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TIF 102: Development Incentives vs
Community GoalsCommunity Goals
League of Wisconsin Municipalities
D i l J Li d t AICP
eague o sco s u c pa es
2018 Annual Conference
Daniel J. Lindstrom, AICP
Community Development Consultant
v i s i o n t o r e a l i t y
Daniel J Lindstrom, AICP
• Vierbicher Planning and Community Developmentg y p
Team Lead.
• 12 Years of private and municipal development
experience, specializing in:
– Tax Increment Financing and Developer Agreement Assistance
– Financing assistance applications/review
Future Planning and Visioning– Future Planning and Visioning
– Planning and Zoning development applications/review
– Economic Development planning
Housing studies– Housing studies
2
Overview of Discussion
• Tax Incremental Financing History and Basicsg y
• TIF as Part of Greater Economic Development Efforts
• Assistance Packages - “But For” and Required
i diFindings
• Evaluation of TIF Assistance Request
• Case Study Village of Shorewood Hills WI• Case Study - Village of Shorewood Hills, WI
• Important Considerations when Reviewing
Municipal Funding Assistance Requestsp g q
• Municipal Funding Assistance Best Practices
3
Tax Incremental Financing History
d B iand Basics
4
History of Tax Incremental Financingg
• TIF = Tax Increment Financingg
• TID = Tax Increment DistrictTID Tax Increment District
• First Authorized in1975 Wis 66 1105First Authorized in1975, Wis. 66.1105
• TIF Law has been amended many times• TIF Law has been amended many times
over the years
5
What is TIF?
A municipal financing tool to accomplishg
specific community development objectives:
• promote industrial development
promote mixed use development• promote mixed-use development
• eliminate blighted areas
• rehabilitate deteriorating areas
6
What is TIF?
Public / Private PartnershipPublic / Private Partnership
P t hi f t i titi t t• Partnership of taxing entities to promote
development
• Public and private sectors work together
to stimulate economic growthto stimulate economic growth
7
Why TIF Was Created
• Federal funding decreased forFederal funding decreased for
community development programs
• Allows cities & villages to work with private
sector to stimulate economic growth
• Eliminated inequitable situation that
discouraged developmentdiscouraged development
* Cities & villages bore the cost of development,
but all taxing entities shared the benefit.g
8
Summary of Districts in Wisconsiny
Currently 1,261 active TIDs in Wisconsin, in 425
communities (April 23 2018)communities (April 23, 2018)
• 329 Mixed-use districts
• 305 Industrial districts
• 305 Blight elimination districts
• 161 Rehab and conservation districts
• 130 Created before 1995 (no district type)
• 15 Environmental remediation
12 S i l L i l ti• 12 Special Legislation
• 4 Town districts
• 84 Distressed districts
• 16 Severely distressed districts 9
TIF Basics
Important TIF Definitionsp
• Base Value: The equalized value of real and
personal property in a TID when created.
• Property Value Increment: The difference
between the base value and the current value.
T I t T l i d b th l i• Tax Increment: Taxes levied by the overlying
taxing jurisdictions on the value between the
base value and the current value in the TID.
10
TIF Basics - Structure
Tax Increment
Investment in the TID &
within 1/2 mile
• Capital Improvements
• Infrastructure
• Site Development
• Land Acquisition & Assembly
• Development Incentives
D
Development Incentives
• Administrative &
Organizational Costs
eintheTIpertyValueProp
11
TIF Basics
12
TIF Basics
13
TIF Basics
14
TIF as Part of Greater Economic
D l t Eff tDevelopment Efforts
15
Performance Measuring –
IEDC’s SurveyIEDC s Survey
• Over 30 percent of Economic Development Organizationp p g
(EDOs) do not measure performance regularly
• Over 50 percent of local (municipal level) EDOs do not• Over 50 percent of local (municipal-level) EDOs do not
track performance.
• Approximately 20 to 30 percent of
county and regional EDOs do not
track performance.p
• Non-trackers are more prevalent
among smaller communitiesamong smaller communities.
16
Performance Measuring –
IEDC’s SurveyIEDC s Survey
• The existence of an organizational
strategic plan is a key determining
factor in whether an organization
measures performance.measures performance.
– Over 80 percent of organizations that track
performance have a strategic plan.
– Almost 70 percent of these plans include
guidelines for measuring performance.
– A strategic plan provides the framework for
overall performance measurement and
ti ifi t i t i tsometimes even specifies certain metrics to
be used.
17
Performance Measuring –
IEDC’s SurveyIEDC s Survey
• Largest trouble in metrics? -g
measuring Jobs
– Jobs created vs Jobs shifted
– Ramp up time can impact ROI
payback
– Relies on a companies
willingness to release salary and
j b b (f i tjob numbers (for companies not
under an agreement)
– Ambiguous estimate vs actual
creation 18
Traditional Economic Development Results
• Economic development is different in every
community but municipal economic developmentcommunity, but municipal economic development
efforts should result in any combination of:
– Tax base growth
Additional community jobs or income– Additional community jobs or income
– Increased aesthetic appeal
– Business retention in the community
– Business growth in a community Municipal
Economic
Growth
Business growth in a community
– Community self-sufficiency
– Productive use of land and resources
The end result should always
Increased Quality
of Life
Municipal
Impact
y
be a better quality of life
How to study a project based on the benefits to the ay p j
communities greater economic development?
19
Economic Analysis Methods
Return on
Municipal
Investment
Cost
Benefit
Analysisy
iTriple
Bottom
Line
Metric
Measuring
Choose the correct analysis for your needs
20
Return on Municipal Investment (ROI)
Advantage
ROI may be appropriate for an investment in a property
where a financial return is expected. It is clear and
measureable approach that is easy to sell to communitymeasureable approach that is easy to sell to community
leaders.
Disadvantage
Don’t be too narrow – economic developmentDon t be too narrow economic development
programs typically are not expected to always provide
a direct financial return to the local government. Most
communities expect their economic development
programs to have an impact on economic conditions –
not provide a directly measurable qualitative fiscal
return.
21
Cost Benefit Analysis
Advantage
Allows a community to place weights to different categories
of benefits. More complex than a simple ROI, but allows a
community to weight priorities when making ED decisionscommunity to weight priorities when making ED decisions.
Disadvantage
“With greater flexibility comes greater complexity”
There is a larger probability that a community couldThere is a larger probability that a community could
assume or apply multipliers inappropriately resulting in
an overstating of anticipated community benefits and
anticipated ripple effects.
22
Triple Bottom Line
(old adage different approach)(old adage – different approach)
Advantage
Allows a community to review each opportunity as part of a
larger community context. Not every project must reach the
triple bottom line but contribute to the goal of increasing thetriple bottom line, but contribute to the goal of increasing the
vibrancy of a community.
Disadvantage
Contingent on many projects to ensure there is a
balance of People, Planet, Profit. Too many projects ofp y p j
one of one type makes the holistic approach to
economic development out of balance.
23
Metric Measuringg
Advantage
Allows a community to review each opportunity as part of
ongoing and evolving strategic measuring plan. The strategic
plan gives the local community a guide that can withstandplan gives the local community a guide that can withstand
scrutiny and staff turnover.
Disadvantage
Data collection is key to a successful program. Lack of
accurate and timely data makes measuringy g
burdensome. Limited resources and staff in smaller
communities also makes metric measuring difficult.
Therefore, communities must start small.
24
Metric Measuring - Plan of Actiong
• Establish a strategic economic development plang p p
– Review past work
if i i– Identify community goals and strategies
– Identify community champions to lead individual efforts
– Conduct a simple economic overview and analysis
– Collect public input
– Conduct SWOT (or similar) analysis
– Conduct regional industry analysisConduct regional industry analysis
– Create action plan and performance metric measures
25
Metric Measuring - Plan of Actiong
• Start small and understand the staff and resource
limitations
– You don’t need to spend $$$$ to create a fancy document.
• Establish the topic or topics that best fit the community goals.
(Examples)
B siness Retention– Business Retention
– Business Attraction
– Business Creation
– Real Estate DevelopmentReal Estate Development
– Sustainable Development & Green Jobs
– Quality of Life
– Tourism
– Housing
26
Plan of Action
• Development of metrics
Primary or
Core Metrics
• Simple and basic metrics to be used for measuring
performance
Core Metrics
• Second tier metrics that are used to understand
Secondary
Metrics
• Second tier metrics that are used to understand
comprehensive performance
Tertiary
Metrics
• A lower set of metrics that is not vital to
understanding the performance, but helps a
community understand future development in a
region or area.Metrics g
27
Plan of Action
• Example: Business Retention & Expansion
Primary or
Core Metrics
•Number of business retained (or expanded)
•Number of jobs retained (or expanded)
•Amount of financial or resource assistance
•Types of businesses assistedCore Metrics •Types of businesses assisted
•Businesses relocated within community
Secondary
Metrics
•At risk of leaving businesses retained
•Location of busiess supplier to regions (business attraction)
Tertiary
Metrics
•Number of families retained
•Number of business retained in distressed areas
Metrics
28
Plan of Action
• Example: Housing
Primary or
Core Metrics
•Number of units built
•Percentage of affordable units within community
•Property value change over a period of time time
•Change in foreclosure rates over a period of timeCore Metrics •Change in foreclosure rates over a period of time
•Rental vacancy rates
•Ownership vacancy rates
Secondary
Metrics
•Ownership vacancy rates
•Community income to housing expenses ratio
•Cost of construction
Tertiary
Metrics
•Change in household size over a period of time
Metrics
29
Plan of Action
• Example: Quality of Life
Primary or
Core Metrics
•Change in household income over a period of time
•Crime rates
•Percent of population within walking distance to a parkCore Metrics •Percent of population within walking distance to a park
•Population diversity
•Ratio of parkland acres to residents or households
Secondary
Metrics
•Ratio of parkland acres to residents or households
•Physical and fiscal access to sports and recreation
•Recreational expenditures per resident or household
Tertiary
Metrics
•Change in household size over a period of time
•Volunteer hours in a community over a period of time
Metrics
30
Assistance Packages:
“But For” and Required Findings
31
Required Findings and Testsg
• Does it meet a Community Metric?y
• Does it conform to the Municipality’s Guiding Plans?
• “But For” analysis
• Gap in Financing/Extraordinary Costs
• Without assistance, development in the TIF or Business
District is not possible.
• This same analysis applies to specificy pp p
development proposals
• Determine the best deal structureDetermine the best deal structure
32
Primary TIF Deal Structures
1. Pay-As-You-Goy
a) Annual reimbursement from incremental revenues starting
at project completion
2. Up-Front Payment or Reimbursement “Cash Grant”
a) One-time, lump sum payment to Developer from existing
f d i j t l d f dfunds in TIF project plan and funds.
33
Primary TIF Deal Structures (con’t)( )
3. Monetizing Future TIF Revenues from Projectg j
Increment
a) TIF Note issued to Developer, incentivizing them to
put more equity into project up-frontput more equity into project up front
b) Note to lender, serving as additional security and
allowing more debt to be secured
4. Bonds (Revenue Commitments) – Cash Grant
a) District-wide Bonds using existing
TIF cash flow (later TID years)TIF cash flow (later TID years)
b) General obligation
c) Sales tax or other municipal revenue sources
34
Evaluation of TIF Assistance
RequestRequest
35
1. Pre-Application Questions/Meetingg
• “But For” - is public financial assistanceBut For is public financial assistance
necessary to make the project feasible?
• If so, what form of public assistance is
appropriate and how much is too much?appropriate and how much is too much?
– I.e. What is the reasonable rate of return for a
developer?p
– How does the change in the tax law impact their
form of a request
36
2. Conduct a Pro Forma Analysis
• Municipal Review of project’s financial strength and review
Developer’s estimates of:Developer’s estimates of:
– Hard Costs (Land/Construction)
– Soft Costs
– Construction Financing
– Long Term Financing and Debt
• 10 Year Cash Flow Projection with Sale in Year 10.
• Evaluate multiple benchmarks such as Cash-on-Cash Annual
Return and Internal Rate of Return (IRR) to quantify assistance
required and recommend limits.
R i D l ’ i ith i il j t k t• Review Developer’s experience with similar projects, markets,
and financial capacity to successfully deliver the project.
37
3. Conduct Gap Analysis &
Identify Eligible Costs
• Municipality and Developer agree to a benchmark for thep y p g
project (example targeted benchmark IRR of 15%).
– If IRR >15% then no assistance requiredIf IRR >15% then no assistance required
– If IRR < 15% then assistance required, quantify the gap in the
proforma analysis
4. Identify Revenue Source(s)
for Assistancefor Assistance
• Prepare incremental property tax projections.
38
39
40
5. Prepare Project Term Sheetj
• Simple document that outlines basic terms to be incorporatedp p
into the Development Agreement.
• Typically includes:• Typically includes:
– Brief project description
– Project timeline
S f t t t d ti i f i t t d– Summary of amount, structure, and timing of assistance requested
– Why assistance is needed
– Summary of TIF/BD eligible costs
P bli b fit i l di j b bli– Public benefits including jobs, public revenues
– Conformance with underlying plans
– Review the Municipal Incentive Guide
41
Municipal Incentive Guide
•Cash
•Land grants
•Infrastructure development
Cash or Cash Infrastructure development
•Other TIF financing
Equivalent
R •Tax abatement/exemptions
•Tax rebates (sales, property)
•Tax refunds
•Bonds
Revenue
Impact
•RLF
•Improvement grants/loans
•Green/Sustainable
•(non-fiscal) fast track permitting
•Loan guarantees
Others Loan guarantees
•Workforce training
Rule #1: Incentives should only be used when there is a measureable net
b fit t th it d d bli tbenefit to the community and exceed public costs.
Each community must decide what are the benefits to their community
42
6. Development Agreement (DA)g ( )
• Creates the terms of the entire execution of the project.
• Include section that describes the pro forma review that took
place to arrive at the level of assistance.p
– Target IRR
– Direct payment of eligible costs or TIF Note with payments
based on incremental taxes.based on incremental taxes.
• This analysis is based on the project assumptions.
• Include the analysis as an exhibit to the agreement.
43
7. Incorporate a “Look Back” Provision
(IF NECESSARY)(IF NECESSARY)
• Purpose is to review the Developer’s pro forma with actual• Purpose is to review the Developer s pro forma with actual
information following project completion and stabilization
(“2nd IRR Review” – 5, 10, 15 year look back).
• Define in DA when the project is deemed complete.
If i th DA M i i lit h i ht t t d t• If in the DA, Municipality has right to request documents
related to the development deemed necessary to complete
the 2nd IRR Review.
44
C St dCase Study
Village of Shorewood Hills
Village Locationg
46
Village Locationg
47
Village Goals for Redevelopmentg
• Increase the housing cycle opportunity forIncrease the housing cycle opportunity for
residents in the Village (rental to ownership
and ownership to rental).
• Increase housing diversity in the community.
• Increase affordable housing in the
community (1, 2, and 3 bedrooms).
• Complete missing links in the pedestrian and
bicycle networkbicycle network.
48
More Project Considerationsj
• 2008 – Existing Land Use
49
More Project Considerationsj
• 2008 – Comprehensive Plans Future Land Use
50
Case Study–Village of Shorewood Hillsg
• Public Workshops
• 2008 2010 Tax Increment Districts and Area• 2008-2010 Tax Increment Districts and Area
Master Plans
51
Case Study–Village of Shorewood Hills
• Public Workshops
• 2008 2010 Tax
g
• 2008-2010 Tax
Increment Districts
and Areaand Area
Master Plans
52
Case Study–Village of Shorewood Hills
• 2012 Working with HUD to understand the
g
g
housing make up of the community.
Village created a plan to increase• Village created a plan to increase
affordable housing in the community when
WHEDA and other program assistance wasWHEDA and other program assistance was
not available.
• 2014 Award from HUD
for furthering fair housing
in the communityin the community.
53
Case Study–Village of Shorewood Hills
• 2011-2013: Mixed Use and Affordable Housing Development (TID No. 3)
“Arbor Crossing”
Project Goals
g
– Project Goals
• Redevelopment of site
• Mixed-use
• Bike path improvements
• Affordable housingAffordable housing
• Stormwater Improvements
• Structured parking
– Development
Incentivece e
• Cash Grant for
affordable housing
54
Case Study–Village of Shorewood Hills
• 2012-2014 - Mixed Use and Market Rate Development (TID No. 4)
“Lodge at Walnut Grove”
Project Goals
g
– Project Goals
• Redevelopment of underutilized site
• Mixed-use site
• Bike path improvements
• Structured parkingStructured parking
– Development Incentive
• Cash Grant and PAYGO
55
Case Study–Village of Shorewood Hills
• 2014-2016 - Mixed Use and Affordable Housing Development (TID No. 3)
“700 University Bay Drive”
Project Goals
g
– Project Goals
• Redevelopment of site
• Mixed-use
• Bike path improvements
• Affordable housingAffordable housing
• Structured parking
– Development
Incentive
• PAYGOPAYGO
56
Case Study–Village of Shorewood Hills
• 2015-2017 - Mixed Use and Market Rate Development (TID No. 3) –
“The Boulevard”
Project Goals
g
– Project Goals
• Redevelopment of site
• Mixed-use
• Shared parking
• Structured parkingStructured parking
– Development
Incentive
• PAYGOPAYGO
• Claw Back Provisions
57
Case Study–Village of Shorewood Hills
• 2015-2017 –Market Rate and Affordable Housing Development (TID No. 5)
“Lodge at Walnut Grove – Phase 2”
Project Goals
g
– Project Goals
• Redevelopment of site
• Mixed-use
• Bike path improvements
• Affordable housingAffordable housing
• Structured parking
– Development Incentive
• PAYGO
58
Case Study–Village of Shorewood Hills
• Increase in estimated population from 1,573
g
in 2013 to approximately 2,350 by build-out
completion
• 390 New MF Units and commercial space
• Closer to target of more affordable units in
the community
59
Important Considerations whenImportant Considerations when
Reviewing Municipal Funding
A i t R tAssistance Requests
60
Other Project Considerationsj
• Political
– Understand the experiences of your elected officials &
municipal staff
– Know the hot issuesKnow the hot issues
– Know the general development climate/ receptiveness to
potential projects
• Economic
– How much does the developer need to shoot for?p
– How much is increment is available & what is left for other
developments or other municipal projects?
61
Other Project Considerationsj
• Market
– Position in economic cycle? national-regional-local
– Know the interest rates, cap rates, other terms for the area
(not national)
– Review assumed costs- land, construction, labor, etc.
• Presenting the Deal to the Public• Presenting the Deal to the Public
– Properly categorizing and classifying eligible vs.
Extraordinary costs
– Public benefits as “trade offs”
– Communicating with the community
62
Municipal Funding Assistance
B t P tiBest Practices
63
Municipal Funding Assistance Best Practices
• Create Economic Development Strategy
– Incentives should only be used when there is a measureable net
benefit to the community and exceed public costs.
– Start small and establish a strategic incentive plan that identifies
i i ibaseline measuring metrics
• Target specific industries or priority to those that:
– Export products and bring in new dollars
– Create more spin-off economic impacts in the community
– Offer additional benefits to the community (greenspace, qualityy (g p q y
buildings, etc)
• Incentives should improve the quality of life for residentsp q y
64
Municipal Funding Assistance Best Practices
• More efficient to retain existing local businesses and assistg
local businesses to expand than to recruit a business from
outside the community
• Think outside the box on a community-changing deal
• The shorter the payback period, the better the deal is for
the community
• IMPACT OF NEW TAX LAW FOR DEVELOPERS (12-22-17)
65
Open Discussion
D i l J Li d t AICPDaniel J. Lindstrom, AICP
dlin@vierbicher.com
608/821-3967

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TIF-102 Development Incentives vs. Community Goals

  • 1. TIF 102: Development Incentives vs Community GoalsCommunity Goals League of Wisconsin Municipalities D i l J Li d t AICP eague o sco s u c pa es 2018 Annual Conference Daniel J. Lindstrom, AICP Community Development Consultant v i s i o n t o r e a l i t y
  • 2. Daniel J Lindstrom, AICP • Vierbicher Planning and Community Developmentg y p Team Lead. • 12 Years of private and municipal development experience, specializing in: – Tax Increment Financing and Developer Agreement Assistance – Financing assistance applications/review Future Planning and Visioning– Future Planning and Visioning – Planning and Zoning development applications/review – Economic Development planning Housing studies– Housing studies 2
  • 3. Overview of Discussion • Tax Incremental Financing History and Basicsg y • TIF as Part of Greater Economic Development Efforts • Assistance Packages - “But For” and Required i diFindings • Evaluation of TIF Assistance Request • Case Study Village of Shorewood Hills WI• Case Study - Village of Shorewood Hills, WI • Important Considerations when Reviewing Municipal Funding Assistance Requestsp g q • Municipal Funding Assistance Best Practices 3
  • 4. Tax Incremental Financing History d B iand Basics 4
  • 5. History of Tax Incremental Financingg • TIF = Tax Increment Financingg • TID = Tax Increment DistrictTID Tax Increment District • First Authorized in1975 Wis 66 1105First Authorized in1975, Wis. 66.1105 • TIF Law has been amended many times• TIF Law has been amended many times over the years 5
  • 6. What is TIF? A municipal financing tool to accomplishg specific community development objectives: • promote industrial development promote mixed use development• promote mixed-use development • eliminate blighted areas • rehabilitate deteriorating areas 6
  • 7. What is TIF? Public / Private PartnershipPublic / Private Partnership P t hi f t i titi t t• Partnership of taxing entities to promote development • Public and private sectors work together to stimulate economic growthto stimulate economic growth 7
  • 8. Why TIF Was Created • Federal funding decreased forFederal funding decreased for community development programs • Allows cities & villages to work with private sector to stimulate economic growth • Eliminated inequitable situation that discouraged developmentdiscouraged development * Cities & villages bore the cost of development, but all taxing entities shared the benefit.g 8
  • 9. Summary of Districts in Wisconsiny Currently 1,261 active TIDs in Wisconsin, in 425 communities (April 23 2018)communities (April 23, 2018) • 329 Mixed-use districts • 305 Industrial districts • 305 Blight elimination districts • 161 Rehab and conservation districts • 130 Created before 1995 (no district type) • 15 Environmental remediation 12 S i l L i l ti• 12 Special Legislation • 4 Town districts • 84 Distressed districts • 16 Severely distressed districts 9
  • 10. TIF Basics Important TIF Definitionsp • Base Value: The equalized value of real and personal property in a TID when created. • Property Value Increment: The difference between the base value and the current value. T I t T l i d b th l i• Tax Increment: Taxes levied by the overlying taxing jurisdictions on the value between the base value and the current value in the TID. 10
  • 11. TIF Basics - Structure Tax Increment Investment in the TID & within 1/2 mile • Capital Improvements • Infrastructure • Site Development • Land Acquisition & Assembly • Development Incentives D Development Incentives • Administrative & Organizational Costs eintheTIpertyValueProp 11
  • 15. TIF as Part of Greater Economic D l t Eff tDevelopment Efforts 15
  • 16. Performance Measuring – IEDC’s SurveyIEDC s Survey • Over 30 percent of Economic Development Organizationp p g (EDOs) do not measure performance regularly • Over 50 percent of local (municipal level) EDOs do not• Over 50 percent of local (municipal-level) EDOs do not track performance. • Approximately 20 to 30 percent of county and regional EDOs do not track performance.p • Non-trackers are more prevalent among smaller communitiesamong smaller communities. 16
  • 17. Performance Measuring – IEDC’s SurveyIEDC s Survey • The existence of an organizational strategic plan is a key determining factor in whether an organization measures performance.measures performance. – Over 80 percent of organizations that track performance have a strategic plan. – Almost 70 percent of these plans include guidelines for measuring performance. – A strategic plan provides the framework for overall performance measurement and ti ifi t i t i tsometimes even specifies certain metrics to be used. 17
  • 18. Performance Measuring – IEDC’s SurveyIEDC s Survey • Largest trouble in metrics? -g measuring Jobs – Jobs created vs Jobs shifted – Ramp up time can impact ROI payback – Relies on a companies willingness to release salary and j b b (f i tjob numbers (for companies not under an agreement) – Ambiguous estimate vs actual creation 18
  • 19. Traditional Economic Development Results • Economic development is different in every community but municipal economic developmentcommunity, but municipal economic development efforts should result in any combination of: – Tax base growth Additional community jobs or income– Additional community jobs or income – Increased aesthetic appeal – Business retention in the community – Business growth in a community Municipal Economic Growth Business growth in a community – Community self-sufficiency – Productive use of land and resources The end result should always Increased Quality of Life Municipal Impact y be a better quality of life How to study a project based on the benefits to the ay p j communities greater economic development? 19
  • 20. Economic Analysis Methods Return on Municipal Investment Cost Benefit Analysisy iTriple Bottom Line Metric Measuring Choose the correct analysis for your needs 20
  • 21. Return on Municipal Investment (ROI) Advantage ROI may be appropriate for an investment in a property where a financial return is expected. It is clear and measureable approach that is easy to sell to communitymeasureable approach that is easy to sell to community leaders. Disadvantage Don’t be too narrow – economic developmentDon t be too narrow economic development programs typically are not expected to always provide a direct financial return to the local government. Most communities expect their economic development programs to have an impact on economic conditions – not provide a directly measurable qualitative fiscal return. 21
  • 22. Cost Benefit Analysis Advantage Allows a community to place weights to different categories of benefits. More complex than a simple ROI, but allows a community to weight priorities when making ED decisionscommunity to weight priorities when making ED decisions. Disadvantage “With greater flexibility comes greater complexity” There is a larger probability that a community couldThere is a larger probability that a community could assume or apply multipliers inappropriately resulting in an overstating of anticipated community benefits and anticipated ripple effects. 22
  • 23. Triple Bottom Line (old adage different approach)(old adage – different approach) Advantage Allows a community to review each opportunity as part of a larger community context. Not every project must reach the triple bottom line but contribute to the goal of increasing thetriple bottom line, but contribute to the goal of increasing the vibrancy of a community. Disadvantage Contingent on many projects to ensure there is a balance of People, Planet, Profit. Too many projects ofp y p j one of one type makes the holistic approach to economic development out of balance. 23
  • 24. Metric Measuringg Advantage Allows a community to review each opportunity as part of ongoing and evolving strategic measuring plan. The strategic plan gives the local community a guide that can withstandplan gives the local community a guide that can withstand scrutiny and staff turnover. Disadvantage Data collection is key to a successful program. Lack of accurate and timely data makes measuringy g burdensome. Limited resources and staff in smaller communities also makes metric measuring difficult. Therefore, communities must start small. 24
  • 25. Metric Measuring - Plan of Actiong • Establish a strategic economic development plang p p – Review past work if i i– Identify community goals and strategies – Identify community champions to lead individual efforts – Conduct a simple economic overview and analysis – Collect public input – Conduct SWOT (or similar) analysis – Conduct regional industry analysisConduct regional industry analysis – Create action plan and performance metric measures 25
  • 26. Metric Measuring - Plan of Actiong • Start small and understand the staff and resource limitations – You don’t need to spend $$$$ to create a fancy document. • Establish the topic or topics that best fit the community goals. (Examples) B siness Retention– Business Retention – Business Attraction – Business Creation – Real Estate DevelopmentReal Estate Development – Sustainable Development & Green Jobs – Quality of Life – Tourism – Housing 26
  • 27. Plan of Action • Development of metrics Primary or Core Metrics • Simple and basic metrics to be used for measuring performance Core Metrics • Second tier metrics that are used to understand Secondary Metrics • Second tier metrics that are used to understand comprehensive performance Tertiary Metrics • A lower set of metrics that is not vital to understanding the performance, but helps a community understand future development in a region or area.Metrics g 27
  • 28. Plan of Action • Example: Business Retention & Expansion Primary or Core Metrics •Number of business retained (or expanded) •Number of jobs retained (or expanded) •Amount of financial or resource assistance •Types of businesses assistedCore Metrics •Types of businesses assisted •Businesses relocated within community Secondary Metrics •At risk of leaving businesses retained •Location of busiess supplier to regions (business attraction) Tertiary Metrics •Number of families retained •Number of business retained in distressed areas Metrics 28
  • 29. Plan of Action • Example: Housing Primary or Core Metrics •Number of units built •Percentage of affordable units within community •Property value change over a period of time time •Change in foreclosure rates over a period of timeCore Metrics •Change in foreclosure rates over a period of time •Rental vacancy rates •Ownership vacancy rates Secondary Metrics •Ownership vacancy rates •Community income to housing expenses ratio •Cost of construction Tertiary Metrics •Change in household size over a period of time Metrics 29
  • 30. Plan of Action • Example: Quality of Life Primary or Core Metrics •Change in household income over a period of time •Crime rates •Percent of population within walking distance to a parkCore Metrics •Percent of population within walking distance to a park •Population diversity •Ratio of parkland acres to residents or households Secondary Metrics •Ratio of parkland acres to residents or households •Physical and fiscal access to sports and recreation •Recreational expenditures per resident or household Tertiary Metrics •Change in household size over a period of time •Volunteer hours in a community over a period of time Metrics 30
  • 31. Assistance Packages: “But For” and Required Findings 31
  • 32. Required Findings and Testsg • Does it meet a Community Metric?y • Does it conform to the Municipality’s Guiding Plans? • “But For” analysis • Gap in Financing/Extraordinary Costs • Without assistance, development in the TIF or Business District is not possible. • This same analysis applies to specificy pp p development proposals • Determine the best deal structureDetermine the best deal structure 32
  • 33. Primary TIF Deal Structures 1. Pay-As-You-Goy a) Annual reimbursement from incremental revenues starting at project completion 2. Up-Front Payment or Reimbursement “Cash Grant” a) One-time, lump sum payment to Developer from existing f d i j t l d f dfunds in TIF project plan and funds. 33
  • 34. Primary TIF Deal Structures (con’t)( ) 3. Monetizing Future TIF Revenues from Projectg j Increment a) TIF Note issued to Developer, incentivizing them to put more equity into project up-frontput more equity into project up front b) Note to lender, serving as additional security and allowing more debt to be secured 4. Bonds (Revenue Commitments) – Cash Grant a) District-wide Bonds using existing TIF cash flow (later TID years)TIF cash flow (later TID years) b) General obligation c) Sales tax or other municipal revenue sources 34
  • 35. Evaluation of TIF Assistance RequestRequest 35
  • 36. 1. Pre-Application Questions/Meetingg • “But For” - is public financial assistanceBut For is public financial assistance necessary to make the project feasible? • If so, what form of public assistance is appropriate and how much is too much?appropriate and how much is too much? – I.e. What is the reasonable rate of return for a developer?p – How does the change in the tax law impact their form of a request 36
  • 37. 2. Conduct a Pro Forma Analysis • Municipal Review of project’s financial strength and review Developer’s estimates of:Developer’s estimates of: – Hard Costs (Land/Construction) – Soft Costs – Construction Financing – Long Term Financing and Debt • 10 Year Cash Flow Projection with Sale in Year 10. • Evaluate multiple benchmarks such as Cash-on-Cash Annual Return and Internal Rate of Return (IRR) to quantify assistance required and recommend limits. R i D l ’ i ith i il j t k t• Review Developer’s experience with similar projects, markets, and financial capacity to successfully deliver the project. 37
  • 38. 3. Conduct Gap Analysis & Identify Eligible Costs • Municipality and Developer agree to a benchmark for thep y p g project (example targeted benchmark IRR of 15%). – If IRR >15% then no assistance requiredIf IRR >15% then no assistance required – If IRR < 15% then assistance required, quantify the gap in the proforma analysis 4. Identify Revenue Source(s) for Assistancefor Assistance • Prepare incremental property tax projections. 38
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  • 41. 5. Prepare Project Term Sheetj • Simple document that outlines basic terms to be incorporatedp p into the Development Agreement. • Typically includes:• Typically includes: – Brief project description – Project timeline S f t t t d ti i f i t t d– Summary of amount, structure, and timing of assistance requested – Why assistance is needed – Summary of TIF/BD eligible costs P bli b fit i l di j b bli– Public benefits including jobs, public revenues – Conformance with underlying plans – Review the Municipal Incentive Guide 41
  • 42. Municipal Incentive Guide •Cash •Land grants •Infrastructure development Cash or Cash Infrastructure development •Other TIF financing Equivalent R •Tax abatement/exemptions •Tax rebates (sales, property) •Tax refunds •Bonds Revenue Impact •RLF •Improvement grants/loans •Green/Sustainable •(non-fiscal) fast track permitting •Loan guarantees Others Loan guarantees •Workforce training Rule #1: Incentives should only be used when there is a measureable net b fit t th it d d bli tbenefit to the community and exceed public costs. Each community must decide what are the benefits to their community 42
  • 43. 6. Development Agreement (DA)g ( ) • Creates the terms of the entire execution of the project. • Include section that describes the pro forma review that took place to arrive at the level of assistance.p – Target IRR – Direct payment of eligible costs or TIF Note with payments based on incremental taxes.based on incremental taxes. • This analysis is based on the project assumptions. • Include the analysis as an exhibit to the agreement. 43
  • 44. 7. Incorporate a “Look Back” Provision (IF NECESSARY)(IF NECESSARY) • Purpose is to review the Developer’s pro forma with actual• Purpose is to review the Developer s pro forma with actual information following project completion and stabilization (“2nd IRR Review” – 5, 10, 15 year look back). • Define in DA when the project is deemed complete. If i th DA M i i lit h i ht t t d t• If in the DA, Municipality has right to request documents related to the development deemed necessary to complete the 2nd IRR Review. 44
  • 45. C St dCase Study Village of Shorewood Hills
  • 48. Village Goals for Redevelopmentg • Increase the housing cycle opportunity forIncrease the housing cycle opportunity for residents in the Village (rental to ownership and ownership to rental). • Increase housing diversity in the community. • Increase affordable housing in the community (1, 2, and 3 bedrooms). • Complete missing links in the pedestrian and bicycle networkbicycle network. 48
  • 49. More Project Considerationsj • 2008 – Existing Land Use 49
  • 50. More Project Considerationsj • 2008 – Comprehensive Plans Future Land Use 50
  • 51. Case Study–Village of Shorewood Hillsg • Public Workshops • 2008 2010 Tax Increment Districts and Area• 2008-2010 Tax Increment Districts and Area Master Plans 51
  • 52. Case Study–Village of Shorewood Hills • Public Workshops • 2008 2010 Tax g • 2008-2010 Tax Increment Districts and Areaand Area Master Plans 52
  • 53. Case Study–Village of Shorewood Hills • 2012 Working with HUD to understand the g g housing make up of the community. Village created a plan to increase• Village created a plan to increase affordable housing in the community when WHEDA and other program assistance wasWHEDA and other program assistance was not available. • 2014 Award from HUD for furthering fair housing in the communityin the community. 53
  • 54. Case Study–Village of Shorewood Hills • 2011-2013: Mixed Use and Affordable Housing Development (TID No. 3) “Arbor Crossing” Project Goals g – Project Goals • Redevelopment of site • Mixed-use • Bike path improvements • Affordable housingAffordable housing • Stormwater Improvements • Structured parking – Development Incentivece e • Cash Grant for affordable housing 54
  • 55. Case Study–Village of Shorewood Hills • 2012-2014 - Mixed Use and Market Rate Development (TID No. 4) “Lodge at Walnut Grove” Project Goals g – Project Goals • Redevelopment of underutilized site • Mixed-use site • Bike path improvements • Structured parkingStructured parking – Development Incentive • Cash Grant and PAYGO 55
  • 56. Case Study–Village of Shorewood Hills • 2014-2016 - Mixed Use and Affordable Housing Development (TID No. 3) “700 University Bay Drive” Project Goals g – Project Goals • Redevelopment of site • Mixed-use • Bike path improvements • Affordable housingAffordable housing • Structured parking – Development Incentive • PAYGOPAYGO 56
  • 57. Case Study–Village of Shorewood Hills • 2015-2017 - Mixed Use and Market Rate Development (TID No. 3) – “The Boulevard” Project Goals g – Project Goals • Redevelopment of site • Mixed-use • Shared parking • Structured parkingStructured parking – Development Incentive • PAYGOPAYGO • Claw Back Provisions 57
  • 58. Case Study–Village of Shorewood Hills • 2015-2017 –Market Rate and Affordable Housing Development (TID No. 5) “Lodge at Walnut Grove – Phase 2” Project Goals g – Project Goals • Redevelopment of site • Mixed-use • Bike path improvements • Affordable housingAffordable housing • Structured parking – Development Incentive • PAYGO 58
  • 59. Case Study–Village of Shorewood Hills • Increase in estimated population from 1,573 g in 2013 to approximately 2,350 by build-out completion • 390 New MF Units and commercial space • Closer to target of more affordable units in the community 59
  • 60. Important Considerations whenImportant Considerations when Reviewing Municipal Funding A i t R tAssistance Requests 60
  • 61. Other Project Considerationsj • Political – Understand the experiences of your elected officials & municipal staff – Know the hot issuesKnow the hot issues – Know the general development climate/ receptiveness to potential projects • Economic – How much does the developer need to shoot for?p – How much is increment is available & what is left for other developments or other municipal projects? 61
  • 62. Other Project Considerationsj • Market – Position in economic cycle? national-regional-local – Know the interest rates, cap rates, other terms for the area (not national) – Review assumed costs- land, construction, labor, etc. • Presenting the Deal to the Public• Presenting the Deal to the Public – Properly categorizing and classifying eligible vs. Extraordinary costs – Public benefits as “trade offs” – Communicating with the community 62
  • 63. Municipal Funding Assistance B t P tiBest Practices 63
  • 64. Municipal Funding Assistance Best Practices • Create Economic Development Strategy – Incentives should only be used when there is a measureable net benefit to the community and exceed public costs. – Start small and establish a strategic incentive plan that identifies i i ibaseline measuring metrics • Target specific industries or priority to those that: – Export products and bring in new dollars – Create more spin-off economic impacts in the community – Offer additional benefits to the community (greenspace, qualityy (g p q y buildings, etc) • Incentives should improve the quality of life for residentsp q y 64
  • 65. Municipal Funding Assistance Best Practices • More efficient to retain existing local businesses and assistg local businesses to expand than to recruit a business from outside the community • Think outside the box on a community-changing deal • The shorter the payback period, the better the deal is for the community • IMPACT OF NEW TAX LAW FOR DEVELOPERS (12-22-17) 65
  • 66. Open Discussion D i l J Li d t AICPDaniel J. Lindstrom, AICP dlin@vierbicher.com 608/821-3967