceive TIF as giving an advantage to a single developer or landowner. Not suitable for addressing larger-scale concerns, such as blight.

5 District-Wide TIFs Pros Large-scale community commitment encourages businesses to commit. Can serve as a catalyst to transform and revitalize entire neighborhoods. More effective at driving economic development. Cons Historical owners may feel pushed to leave area. More parties involved and a longer timeline. Community buy-in needed - efforts to educate the public on rationale behind and benefits from TIF are more critical.

6 EAST BALTIMORE RESEARCH PARK PROJECT DISTRICT-WIDE TIF

7 Development Plan approximately 88 acres 2,100 mixed-income rental and for-sale housing units 1.1 million sq. ft. of life sciences technology space 400,000 sq. ft. of office and retail space green space parking public community school campus approximately $1.8 billion of investment in the community

8 Use of Bond Proceeds new public community school complex land acquisition relocation demolition site preparation

9 TIF DISTRICTS

10 SPECIAL TAX DISTRICT

11 TIF DISTRICTS Three Separate TIF Districts Special Tax District

12 TIF DISTRICTS/SPECIAL TAX DISTRICT

13 Owner, Master Developer, Sub- Developers East Baltimore Development, Inc. (EBDI) Forest City Land Disposition Agreement Master Development Agreement Sub-developer Agreements

14 Public Policy Considerations in Creating TIF Districts Net increase in tax revenue for the local government. Parcels within TIF district should receive economic benefit of project. Setting TIF allowances and limits to encourage or discourage different types of TIF projects. TIF for green projects e.g. mass transit projects. Blighted parcels that would not be revitalized but for TIF financing. Consider any possible negative impact on rating of general obligation bonds.

15 Pre-District Due Diligence by TIF Proponent(s) Ask if Issuer has TIF policy and practices guidelines. Prepare presentation for potential issuing agencies. Be prepared to show that project would not be feasible but for the TIF financing. Illustrate how the TIF project meets Issuer s general growth objectives and comprehensive planning needs.

16 Statutory Creation of TIF Districts in MD Article 41, Sections et seq. Issuer can be county or municipality. The types of areas that can be supported are industrial, commercial and residential. Costs available for TIF financing: land, site removal, relocation of businesses and residents, infrastructure, governmental use or purpose buildings, reserves and capitalized interest, and costs of issuance. Issuer passes resolution designating development district. District must be a contiguous area. No finding of blight necessary.

17 Determining Assessable Base in MD Article 41, Section State Department of Assessments and Taxation (SDAT) determines assessable base as of January 1 of year prior to resolution. Adjusted assessable base used for farm or agricultural property assessable base equal to FMV without regard to agricultural use.

18 As Compared to Creation of TIF Districts in Other Jurisdictions Frequently, a requirement that the area be blighted. Limitation on residential development in TIF District. Limitation on ratio of appraised value of TIF to total appraised value.

19 Use of Sales Tax Increment Used in the District of Columbia, California, Colorado, Kansas, Illinois, Louisiana, Maine, Missouri, Pennsylvania, Texas, Virginia, Wyoming and more. Allows municipalities to dedicate all or a portion of its sales tax increment to fund TIF projects in addition to or instead of property tax increment. Most useful in mall or largely commercial areas. Potentially enables a municipality to complete TIF projects faster, thus enabling an earlier termination date for a TIF. Other revenue services, e.g., hotel taxes.

20 Blight More than half of TIF statutes and policy guidelines require a finding of blight. Potential factors supporting a finding of blight: Dilapidation Obsolescence in use Deterioration Failure to meet Code Inadequate Utilities Environmental Remediation Deleterious Land Use Unsanitary or Unsafe Conditions Blight is usually broadly construed, but due to perceived abuse, expect increased scrutiny of Issuers findings from the public and project opponents.

21 But for Test Ensures TIF financing is necessary for project success. Used to determine minimum amount of TIF financing necessary to make project feasible. Sample but for test: The redevelopment area on the whole has not been subject to growth and development through investment by private enterprise and would not reasonably be anticipated to be developed without the adoption of the redevelopment plan. -Missouri Revised Statutes Section (1).

22 TIF Districts that Include Multiple Taxing Authorities Jurisdictions TIFs may have participation from taxing units other than the creating entity. County or municipality participation. School district participation. Other taxing unit participation. In each case, negotiate an interlocal agreement detailing level of participation.

23 Critical Long Lead-Time Documents for TIF Districts Memorandum of Understanding between the local government(s) and Developer. Development Agreement between Issuer and Developer. Feasibility/Market Study and Tax Increment Projection Study.

24 Post-Closing Issues/Continuing Disclosure Agreements SEC Rule 15c2-12 Investors Perspective Repositories/Notice Holders Owner/Developer Agreement Issuer Agreement District Administrator Bond Trustee Remedies