Your SlideShare is downloading. ×
Capital Financing Options for Local Governments - Summer 2014 NCLGBA Conference
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

Capital Financing Options for Local Governments - Summer 2014 NCLGBA Conference

138
views

Published on

Capital Financing Options for Local Governments - Summer 2014 NCLGBA Conference

Capital Financing Options for Local Governments - Summer 2014 NCLGBA Conference

Published in: Business

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
138
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
8
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide
  • Bond markets / credit rating agencies like to see healthy fund balance.
  • Like kickstarter for governments
  • Reference BID Article
  • The Town of Hillsborough recently issued the first assessment-backed revenue bonds in North Carolina. The town borrowed $4.63 million at 7.75 percent interest for a 10 year term to fund public infrastructure associated with a private development project. According to the town’s preliminary assessment resolution, the borrowed funds will be used to establish parks and open space, construct and improve water, wastewater and drainage facilities, construct and improve streets, roads, and rights-of-way in the assessment district, which encompasses a 210 acre area within the town. The town imposed assessments totaling $6.2 million on properties located in the assessment district, with payments allowed over a 10.5 year period. (For more information on the development project, click here.)
  • Scope of project and % of cost to be assessed may not differ from that stated in preliminary assessment resolution

    Can’t alter terms of payment from those stated in final assessment resolution
  • Different bases for beach erosion
  • Bank qualified:
    Bank pays no taxes on interest payments
    Bank deducts 80% of carrying costs from taxes

    COP – participating in rights to lease payments
  • Transcript

    • 1. Funding Capital Projects Kara A. Millonzi, Associate Professor of Public Law and Government July 2014 millonzi@sog.unc.edu
    • 2. Financing Options for Purchasing / Constructing Capital Assets Current Revenues Savings Grants / Gifts / Partnerships Special Levies Borrowing Money General Fund Revenues Fund Balance Federal Grants Special Tax Districts General Obligation (G.O.) Bonds Enterprise Fund Revenues Capital Reserve Fund State Grants Special Assessments Revenue Bonds Private Grants Impact Fees / Development Exactions Special Obligation (S.O.) Bonds Private Donations “CrowdFunding” Installment Financings (COPs, LOBs,) (Synthetic TIFs) Public/Private Partnerships Reimbursement Agreements Downtown Development Projects Project Development Financings (TIFs)
    • 3. Savings Fund Balance (FB) – Can be used for capital or operating expenses – No legal limit on amount of FB for savings • LGC prescribes minimum fund balance level for cash flow purposes – No statutory process needed Capital Reserve Fund (CRF) – Dedicated to capital expenses only (forever), but can change type of capital expense at any time – No legal limit on amount of $ in CRF – Statutory process must be followed to create and maintain CRF (see G.S. 159- 18 through -22)
    • 4. CRF Ordinance / Resolution 1. The purposes for which the fund is being created. A board may accumulate moneys for multiple capital projects within a single capital reserve fund, but it must list each project separately. 2. The approximate periods of time during which the moneys will be accumulated for each purpose. A board must provide a rough estimate of when moneys will be expended from the capital reserve fund for each capital project. 3. The approximate amounts to be accumulated for each purpose. A board must provide a rough estimate of the total amounts it intends to save for each capital project. 4. The sources from which moneys for each purpose will be derived. A board must indicate the revenue sources it intends to allocate to the capital reserve fund to finance each project (e.g. property tax proceeds, utility fees, local sales and use tax proceeds, grant proceeds, etc.).
    • 5. CrowdFunding
    • 6. Special Levies
    • 7. Special Levies Special Taxing Districts (Service Districts) Special Assessments Impact Fees • Unit may establish one or more taxing districts in the unit and levy additional property taxes in order to fund a project or provide services within the district to a greater extent than in the rest of the unit • Tax rate assessed on same property tax base as general property tax(es) • Limited to funding certain projects and services • Special Assessments are levied against property to pay for public infrastructure that benefits the property • Lien on property; collected in same way as delinquent property taxes • Two different special assessment methods • Limited to funding certain projects • Impact fees are not authorized under general law in NC • All units can impose fees/charges to cover capital costs of operating public enterprises
    • 8. Service (Tax) Districts Counties • Beach erosion control • Fire protection • Recreation • Sewage collection and disposal systems • Solid waste collection and disposal systems • Water supply and distribution systems • Ambulance and rescue • Watershed improvement projects • Cemeteries Municipalities • Beach erosion control • Downtown revitalization • Urban-area revitalization • Transit oriented development • Drainage projects • Sewage collection and disposal systems • Off-street parking facilities • Watershed improvement projects
    • 9. Service (Tax) District Process 1. Unit prepares report with map of district; statement that services needed to a greater extent in district; and plan for providing services in proposed district 2. Unit provides notice of report 3. Board holds public hearing 4. Governing board adopts resolution adopting district 5. District becomes effective at beginning of fiscal year 6. Board sets district tax rate each year 7. Unit must begin providing services within one year after levying district tax
    • 10. Special Assessments Traditional Special Assessments • Limited Statutory Purposes • Generally No Petition Requirement • Amount of assessment must be based on one or more statutory bases • Unit must follow detailed statutory procedures before imposing assessments • Unit must complete public improvement projects before assessments may be imposed • Assessments often are paid in up to 10 yearly installments New Special Assessments • Expansive Statutory Purposes • Petition Requirement • Assessment method within discretion of governing board, but must relate to benefit to properties assessed • Unit must follow detailed statutory procedures before imposing assessments • Unit may borrow money to front the costs of capital projects and may pledge assessment revenue as security for loans • Unit may impose assessment before the capital projects are complete, based on estimated costs • Assessments may be paid in up to 30 yearly installments • Currently Expires July 2013
    • 11. Traditional Assessment Projects
    • 12. Newer Special Assessments • Allows unit to do public infrastructure projects that benefit new development • Unit is reimbursed for up to 100% of costs over time • Payment expected to be made primarily by eventual property owners (not developer)
    • 13. Town of Hillsborough • $4.63 million at 7.75% for 10 year term • Funds will be used to establish parks and open space, construct and improve water, wastewater and drainage facilities, construct and improve streets, roads, and rights-of-way in the assessment district • Assessments totaled $6.2 million on properties with 210 acre area, with payments over 10.5 years
    • 14. Special Assessment Process 1. (Government receives petition) 2. Unit determines scope and cost of project 3. Board adopts preliminary assessment resolution 4. Unit publishes notice 5. Board holds public hearing 6. Board adopts final assessment resolution 7. Unit completes project 8. Unit prepares preliminary assessment roll 9. Unit publishes notice of assessment roll 10. Board holds public hearing 11. Board confirms assessment roll – assessments become lien on property assessed
    • 15. Special Assessments: Basis of Assessment Traditional Special Assessments 1. Frontage abutting project, equal rate per foot 2. Area of land served, equal rate per unit of area a. Can establish benefit zones 3. Value added to land (difference between appraised values before and after project), equal rate per dollar of value added b. Can establish benefit zones 4. Number of lots served if involves extension of existing system to residential or commercial subdivision, equal rate per lot 5. Combination of the above bases New Special Assessments • Governing board establishes assessment method that most accurately assesses each lot or parcel of land according to the benefits conferred upon it by the project
    • 16. Borrowing Money (Issuing Debt)
    • 17. Borrowing Money (Issuing Debt)  Can the borrowing method legally be used to fund project (state law)?  What is the security for the borrowing (state law)?  What funds will be used to repay the loan (state law)?  Is voter approval required (state law)?  Is Local Government Commission approval required (state law)?  Is the borrowing method feasible (market)?  Is the borrowing method tax exempt (federal law)?
    • 18. Borrowing Money (Issuing Debt) General Obligation Bonds Revenue Bonds Installment Financings Synthetic TIFs Special Obligation Bonds Project Development Financings Security Unlimited taxing power Revenues from revenue- producing asset or system Some or all of financed property Revenues other than unit-levied taxes Taxes on increased valuation in defined area Authorized Projects Most capital projects Revenue- generating capital projects Most capital projects Solid waste, wastewater, water, municipal service district projects only Specified capital projects Voter Approval Usually No No No No LGC Approval Always Always Sometimes Always Always Special Limitations Net Debt Limitation Feasibility Studies Covenants Net Debt Limitation Feasibility Studies Covenants Enhanced Security
    • 19. Borrowing Money: G.O. Bonds • Pledge of “full faith and credit” • Can fund almost all capital projects • Voter referendum almost always required • Local Government Commission approval always required
    • 20. Borrowing Money: Revenue Bonds • Pledge of revenue from revenue generating asset or system • Can only fund revenue- generating capital projects • Voter approval never required • Local Government Commission approval always required • Times-coverage requirement
    • 21. Borrowing Money: S.O. Bonds • Pledge any unrestricted revenues except unit-levied taxes • Can only fund landfills, water/sewer projects, BID projects and urban area revitalization projects • Voter approval never required • Local Government Commission approval always required
    • 22. Borrowing Money: Installment Financings • Pledge of financed asset • Can fund almost all capital projects – Essentiality principle • Voter approval never required • Local Government Commission approval sometimes required
    • 23. Borrowing Money: Installment Financings Simple Installment Financings • Unit borrows no more than $10 million (tax-exempt) in calendar year (bank qualified) • Borrow directly from vendor, bank, or lending institution • Simple borrowing transaction Certificates of Participation (COPs) Limited Obligation Bonds (LOBs) • Unit borrows more than $10 million (tax-exempt) in calendar year • Sell loan off to investors • Complicated borrowing transaction
    • 24. Borrowing Money: TIFs • Pledge of increased property tax revenue from new private development • Can fund certain capital projects • Voter approval never required • Local Government Commission approval always required • Enhanced security usually required • 5% limitation
    • 25. Valuation Proceeds allocated to pay off TIF bonds Proceeds allocated to unit’s general fund
    • 26. Enhanced Security • Additional pledges – Financed asset – Revenues other than unit-levied taxes – Taxing power (if voter approval) – Special assessments • Minimum assessed value agreements
    • 27. Valuation
    • 28. Borrowing Money: Synthetic TIFs • Installment Financing • Anticipate using increased property tax revenue from new development to actually repay loan