TIF Framework and Financing Primer October, 2007 Ryan Maher (336) - - PowerPoint PPT Presentation

TIF Framework and Financing Primer

October, 2007

Ryan Maher (336) 721-6823 Laura Radcliff (314) 955-4201

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Tax Increment Financing

TIF: Tax Increment Financing (most states) TAD: Tax Allocation Districts (Georgia) RAD: Revenue Allocation Districts (New Jersey) TIRZ: Tax Increment Reinvestment Zones (Texas)

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What is TIF?

A mechanism used to capture the future tax benefits of real estate

improvements to pay the present cost of those improvements

Based on state law guidelines, local governments collect real

property taxes (and sales taxes in some states) for the project

The taxes collected for the project are those above a “base” level

• f taxation prior to the development within the TIF district

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The Increment

New tax base post project Existing tax base frozen prior to project

0 1 20 21 Year Basic TIF Example

Increment from new investment

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The Blight Finding

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TIF Funds the Gap

“But For” TIF, the development would not have occurred Interpretations of the “But For” Test: Cost: Removal of blight makes the project too expensive

without public assistance

Required Public Improvements: Developing an industrial

park, improving the appearance of downtown, improving roadway access

Scope and Quality: A development might occur without

public assistance, but it will be bigger or better with public assistance

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Economic Development Policy Context

Project-specific TIFs (committed user) District-wide TIFs (ex. Downtown – public parking; convention

facilities)

“If you TIF it they will come” (public infrastructure for new

industrial parks)

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Who Takes the Risk? Timing of financing Level of assistance Net benefit to local government

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Financing TIF Improvements

Incur Debt Pay-As-You-Go Combination of Debt and

Pay-As-You-Go

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Pay-As-You-Go

A Tax Increment Revenue Note evidences the right to receive the

TIF revenue stream

Developer-held Bank-held Assignment to third party – typically accredited investors

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Bonds

Long-term bonds may be issued At the commencement of the project Upon meeting hitting certain development milestones,

typically described in a Redevelopment Agreement

Commonly, bonds are issued to take out previously issued notes

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Taxable vs. Tax-Exempt

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TIF is one financing tool among many, including:

Assessment Districts Brownfields Programs Business Improvement Districts

(and other special districts)

CDBG State and Local Economic

Development Programs

Economic Development

Administration (federal)

Empowerment Zones Foreign Trade Zones HUD 108 Local Revenues New Markets Tax Credits State Level Infrastructure Programs

(Various)

Tax Abatement Tax Credits (Economic

Development, Training, Housing – Federal and State)

Transportation Departments (US

and State)

USDA Programs (Various) US EPA Programs (Various)

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General Steps In The North Carolina Tax Increment Financing Process

Specific legislation is outlined in the North Carolina Project Development Financing Act, Article 6 of Section

159 of the North Carolina General Statutes

Designate a qualified redevelopment area.. The area must be: “Blighted, deteriorated, deteriorating, undeveloped, or inappropriately developed from the standpoint of

sound community development and growth;

Appropriate for rehabilitation or conservation activities; or Appropriate for the economic development of the community.” Develop and propose a development financing plan If a City or Town, it must submit proposed plan to the County for review After solicitation and designation of specific projects, choose a developer or developers to redevelop the site Approval required from North Carolina Local Government Commission Project feasibility study will be required Three bond document review sessions will be required Hold a public hearing on the proposed plan Adopt the development financing plan and any other “base” documents (i.e. minimum assessment agreements,

intergovernmental agreements)

Issue long-term debt (i.e., TIF bonds) to assist in financing of a development or redevelopment

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The Underwriter & Development Financing: A Project Oriented Approach

The Underwriter Offers Advice Fundamental to Project Success

Assist in the Development of the Plan of Finance that County Include

Alternative Financing Structures in Conjunction with a Tax Increment Financing

Integrate project documents with financing documents for the most cost

effective financing arrangements

Operating agreements Development agreements Lease and management agreements Intergovernmental agreements Coordinate all aspects of the Tax Increment Financing

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Disclaimer

Wachovia Securities is the trade name for the corporate and investment banking services of Wachovia Corporation and its subsidiaries. Debt and equity underwriting, trading, research and sales, loan syndications agent services, and corporate finance and M&A advisory services are offered by Wachovia Capital Markets, LLC, member NASD, NYSE and SIPC. Mezzanine capital, private equity, municipal securities trading and sales, cash management, credit, international, leasing and risk management products and services are offered by various non-broker dealer subsidiaries of Wachovia Corporation.