Presentation to Iron Range Economic Alliance
May 28, 2014
Paul Steinman
Tony Schertler
Public Resources for Private
Use/Benefit
• Housing and Economic Development efforts can be
summed up as direct efforts undertaken by a local
government to encourage private investment.
• Three flavors
– Community Development (capacity building)
– Housing Development (needs based vs. demands)
– Economic Development (increase market value)
1
Framing the Issue
• How much of the vision is going to be implemented
by the public and how much by the private
– Important because the return on investment for public is
typically different than the return on investment for private
• Prioritize public benefit outcomes then start to apply a
cost to them
• Start looking for the fiscal values generated with the
vision area
A Good Economic Development Strategy
• Requires conducting a three part evaluation for every
project
– Public purpose benefits
– Strength of opportunity
– Public costs
3
Public Purpose Benefits (Policy)
• Increased private investment (consequently market
value) through:
–
–
–
–
–
Increased employment (Type of Jobs)
Added housing units (Affordable or Market Rate)
Attraction of visitors who contribute to the local economy
Increased sales volume
Addition of infrastructure such as parking or public
improvements which results in increasing market value
through the above
– Elimination of negative or blighting influences effecting
surrounding property (Blight Curve)
4
Blight mitigation example
5
Strength of Opportunity (Professional)
• Market demand for the use developed (Market Study)
• Control or prospects for control of a suitable site
(Legal & Engineering)
• Motivated and qualified developer (Developer
Review)
6
Strength of Opportunity (Professional)
cont.
• Healthy growing employer (Industry Evaluation)
• Extent to which the expected positive consequences
of a project outweigh the negative consequences of
doing it (e.g. increased public liability)
• Probability that the project will leverage additional
private investment or spin-off investment adjacent to
the development (domino effect)
7
Public Cost (Professional & Policy)
• Existence of a financial gap (the amount of the difference
between total development cost and private
market/investment value)
• In absolute terms, the availability of public or philanthropic
resources to fill the gap for a specific project (This is a good
time to for managers to connect with the finance director)
• In relative terms, the amount of subsidy required for a given
project in contrast to amounts provided for similar projects in
the past or current alternative projects (If everything is a
“catalyst” what is catalyzed?)
8
What role does your community want to
play to encourage development?
• Simply grant the permit and zoning allowance
– Lowest risk
• Conduit issuer of tax exempt financing
– Low risk (reputation)
• Reimburse the prospect as benefits are completed
– Low risk
• Be the lender
– Medium risk
• Be the borrower or guarantor
– Higher risk
• Be the developer
– Highest risk
13
What about other returns for accepting
more risk?
• There are no published benchmarks for what an
appropriate financial return should be for projects that
blend public purpose outcomes and financial risk
10
If your community chooses to accept
more risk then:
• Determine up front that a complete development plan with
detailed sources and uses is necessary. Every piece of
information needs a responsible party providing it and those
that are estimates should be noted.
• Before making a resource commitment, the best available
information should be provided in a manner that is consistent
and comparable.
• The level of detail required will be a function of the level of risk
that you are willing to undertake.
11
Financing Tools
• Traditional
–
–
–
–
–
–
Tax Increment Financing
Tax Abatement
Revolving Loan Funds
Fee waiver
IRRRB programs
DEED programs
12
Financing Tools
• Non Traditional (not as commonly used)
–
–
–
–
–
–
Tax exempt financing
Conduit financing for qualified manufacturing/housing
Local option sales tax for ED infrastructure
Angel Investor tax credit
Sales tax exemptions for qualified business
New Markets Tax Credits
13
Financing Tools
• Tools that require a source of capitalization
– Revolving Loan Fund
– Interest Buy Down Program
• Tools that provide a source of capitalization
–
–
–
–
–
Tax Increment
Tax Abatement
Tax-Exempt Financing, not conduit
Minnesota Investment Fund
IRRRB and DEED Grant Funds
14
Financing Tools
• Primary Tools
–
–
–
–
–
Tax Increment Financing
Tax Abatement
DEED Programs
IRRRB Grants
HRA/EDA levy
15
Primary Financing Tools
• Tax Increment Financing
–
–
–
–
–
Redevelopment
Renewal and Renovation
Housing
Economic Development
Soils Conditions
16
Primary Financing Tools
• Tax Abatement
–
–
–
–
How does it work?
Simpler than TIF, minimal administration
Educational process for other jurisdictions involved
Creative use?
o
Community Centers, Ice Rinks, Swimming Pools
17
Primary Financing Tools
• DEED – Contamination cleanup, Demolition loan,
Infrastructure funding, etc
• IRRRB
–
–
–
–
Commercial redevelopment grants
Infrastructure grants
Film production, Dev partnership, etc.
Comprehensive Plan Grants
• Entities required to have updated Comp Plans
18
Primary Financing Tools
• EDA/HRA
– Levy Authority
o
o
HRA – 0.0185% of taxable market value
EDA – 0.01813% of taxable market value
• EDA/HRA
– Benefits of EDA/HRA
o
o
Created by statute for purposes related to housing,
redevelopment, or other real estate-type activities
Authorized to own, lease, buy and sell property, loan money,
etc.
19
Secondary Financing Tools
• Tax Exempt Special Assessment Financing
– MN Statutes 429 – special assessments
– Assess certain improvement against benefitting property
– Benefitted property gains the advantage of tax exempt
financing
20
Secondary Financing Tools
• Tax Exempt Conduit Financing
– Business entity uses public entities tax exempt status
– Allows them to borrow at lower tax exempt rates
– Qualified projects only, manufacturing & housing, nonprofits
– NOT a source of capital
– Bank Financed at tax exempt rates
21
Secondary Financing Tools
• Other Tools
– Local Option Sales Tax
• ED Infrastructure
–
–
–
–
Angel Investor Tax Credit
New Markets Tax Credits
Community Development Block Grants
Revolving Loan Fund (RLF)
22
Capitalization Options
•
•
•
•
•
•
General or EDA/HRA levy
Land Sales
Admin Fees
Tax Abatement proceeds or TIF Administration
Tax Levy
Minnesota Investment Fund
23
Financing Tools
Questions?
24