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Building Your Tax Base: Creating and Using Redevelopment Incentives
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Building Your Tax Base: Creating and Using Redevelopment Incentives

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Our local governments are in financial crisis mode. How can local governments position themselves to be attractive to new development and build their tax base, while maintaining control over the …

Our local governments are in financial crisis mode. How can local governments position themselves to be attractive to new development and build their tax base, while maintaining control over the development process? Redevelopment agencies throughout Florida and the Nation have been using various types of incentives to spur new construction and redevelopment in high risk areas. This session walks you through the basics of redevelopment financing and provides incentivizing tools for planners to assist their local governments build a stronger tax base.

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  • Distinguish from MARKET VALUE
  • Cant close, vacate, plan, replan without Governing Body (or owning government approval)
  • Distinguish from MARKET VALUE
  • Cant close, vacate, plan, replan without Governing Body (or owning government approval)
  • Cant close, vacate, plan, replan without Governing Body (or owning government approval)
  • Cant close, vacate, plan, replan without Governing Body (or owning government approval)
  • Cant close, vacate, plan, replan without Governing Body (or owning government approval)
  • Cant close, vacate, plan, replan without Governing Body (or owning government approval)
  • Transcript

    • 1. BUILDING YOUR TAX BASEBUILDING YOUR TAX BASE CREATING AND USING REDEVELOPMENT INCENTIVESCREATING AND USING REDEVELOPMENT INCENTIVES Presented by: Robert P. Franke, AICP - Robert P. Franke & Associates Jeffrey L. Oris, CEcD - Planning and Redevelopment Consultants, Inc. Corey W. O’Gorman, AICP - PLACE Planning and Design APA FLORIDA ANNUAL CONFERENCE Tampa, Florida September 16, 2010
    • 2.  CRA OVERVIEW  TYPES OF INCENTIVES  ESTABLISHING INCENTIVE POLICIES  TARGETING INCENTIVES  KNOW THE RISKS OF INCENTIVES  PRO FORMAS  RETURN ON INVESTMENT (ROI) September 16, 2010APA FLORIDA 2
    • 3. September 16, 2010APA FLORIDA 3
    • 4.  Authorization for CRA’s was passed in the Redevelopment Act of 1969 which became Chapter 163 Part III of the Florida Statutes  As of last review there are 202 CRA Districts registered with the Florida Department of Community Affairs  Currently the only form of Tax Increment Districts in widespread use in the State of Florida  CRA’s may be created by a City or County to assist in the elimination of slum and/or blighting conditions  State is not involved in the creation of CRA’s 4 APA FLORIDA September 16, 2010
    • 5.  Every CRA is required to have a Community Redevelopment Plan  The CRP is the guiding document of the CRA outlining the projects and programs to be undertaken  Projects/programs not outlined in the CRP cannot be undertaken by the CRA  The Plan can be amended through a public process as determined appropriate 5 APA FLORIDA September 16, 2010
    • 6.  F.S. 163.345  - Encouragement of Private Enterprise  Any county or municipality, to the greatest extent it determines to be feasible in carrying out the provisions of this part, shall afford maximum opportunity, consistent with the sound needs of the county or municipality as a whole, to the rehabilitation or redevelopment of the community redevelopment area by private enterprise. 6 APA FLORIDA September 16, 2010
    • 7.  The county or municipality shall give consideration to Private Enterprise in the:  Formulation of a workable program  Approval of:  Community Redevelopment Plans  Communitywide plans or programs for community redevelopment  General neighborhood redevelopment plans  Development and implementation of community policing innovations  Exercise of its zoning powers  Enforcement of other laws, codes, and regulations relating to the use of land and the use and occupancy of buildings and improvements  Development of affordable housing  Disposition of any property acquired, subject to the limitations of s. 73.013  Provision of necessary public improvements. 7 APA FLORIDA September 16, 2010
    • 8.  In giving consideration to the objectives outlined, the county or municipality shall consider making available the incentives provided under the Florida Enterprise Zone Act and Chapter 420. 8 APA FLORIDA September 16, 2010
    • 9.  Limitations on the type, size, height, number, and proposed use of buildings.  Property intended for public improvements  Identify any publicly funded capital projects to be undertaken within the CRA  Contain a detailed statement of the projected costs of the redevelopment  Provide a time certain for completing all redevelopment financed by increment revenues 9 APA FLORIDA September 16, 2010
    • 10.  Acquire and hold property  Demolish buildings  Dispose of property at FAIR VALUE  To develop property (including affordable housing)  Install, construct, and repair  Streets  Parks  Utilities  Playgrounds  Other public improvements 10 APA FLORIDA September 16, 2010
    • 11.  Solicit proposals for re/development (Developer RFP’s)  Borrow money or accept funds/grants from any source (borrowing subject to approval of the Governing Body)  Close, vacate, plan, replan streets, sidewalks, other places  Petition for changes to land use, zoning 11 APA FLORIDA September 16, 2010
    • 12.  A CRA can borrow money with the approval of the Governing Body  This borrowing can be in the form of:  Revenue Bond  Bank Loan – including line of credit  Loan from Governing Body  Repayment period cannot exceed the life of the CRA 12 APA FLORIDA September 16, 2010
    • 13.  Any project or program a CRA wishes to undertake must be outlined in the Community Redevelopment Plan (CRP) IF IT IS NOT IN THE PLANIF IT IS NOT IN THE PLAN YOU CAN’T DO IT !!!!!YOU CAN’T DO IT !!!!! 13 APA FLORIDA September 16, 2010
    • 14. CRA District Assessed Value 2000 Base Year $100,000 value Tax $200.00 City and County Receive $200.00 in tax payments 2005 Year 5 $150,000 value Tax $300.00 City and County Receives $300.00 ($200.00 + $100.00) Redevelopment Trust Fund Receives $100.00 Remits Increase 14 APA FLORIDA September 16, 2010
    • 15.  Downtown Development Authorities  Neighborhood Improvement Districts  Special Assessment District  Main Street 15 APA FLORIDA September 16, 2010
    • 16. Administrative Financial Planning and Land Use Marketing September 16, 2010APA FLORIDA 16
    • 17.  Streamline development review (one-stop approval)  Recruiting assistance / job fairs  Site selection assistance  Restructure permit fees for CRA projects  Waive demolition fees  Provide technical assistance for property owners, small businesses, and small business start-ups 17 APA FLORIDA September 16, 2010
    • 18.  Tax credits, tax abatements and tax increment rebates  Loans, interest or rent subsidies  Local, State, Federal Grants or Loans  Micro loans to small businesses  Public assembly of land / land donation /reduced land cost  Shared cost of upgraded / new utilities  Environmental remediation cost 18 APA FLORIDA September 16, 2010
    • 19.  Relocation costs / training costs  Per Job Bounty  Cash Payments for Developer’s Costs  Reduce impact fees  Commercial interior space build-out  Signage upgrades  Façade improvement grants and loans  Affordable housing loans and grants to developers 19 APA FLORIDA September 16, 2010
    • 20.  Land use / zoning amendments  Reduced parking requirements  Non-conforming use amendments  Shared infrastructure agreements (parking, stormwater, etc.)  Create density bonus program  Mixed use land use designation  Land banking  Prepare and complete streetscape projects  Prepare architectural plans for development on CRA owned land 20 APA FLORIDA September 16, 2010
    • 21.  Prepare market analysis  Assist with local business promotion  Hold design competitions to generate interest  Promote grand openings, ground breakings and ribbon cuttings  Recruiting assistance / job fairs  Prepare inventories of available land, buildings and storefronts  Provide how-to seminars 21 APA FLORIDA September 16, 2010
    • 22. 22
    • 23.  Use of Public funds MUST have a Public Purpose  For CRA, Public Purpose is related to:  Findings of Necessity  Redevelopment Plan  Challenges to CRA activities  Political  Legal  Formulate & adopt policies and programs BEFORE you need them 23 APA FLORIDA September 16, 2010
    • 24.  Applicant  Predictable process and criteria  Public Agency  Transparency  Accountability  Reduces public objection  Reduces chance of successful challenges 24 APA FLORIDA September 16, 2010
    • 25.  Establish Operating Parameters for Agency  Budgeting  General finance  Incurring debt  Purchasing  Incentives 25 APA FLORIDA September 16, 2010
    • 26.  Identify the activities to incentivize  New Construction  Renovation – Adaptive Re-use  Beautification  Economic development  Affordable housing  Business retention and recruitment  Zoning and development regulations  Based on Redevelopment Plan and Established operating policies and procedures 26 APA FLORIDA September 16, 2010
    • 27.  Writing the program  Public Involvement  Ensuring sufficient program advertising  Ensuring consistent and equitable administration  Parameters for public expenditures  Determining grant versus loan  Staff capacity to implement  Incentive timing 27 APA FLORIDA September 16, 2010
    • 28.  Timing – when does the Public money go in???  Upfront  On-going  Upon completion  Determination of Need  Agency Risk  Nature of incentive  Negotiation 28 APA FLORIDA September 16, 2010
    • 29.  Agency Risk  Minimize Agency Risk  Ensuring project success  Minimal Agency Risk after project completion  Highest Agency Risk prior to construction  Don’t be a “spec” developer  Reimbursement Basis 29 APA FLORIDA September 16, 2010
    • 30.  Advertising  Accept and review applications  Grant & Loan Agreements  Issuing payments  Compliance monitoring  Program review 30 APA FLORIDA September 16, 2010
    • 31.  Advertising  Direct mail to businesses / developers / residents  Advertising in local newspapers  Agency Web Site  Public Posting  Social network sites 31 APA FLORIDA September 16, 2010
    • 32.  Acceptance and Review of Applications  Review by staff  Clear, understandable, objective criteria 32 APA FLORIDA September 16, 2010
    • 33.  Grant/Loan Agreements  Simple grant agreement for façade improvements  Detailed developer agreements for construction of new buildings or establishing new employers 33 APA FLORIDA September 16, 2010
    • 34.  Issuing Payments  Reimbursement based on paid receipts  Monitoring  Regular review of project to ensure that it complies with grant agreement and other requirements  Evaluation Criteria  Funds paid  Goals met  Market changes  Jobs created  Facades improved  Fiscal year-end review  Changes for new FY 34 APA FLORIDA September 16, 2010
    • 35. Highest pay-off / increase taxable value Qualified groups Employment-based / job creation Location-based Housing Historic preservation 35
    • 36.  CRA-owned land = zero taxable value  As downtown redevelopment has progressed, the City’s urban center has received an influx of new residents, offices, shops, and restaurants.   The redevelopment of city-owned lot resulted in downtown’s first hotel and conference facility.  The mixed-use development will offer approximately 124 hotel rooms, conference and meeting facilities, and ground floor retail space. – GAINESVILLE 36 APA FLORIDA September 16, 2010
    • 37.  Through the Commercial Rent Subsidy program, recipients receive assistance with rent for the first year for a new or expanding business. It will pay one-half or up to $600 a month to the landlord for qualifying businesses. 37 APA FLORIDA September 16, 2010
    • 38.  Businesses agree to generate a minimum value of five (5) new or relocated qualifying jobs  The award amount shall be calculated based on the annual wages that are paid to the qualifying employees at the start of employment.  The maximum grant award is $50,000.  Targeted projects are Class “A” office buildings and associated uses  5%, 10%, and 20% of all certifiable annual wages -up to $10,000 per job or $50,000 per year for five years depending on target location September 16, 2010APA FLORIDA 38
    • 39.  Must be a retail and/or targeted commercial property  Property must be located in a participating CRA (Drew Park, East Tampa and/or Ybor City 1 and 2)  May be further restricted to target areas within each CRA  Funding limit is 50% of the project costs, up to $50,000  Funding can be used for exterior renovation, restoration and rehabilitation as well as landscaping improvements September 16, 2010APA FLORIDA 39
    • 40.  Intended to increase homeowner occupancy in the CRA in order to provide economic support to the downtown businesses   Designed to attract new residents to targeted areas within the CRA  There is no income limitations    Persons currently residing /claiming homestead exemption in the CRA district are not eligible  Multifamily or Office Conversion to be restored to single family: $20,000.00  Single family detached housing (zoned RB-2, RPB or currently renter occupied): $10,000.00  Single family detached infill housing: $10,000.00 September 16, 2010APA FLORIDA 40
    • 41.  This historic landmark was one of the few lodgings in South Florida that welcomed African- Americans during the segregation era of the 1950s and 1960s  After much consideration, the community reached a consensus that affordable housing for low-income seniors would be the most desirable long-term use of the property September 16, 2010APA FLORIDA 41
    • 42. 42
    • 43.  The Risk with incentives is that the public will pay for a desired outcome which is not achieved.  Jobs not created or eliminated shortly after incentives  Business operations not continuing for sufficient period  Buildings left vacant or abandoned after construction or attraction of tenant(s)  Bad PR from money paid without meeting objectives (in total or in part) also poses a great risk. September 16, 2010APA FLORIDA 43
    • 44.  Competing goals with CRA  Increase employment  Increase economic activity  Increase property values  Elimination of slum and/or blighting influences  Other types of organization have a more clear cut objective  Increase employment base September 16, 2010APA FLORIDA 44
    • 45.  Riskiest incentives are those that come up-front and are not dependent on desired outcome to occur or there is nothing tangible “purchased”  Any incentive without clear objectives and guarantees  Up-front Direct Cash  Business (Tenant) -Based Incentives  Rent Subsidies  Tenant-specific improvements  Cash for job creation  Construction Fee Payment  Direct Loans  Loan Guarantees/Interest Subsidies  Landscaping Improvements September 16, 2010APA FLORIDA 45
    • 46.  Moderate Risk are those that are less likely to not meet or abandon objectives:  Installation of On-Site Improvements  Parking  Water/Sewer  Visual Enhancements to Property  Interest Buy-Down on Loans  Reimbursement-Based Incentives for  Job Creation  Matching of Other ED Grants  Land Buy-Down  Other Incentives with “Claw Back” provisions September 16, 2010APA FLORIDA 46
    • 47.  Low Risk are those that are not likely to not meet or abandon objectives:  Installation of Public Improvements  Roadway enhancements  Water/Sewer mains  Public Parking facilities  Man-Power Incentives  Development Liaison September 16, 2010APA FLORIDA 47
    • 48.  Risk can be reduced  Keeping incentives to realm of items that are publicly owned  Full review of pro-forma for projects  Delayed payment provided only after payment of property taxes (source of CRA funding)  Reduce exposure through limited return related to Increment generated  Strong agreements:  Clearly outlined desired outcome(s)  Claw-back provisions  Defined mile-marker dates  Clearly defined non-performance measures  Lien Property where appropriate September 16, 2010APA FLORIDA 48
    • 49.  Risk can be reduced  Utilize the “But For” Test  Do Not Get Caught in “We Need More” Spiral  Attach Liens or Other Claw-Backs Where Possible  Wherever Possible Fund Publicly Owned Infrastructure as Your Incentive  Delay Incentive Payments Over Time and at Defined Milestones September 16, 2010APA FLORIDA 49
    • 50.  Cash is risky when nothing tangible is purchased  Provision of public infrastructure is preferable  Risk can be reduced through:  Full review of pro-forma for certain projects  Delayed payment provided only after payment of property taxes (source of CRA funding)  Reduce exposure through limited return related to Increment generated September 16, 2010APA FLORIDA 50
    • 51. When incentives are large or risky (real or perceived), it is best to undertake a review of the project Pro Forma to determine if the incentives are necessary. 51
    • 52.  The Pro Forma is the developers financial expectations of the project and includes:  Anticipated Costs  Construction  Land  Consultants  Borrowing  Return on Investment  Developer Fees  Anticipated Revenues  Sales  Rentals September 16, 2010APA FLORIDA 52
    • 53.  Example of a Development Pro Forma and Budget Appleberry Apartments 40 Units of Family Supportive Housing  Project Development Budget Acquisition vacant land $ 1,000,000 Construction Costs: New Construction 40,000 s.f. $ 4,400,000 Construction Contingency 10% $ 444,000 Architect 5% $ 220,000 Development Costs: Construction Period RE Taxes received abatement$ -- Construction Period Insurance $ 30,000 Construction Period Interest $ 15,000 Title and Recording $ 12,000 Furnishings and Equipment $ 150,000 Appraisal $ 5,000 Survey $ 5,000 September 16, 2010APA FLORIDA 53
    • 54.  Professional Services: Legal: Financing $ 10,000 Transaction $ 30,000 Syndication $ 5,000 Tax Opinion $ 10,000 Tax Credit Application Fee $ 1,000 Accounting $ 7,500 Soil Borings $ 4,000 Environmental Report $ 5,000 Marketing and Leasing $ 20,000 Developer Fee $ 610,000 Consultant Fee $ 40,000 Reserves: Operating Reserve $ 250,000 Tax and Insurance Escrow $ 20,000 Total Development Costs $6,389,500 Costs per Unit (excluding reserves) $ 152,988 From Family Matters: A Guide to Developing Family Supportive Housing 54 APA FLORIDA September 16, 2010
    • 55.  Excessive Developer Fees  Excessive Contractor Fees  Excessive Return on Investment  Excessive Interest Rate on Loans  Undervalued or Overvalued Revenues based on current market  Lack of Developer Risk (own money in the project) September 16, 2010APA FLORIDA 55
    • 56. 56
    • 57.  The Return on Investment or ROI is the percentage of money over or above the original investment that is returned to the investor. (Commonly referred to as the investor’s “profit”)  ROI is the determining factor for an investor in placing their money in a development project or seeking another option for investment (i.e.. stock market, land, emerging business venture)  When ROI is higher or the project less risky than other investment options, development is more likely to happen. September 16, 2010APA FLORIDA 57
    • 58. Standard Rate of Return on Development Projects Historical Average - 8 – 14 % 2005 - 16 – 20 % 2008 - 12 – 15 % 2010 - ?????? September 16, 2010APA FLORIDA 58
    • 59. Government influences Return on Investment through:  Regulation  Efficiency of Approval Process  Efficiency of Permit Process September 16, 2010APA FLORIDA 59
    • 60. Costs which can not be easily estimated influence ROI negatively by increasing contingency and possibility of unforeseen costs:  Unclear development regulations  Inconsistent interpretation of development regulations  Unpredictable time frames for development  Risk of being denied by Board even when project meets code  Arbitrary changes to requirements during design  More importantly arbitrary changes to requirements during construction 60 APA FLORIDA September 16, 2010
    • 61.  Regulation can add cost  Consistently applied regulation can add value  Predictability in interpretation is key towards determining costs 61 APA FLORIDA September 16, 2010
    • 62. Governmental Agencies have their own list of wants and needs. Promoting items on this list is the reason for offering incentives:  Job Creation  Attraction of New Development  Tax Base Enhancement  Retail Attraction  Establishment of Public Spaces  Increasing Design Expectations September 16, 2010APA FLORIDA 62
    • 63. Government ROI is much more difficult to determine as True ROI takes time to determine due time to recognition of return (in order of recognition of return) Attraction of New Development Job Creation Tax Base Enhancement Retail Attraction Other Factors 63 APA FLORIDA September 16, 2010
    • 64. http://frankeplanning.com http://www.placepnd.com http://www.parconsultantsinc.com http://www.delraycra.org http://www.kissimmeecra.com http://www.gainesvillecra.com http://www.boyntonbeachcra.com http://www.tampagov.net/dept_economic_and_urban_development/ programs_and_services http://www.redevelopment.net September 16, 2010APA FLORIDA 64
    • 65. Florida Redevelopment Association Certification Program Redevelopment 101 9:00 am – 4:00 pm Tuesday, October 12, 2010 Peabody Orlando Hotel Contact: Jan Piland @ (850) 701-3622 JPiland@flcities.com September 16, 2010APA FLORIDA 65