Revenue-Based Development Incentives Property Tax Revenues Bob Rychlicki

1. Revenue-Based Development Incentives Property Tax Revenues Bob Rychlicki Kane, McKenna and Associates, Inc.

2. I. “Upfront” Review Review Project Economics Basic assumptions: • Background of applicant, experience, track record, etc. • Review of market information – feasibility studies, commitments, etc. • Detailed sources and uses of funds • Project pro forma review • Review Need for TIF Assistance

3. I. Review the Assumptions Developer Background: • Demonstration of prior experience or track record. • Can references be provided including credit references or evidence of financial capacity? • Identify other team members or support personnel and their experience. • What is their experience in other municipalities?

4. I. Review the Assumptions Market Analysis: • Compare project assumptions regarding rents, absorption, sales prices, etc. to project market studies. Determine if independent studies are needed. • Is appraisal data available to support acquisition prices or costs, are the amounts in line with the data? • Are there leases or other commitments in place – what are the relevant provisions regarding timing, occupancy, anchor tenants, etc.?

5. I. Review the Assumptions Need for TIF Assistance • Is the amount of TIF assistance reasonable in relation to the total project costs and private financing? • Is the project TIF request supported by incremental revenues? • Can the project be implemented in a timely manner? • Are “benchmarks” or criteria negotiated that protect the municipality (redevelopment agreement)?

6. I. “Upfront” Review: Municipal Needs What are the municipal costs/constraints? Identify: • Ongoing TIF administration or project review • Any new or additional services • Needs for infrastructure or utilities • Other taxing districts – any new services? • Impacts of assistance on current or projected credit position of the municipality.

7. II. TIF Financing Options Starting Point in TIF Financial Analysis Basic options: • Bonds are issued upfront • “Pay as you go” or Notes - performance based structure is utilized • Combination of the above

8. II. TIF Financing Options Identify Project Financial Requirements • Timing for TIF financing – when are the dollars needed ? • Sizing – how many TIF dollars are needed? • Need for TIF Dollars – identify true public and private funding requirements and compare to TIF dollars

9. II. TIF Financing Options Preparation of the TIF Analysis • Prepare TIF revenue projections • Identify community needed public improvements • Complete “but for” or gap analysis • Identify critical project assumptions related to the receipt of TIF revenues • Identify other sources of revenues or funds that could complement the financing

10. II. TIF Financing Options Other Requirements: • Review/calculate any school district payments or intergovernmental agreements, if applicable • Identify other TIF obligations or liens • Identify any administrative or ongoing monitoring requirements that need annual funding

11. III. Refining the Analysis Risk Assessment • What is the financial position of the municipality- can bonds be issued and not negatively impact ongoing or future financings ? • What are the municipal policies and fiscal position relating to G.O. debt financing ? • What is the likelihood that TIF revenues will be available: has sensitivity analysis (with any coverage requirements) been factored into the analysis ? • Are any guarantees necessary, and if so, what are the implications for tax exempt or taxable financing?

12. III. Refining the Analysis Risk Assessment ( continued) • What is the track record of the developer or entity that is responsible for the project implementation ? • Has the redevelopment agreement included adequate protections and timetables for performance ? • Have the valuation estimates been compared to market data or similar uses in the area ? • Will the financing establish a precedent for future developments, will criteria be identified ?

13. III. Refining the Analysis Upfront Financing Options General Obligation vs. Revenue Bonds • The different interest rates, coverage requirements, and other purchaser requirements will affect the net financing amounts supported by the project. Taxable vs.Tax Exempt Interest Rates • What is the trade off in interest cost compared to the greater certainty of repayment through letters of credit, insurance, or other forms of guarantee ?

14. III. Refining the TIF Analysis Upfront Financing Options (continued) • Revenue bond purchasers have more stringent requirements in relation to G.O. purchasers • The revenue bond market is narrower and may not be available for all projects • G.O. bonds provide a lower interest rate, but additional risks are borne by the municipality

15. III. Refining the TIF Analysis “Pay as you go” options • Shift risk to developer or private entity • Private sector financing will need to include upfront costs that are reimbursed by annual incremental revenues • Interest costs could be higher in relation to municipal borrowings (tax exempt or taxable) • Provide for Developer Note take out, if and when TIF revenues are “seasoned”

16. IV. Projection Assumptions: Users

17. IV. Project Assumptions: Timing

18. IV. Project Assumptions: Increment

19. IV. Project Assumptions: Financing

20. V. Policy Considerations Prior to finalizing the deal: • Review municipal services that may be required to implement the project on an ongoing basis • Integrate taxing district feedback or requests • Carefully review funding mechanism and municipal fiscal condition • Develop monitoring/feedback process in order to evaluate the project and the financing associated with the redevelopment area

21. V. Policy Considerations Prior to finalizing the deal (con’t): • Determine if an independent feasibility report or market studies are required • Review the redevelopment agreement in order to include key business points • Review all necessary project commitments and budgets associated with the redevelopment project

22. V. Policy Considerations Follow up Items • Monitor revenues and project performance ( annually or more often) • Prepare TIF annual reports or continuing disclosure reports ( as required by bond documents) • Identify any tax protests or tax collection discrepancies • Monitor development timetable and benchmarks

23. VI. Summary Important Steps • Match financing to revenues after a thorough examination and testing of all assumptions • Evaluate the proposed financing in relation to the overall municipal fiscal picture • Carefully assess risk in relation to the project characteristics and development variables – how many variables are subject to change ?