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Welcome CDFA - Tax Increment Finance Coalition Webcast Series: The - - PowerPoint PPT Presentation
Welcome CDFA - Tax Increment Finance Coalition Webcast Series: The - - PowerPoint PPT Presentation
Welcome CDFA - Tax Increment Finance Coalition Webcast Series: The California TIF Experience The Broadcast will begin at 1:00pm (EDT). The California TIF Experience Erin Tehan Legislative & Federal Affairs Coordinator Council of
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Welcome
CDFA - Tax Increment Finance Coalition Webcast Series: The California TIF Experience This Webcast is a listen-only event. Please make sure your computer speakers are turned on to hear the presentation. You can also listen by telephone using the instructions provided in the email from GoToWebinar. To ask a question, type your question into the Question box in the GoToWebinar control panel. The moderator will field your question to the appropriate panelist. CDFA is recording this Webcast, and it will be available to view online at www.cdfa.net.
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The California TIF Experience
Ken Powell
Managing Director Stone & Youngberg LLC Richmond, VA
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The California TIF Experience
Sara Oberlies Brown
Managing Director Stone & Youngberg LLC Los Angeles, CA
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San Francisco Los Angeles San Diego New York Chicago Phoenix Richmond Annapolis
CDFA Webinar Series
The California TIF Experience
September 29, 2011
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I. California Tax Increment Finance Overview 3 II. The Market for California Tax Allocation Bonds 50+/- Years Later 12
PAGE
Table of Contents
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California Tax Increment Finance Overview
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Introduction to California Redevelopment Finance
Tool used by California cities and counties to revitalize
deteriorating and blighted areas within residential neighborhoods and business districts
History:
Community Redevelopment Act adopted in 1945 CA Constitutional amendment in 1952 facilitated development of first
redevelopment project area
By 1975, 158 agencies established with a total of 202 project areas Slow growth initially, but after the “taxpayer revolt” in 1978 led to the
passing of Prop 13, growth accelerated
By 1990, there were 366 redevelopment agencies and 658 project areas Today there are approximately 400 active redevelopment agencies in
California
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Underlying Structure
Basic premise
– Define a ‘project area’: generally urban and/or blighted – Calculate its assessed value (base value) – Use public funds to seed investment and redevelopment – Capture tax benefits of resulting property value increases
- Redevelopment powers
– Eminent domain – Land assembly – Grants, loans, and investments to eliminate blight, improve affordable housing, etc.
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Primary Redevelopment Goals
Eliminate blight & reverse deterioration trends
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Primary Redevelopment Goals
Assist in development, reconstruction and rehabilitation in underserved areas
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Primary Redevelopment Goals
Rehabilitate existing low-income housing stock Create new housing
- pportunities for low
income households
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Primary Redevelopment Goals
Attract private investment, create jobs and increase sales tax revenues for general governmental use
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Key California Redevelopment Terms
Project Area Value
Assessed values (AV) on tax roll May be lower than “market value”
due to Prop 13 limits on AV increases
Base Year Value
Established at project area creation
Incremental Value
Property assessed value growth over
base year
Tax Increment
~1% of Incremental Value
Project Area Property Value Redevelopment Activity Over Time Base Year Value Incremental Value Current AV Market value
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Tax Increment Revenues
Tax increment revenues:
~ 1% of the incremental value
Housing set-aside (20%):
~20% of tax increment revenues set-
aside for affordable housing
Non-Housing Revenues (80%)
Pass-Through Payments by Formula
School Districts College Districts County Services (library / fire) Water / Flood Control Districts
County Administrative Costs RDA Administrative Costs Optional DDA or OPA payments to
developers
Infrastructure Projects / Bonds
Project Tax Revenue Redevelopment Activity Over Time Base Year Revenue Tax Increment 1% of Current AV
OPAs/DDAs County Admin. RDA Admin. Housing Projects/Bonds Pass-Throughs
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The California TIF Experience
John Shirey
City Manager City of Sacramento Sacramento, CA
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1945: Legislature passed Community Redevelopment Act 1951: Community Redevelopment Law was put in State Code 1952: Voters approve use of tax increment financing in State Constitution 1976: 20% set-aside for Low and Moderate Income Housing Required 1994: Redevelopment Reform Act (AB 1290)
H I STORY OF REDEV ELOPM EN T I N CALI FORN I A
1
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2004: Proposition 1A Approved 2008: AB 1389 $350 Million Take CRA vs. Genest I Declared Unconstitutional 2009: AB x4 26 $2.05 Billion Take CRA vs. Genest II Superior Court Decision May 2010 Appellate Decision Expected in 2011 2010: Proposition 22 Passed by Voters Protecting Tax Increment 2011: League, CRA File Lawsuit in State Supreme Court to Overturn Unconstitutional Redevelopment Elimination Legislation (AB 1X 26/27)
H I STORY OF REDEV ELOPM EN T I N CALI FORN I A
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N U M BER OF CALI FORN I A AGEN CI ES AN D PROJ ECT AREAS H AS PEAK ED
SCO Annual Reports
3
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The California TIF Experience
Sara Oberlies Brown
Managing Director Stone & Youngberg LLC Los Angeles, CA
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The Market for California Tax Allocation Bonds 50+/- Years Later
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Redevelopment Financing Options
Cost effective financing options increase as project area matures and credit strength improves
Incremental value
- ver base year
City loan Bond anticipation notes with bond take-out Assessment District bonds with developer reimbursement Lease-secured general fund debt with reimbursement Non-rated bond financing Rated bond financing Insured bond financing Redevelopment activity over time Project area formation Options will vary with extent of debt service coverage and other credit characteristics
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Bonding Capacity Considerations
Debt Service Coverage
Legal documents usually provide investors with a minimum required debt service before
additional bonds can be issued
125% debt service coverage is fairly typical
Cash Flow Needs
Must also provide for adequate cashflow for all obligations, in addition to bonds Other obligations might include senior and subordinate pass thru payments, housing set-
aside, agency administration costs and subordinate debt obligations
Interest Rates
Depend on credit rating and market conditions Higher rates will reduce capacity
State Takes
State has raided redevelopment agency revenues to balance its own budget
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Recent Redevelopment Market Activity
Active TAB Issuance from Exploding Real Estate Values 2002-2005
80% drop from 2006 peak to 2009 low, modest rebound in 2010 Issuance accelerated in wake of Governor’s Budget proposal to eliminate RDAs Marked increase in first half of 2011 as agencies rushed to market ahead of pending
legislation
$2.7 $3.8 $3.0 $1.1 $0.8 $1.2 $1.3
$0 $1 $2 $3 $4 $5 2005 2006 2007 2008 2009 2010 2011 ytd Billions
94 107 91 55 38 54 64
20 40 60 80 100 120 2005 2006 2007 2008 2009 2010 2011 ytd
Annual California Tax Allocation Bond Issuance
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2011 Issuance Volume
TAB issuance in 2011 has been concentrated
“TAB-alanche” in March included 28 financings for over $575 million of par
(nearly half of total year-to-date TAB issuance)
2011 California Tax Allocation Bond Financings By Week
($ in millions)
$0 $0 $53 $91 $7 $9 $33 $40 $374 $36 $140 $26 $2 $50 $19 $37 $11 $20 $44 $0 $203 $46 $72 $15 $20
$0 $50 $100 $150 $200 $250 $300 $350 $400 Jan 7 Jan 14 Jan 21 Jan 28 Feb 4 Feb 11 Feb 18 Feb 25 Mar 4 Mar 11 Mar 18 Mar 25 Apr 1 Apr 8 Apr 15 Apr 22 Apr 29 May 6 May 13 May 20 May 27 June 3 June 10 June 17 June 24
Week Ending
New-Issue Par
Governor's budget introduced Draft RDA legislation introduced Initially expected date of budget vote May budget revise Budget and RDA legislation enacted
Source: Ipreo.
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The California TIF Experience Audience Questions
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Upcoming Events at CDFA
Intro Tax Increment Finance WebCourse November 8-10, 2011 Daily: 1-5 pm (EST) Intro Revolving Loan Fund WebCourse December 13-15, 2011 Daily: 1-5 pm (EST) Fundamentals of Economic Development Finance WebCourse January 24-26 Daily: 1-5 pm (EST)
Register online at www.cdfa.net
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Next Webcast
Thursday, December 8, 2011 @ 1:00pm Eastern CDFA - Tax Increment Finance Coalition Webcast Series: The White Elephant Mall Nearly every community in the country has a white elephant mall sitting empty. These once vibrant economic engines have become a plague on the local economy but offer one of the prime opportunities for redevelopment and
- reinvestment. This webcast will explore the white elephant mall and how
communities are using TIF to put these important assets back to work.
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