Introduction to District Improvement Financing (DIF) Financing - - PowerPoint PPT Presentation

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Introduction to District Improvement Financing (DIF) Financing - - PowerPoint PPT Presentation

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Introduction to District Improvement Financing (DIF) Financing infrastructure for todays needs and tomorrows development City Staff & RKG Associates October 11, 2017 Agenda Introduction (Mayor) 1. Proposed Infrastructure Program

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Introduction to District Improvement Financing (DIF)

Financing infrastructure for today’s needs and tomorrow’s development City Staff & RKG Associates October 11, 2017

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Agenda

1.

Introduction (Mayor)

2.

Proposed Infrastructure Program (City Staff)

3.

DIF: An Important Financial Tool (RKG)

4.

Proposed USQ DIF (City Staff)

5.

DIF Financial Analysis (RKG)

6.

Next Steps (City Staff)

2

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Why we’re here

  • We’re seeking BOA approval for:

1.

Funding for significant infrastructure in and around USQ

2.

A key financial tool for this work: District Improvement Financing (DIF)

  • Tonight we will present an overview and high-level

financial analysis of the infrastructure work and the DIF

  • At a future meeting we will present an in-depth financial

analysis

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Infrastructure is the final piece of the puzzle

GLX

USQ Zoning

Infrastructure

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Union Square is our greatest infrastructure challenge

  • City’s pipe network

moves 60% of flow through Union Square

  • Connects to 140-

year-old MWRA pipe shared with neighboring cities

  • Storm flows many

times larger than sanitary

  • Pipes overloaded

during intense rain

19 33 98 76 10-Year Flood Volume (mgd)

High level estimates for flood volume based on 24-hour precipitation, calculated area, imperviousness per EPA source data and factors for runoff reaching the system. High level estimates of sanitary flow based on 2017 assessors data for bedrooms and building square footage time typical wastewater generation rates.

0.53 1.02 2.67 1.82

Sanitary Flow (mgd)

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We have to solve this challenge to serve

  • ur neighborhoods

It’s our decision whether to maintain control of these infrastructure decisions or risk ceding control to DEP through an administrative consent order (ACO)

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The same infrastructure also unlocks development in Union Square

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  • Provides 0.5

million gallons of sewer capacity for new buildings

  • Enables

developers to remove 2.0 million gallons of stormwater from

  • ur stressed

system

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Without infrastructure investment, we risk:

Public health and safety

  • f our residents, potential administrative

consent order $13M MassWorks Grant Our ability to afford GLX debt service payments The USQ our community planned for

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DIF is an infrastructure financing tool

  • DIF = District Improvement Financing
  • DIF fundamentals

1.

Infrastructure unlocks development, bringing in new tax revenue to offset borrowing costs

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Infrastructure Development

Unlocks development through utility and streetscape improvements Generates new revenue to offset borrowing costs

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DIF is an infrastructure financing tool

2.

DIF makes infrastructure affordable in the short term through better borrowing terms

By shifting significant borrowing costs out 3 years, it aligns debt service payments with anticipated development tax revenue

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Year 1 2 3 4 5 6+

Debt service without DIF

BAN payment BAN payment Principal + Interest Principal + Interest Principal + Interest Principal + Interest

Debt service with DIF

BAN payment BAN payment BAN payment BAN payment BAN payment Principal + Interest

Bond Anticipation Note (BAN): short-term, interest-only security, typically with very low interest rate

Debt service without DIF is nearly twice as much during this period as debt service with DIF

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The Assembly Square DIF is working

Assembly Square DIF Revenue vs. Debt Service $Millions

5 4.5 3.5 3 2.5 2 1.5 1 0.5 Captured Increment Debt Service 11

Projections 

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Proposed Infrastructure Program

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USQ Infrastructure Projects

Somerville Ave Utility & Streetscape Improvements (Multiple Types) Nunziato Stormwater Storage (Sewer) Poplar Street Stormwater Pump Station (Sewer) Spring Hill Sewer Separation (Sewer) Union Square Streetscape & Plaza (Streetscape)

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Somerville Ave. Utility & Streetscape Improvements

Formerly known as Union Square Phase 1

Purpose Scope Estimated Construction Timeline Estimated Cost Anticipated Funding Sources Provide flood hazard relief and improve water and sewer service for 60%

  • f City

Improve safety and traffic flow for all transit modes Dramatic upgrades to water, sewer, and streetscape infrastructure from Union Square to McGrath Highway, including construction of 800,000 gallon box culvert FY18-FY21 $63M $13M MassWorks Grant $4M Water Enterprise $32.5M Sewer Enterprise $13.5M General Fund Potential for additional grant funding

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Nunziato Stormwater Storage

Purpose Scope Estimated Construction Timeline Estimated Cost Anticipated Funding Sources Provide flood hazard relief through stormwater storage Construction of 1.6 million gallon stormwater tank (The non-DIF component of the project will rehabilitate the park and athletic field). FY18-FY20 $14.5M $14.5M Sewer Enterprise Potential for grant funding

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Poplar Street Stormwater Pump Station

Formerly known as Redbridge

Purpose Scope Estimated Construction Timeline Estimated Cost Anticipated Funding Sources Remove up to 50 million gallons per day of stormwater from our sewer system by allowing runoff to flow to Charles River Expand sewer system capacity and improve service; provide flood hazard relief Connection of Somerville Ave. stormwater system to new pump station Connection of pump station to MBTA drain that connects to Charles River FY19-FY20 $19.5M $19.5M Sewer Enterprise Potential for grant funding

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Spring Hill Sewer Separation

Purpose Scope Estimated Construction Timeline Estimated Cost Anticipated Funding Sources Separate sewer pipes that connect to Somerville Ave. drain in order to fully realize benefits of Somerville Ave., Nunziato, and Poplar Street projects Targeted sewer separation throughout Spring Hill FY20-FY21 $13M $13M Sewer Enterprise Potential for grant funding

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Union Square Streetscape and Plaza Improvements

Formerly known as Union Square Phase 2

Purpose Scope Estimated Construction Timeline Estimated Cost Anticipated Funding Sources Improve traffic and create safe spaces for walking, cycling, and gathering in Union Square Reconstruction

  • f the plaza

Streetscape improvements

  • n Somerville

Ave., Bow St. Prospect St., Webster Ave., and lower Washington St. FY20-FY24 $31.5M $31.5M General Fund Potential for grant funding Developer contributions

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USQ Infrastructure Projects

Somerville Ave Utility & Streetscape Improvements (Multiple Types) Nunziato Stormwater Storage (Sewer) Poplar Street Stormwater Pump Station (Sewer) Spring Hill Sewer Separation (Sewer) Union Square Streetscape & Plaza (Streetscape)

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USQ Infrastructure Projects

Estimated Costs and Sources

Project Estimated Cost Estimated Sources

Grant Funding Sewer Enterprise Water Enterprise General Fund

Somerville Ave. Utility & Streetscape Improvements $63M $13M $32.5M $4M $13.5M Nunziato Stormwater Storage $14.5M $14.5M Poplar St. Stormwater Pump Station $19.5M $19.5M Spring Hill Sewer Separation $13M $13M USQ Streetscape & Plaza Improvements $31.5M $31.5M Total $141.5M $13M $79.5M $4M $45M

This is conservative and does not reflect potential grant opportunities, expected developer contributions, use of reserves, or sale of assets.

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DIF An Important Financial Tool

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RKG Associates

  • Economic consulting and planning firm
  • 35 years of experience
  • Work on both large and small scale projects
  • Previous track record working with City of Somerville
  • Green Line Extension Value Capture Study
  • Inclusionary Zoning Analysis
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What is District Improvement Financing (DIF)?

  • Economic tool used across the U.S.
  • Provided under Mass General Law 40Q, which was

authorized in 2004

  • Approved DIFs in Massachusetts include Worcester,

Quincy, Springfield, Brockton, and Somerville

  • Local authorities have power to establish DIFs

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What does DIF do?

  • Enhances how the City can finance infrastructure

improvements

  • Aligns infrastructure investment with planned growth

areas, supporting real estate development

  • Allows the City to borrow short term at a very low interest

rate for 5 years instead of 2 years, aligning debt service payments with anticipated future revenue increases

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Millions

$10.0 $8.0 $6.0 $4.0 $2.0 $0.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Debt Service Payment Schedule*

Without DIF

*First ten years of payments shown.

Debt Service (No DIF) 25

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*First ten years of payments shown. Millions

$10.0 $8.0 $6.0 $4.0 $2.0 $0.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Debt Service Payment Schedule*

With DIF

DIF Debt Service Debt Service (No DIF) 26

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DIF Procedural Basics

  • Two components

1.

Development district

A specified area within a city or town that is to be developed by the municipality under a development program.

2.

Development program, including financial plan

A statement of means and objectives that is designed to improve the quality

  • f life, physical facilities and structures, and the quality of pedestrian and

vehicular traffic control and transportation within a development district.

  • Administration submits proposed development district and

development program to BOA for approval

  • Administration submits infrastructure bond authorization

requests to BOA for approval

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Proposed USQ DIF

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Proposed USQ Development District

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Defining the USQ DIF District

Considerations

1.

Planning work

Where have we done significant planning work in the transformative neighborhoods near USQ? 2.

Nexus between planned USQ infrastructure projects & development:

Which transformative neighborhoods are unlocked by our planned infrastructure investments?

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Defining the USQ DIF District

Somerville by Design neighborhood planning work Planned infrastructure improvements unlock development

D Parcels   Grand Junction*   Union Square East  

* The area of Grand Junction in proposed DIF district is only a portion of the Grand Junction neighborhood

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Development Areas within the DIF District

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USQ DIF Private Development Program

D Parcels Union Square East Grand Junction Total

Total Development (SF) 2,268,025 1,796,740 392,863 4,457,628

Residential Development (SF) 923,175 636,742 163,091 1,723,008 Housing Units – Market 631 453 124 1,208 Housing Units – Inclusionary 158 113 31 302 Total Commercial Development (SF) 1,344,850 1,159,998 229,772 2,734,620 Office/Lab (SF) 1,097,400 987,726 201,039 2,286,165 Retail (SF) 164,450 172,273 28,733 365,456 Hotel (SF) 83,000

  • 83,000

Hotel (Rooms) 175

  • 175

The Union Square Neighborhood Plan calls for…

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Proposed USQ Development District

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DIF Financial Analysis

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Captured Increment Methodology

  • RKG tasked with calculating captured increment for DIF

district parcels

  • Captured increment = tax increment on projected property

valuation minus baseline valuation

  • Established base property values for DIF district parcels using

2017 assessed valuations

  • Developed model to project future valuation increases based on

private development program

  • Calculated tax increment on the difference
  • Ran multiple scenarios with different economic

assumptions

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DIF Captured Increment Visualized

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Assessed Value Time Baseline Valuation As of FY17 Post-DIF Proceed as normal Captured increment = tax increment on triangle

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DIF Model

Key Assumptions

  • Model is built at the individual parcel level using 2017

valuations from the Assessor’s database

  • Increases in valuation based on
  • Proposed development program
  • Current rates for commercial and office uses ($/SF),

condominiums, apartments and hotel keys ($/unit), inflated over time

  • All valuations are inflated at a very conservative rate, 2%

per year

  • Average annual change in is 3.6%

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Captured Increment Projection

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$0 $5M $10M $15M $20M $25M $30M $35M $40M 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046

Captured Increment with Development Program

Increment on Fully Developed Parcels

Total captured increment over 30-year period is $613 million

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Captured Increment vs. Debt Service

  • Total captured

increment over 30- year period is 2.5 times more than total DIF debt service payments

  • Captured increment

is greater than debt service in every year except FY19

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Captured Increment vs. Debt Service

$0 $5M $10M $15M $20M $25M $30M $35M $40M $45M

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 DIF Debt Service Development Program

DIF Debt Service Captured Increment

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Captured Increment vs. Debt Service:

Recession Scenario

  • Total captured

increment over 30- year period is 1.9 times greater than total DIF debt service payments

  • Only years in which

debt service exceeds captured increment are FY19, FY26 & FY27

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Captured Increment vs. Debt Service: Recession Scenario

$0 $5M $10M $15M $20M $25M $30M $35M

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 DIF Debt Service Recession Scenario

DIF Debt Service Captured Increment

Recession modeled

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Next Steps

  • 10/12: Full BOA meeting – submission of DIF district and

bond authorization request for Somerville Ave. Utility & Streetscape Improvements

  • 10/25: Finance Committee scheduled – staff will be

prepared for in-depth financial presentation on impact of infrastructure investment and DIF on General Fund and Water & Sewer Enterprise Funds

  • 10/26: Full BOA meeting – submission of DIF

development program

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