cdfp maguire 2104 p3 8 6-2014 final
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Financing Public Infrastructure
through Private Investment
CDFA Texas Financing RoundtableAugust 6, 2014
2
Discussion Agenda
� State of the financing landscape:
� Public sector
� private sector
� Partnership mechanism
� Public Improvement Districts
� Tax Increment Reinvestment Zones
� Municipal Utility Districts
� Other tools
� Questions to Consider
3
Source: ASCE, Texas Chapter (2012)
Grading Elements: capacity, condition, funding, future need
operation/maintenance, public safety and resilience
� Increasing population places greater
demand on existing infrastructure
� Current condition of public infrastructure
not that great
� Public resources to replace, renovate or
construct new public facilities face
funding constraints (local, state, federal)
� Emphasis on “resilient development” –
appropriate density, environmental
stewardship and public amenities
� Up-tic in backfilling, renovating and
constructing new private real estate –
both residential and commercial
(sales tax and property tax revenues)
Category 2008 2012
Roads D D
Bridges B- B-
Transit C C+
Aviation C+ C+
Schools D- D-
Drinking Water D D-
Wastewater C- C-
Dams D- D-
Solid Waste B- B+
Navigable Waterways D C
Flood Control D- D
Energy B+ B+
GPA C- C
Report Card for Texas Infrastructure
Public Perspective of Financing Infrastructure
4
Private Perspective for Financing Infrastructure
OPM = other people’s money
Highest risk
Hardest to fund with OPM
Upfront critical path
Revenue at the back end
� Debt (most risk averse):
� Lenders mitigate risk by requiring more
equity, personal guarantees, signed
contracts or leases
� Banks face regulatory constraints on the
amount of construction lending
� Equity (most expensive):
� Greater equity requirements than pre-
recession (30-40%)
� Return is only from that development
although public infrastructure wider benefit
� Market prices sets the limit on tax/fees in
the district that can recover capital costs
5
Public-Private Partnerships through Development
OPM = other people’s money
� Spread risk
� Align interests (control)
� Lessen the total cost of capital
� Capture created future value
� Public Improvement Districts (“PIDs”)
� Tax Increment Reinvestment Zones (“TIRZs”)
� Municipal Utility Districts (“MUDs”)
6
Public Improvement Districts
Authority: Local Government Code Chapter 372 (1987/ 2011 revisions)
Entity: City or County managed by governing board of jurisdiction
Uses: � Streets and sidewalks;
� Public safety and security services;
� Water, wastewater, health and sanitation, and drainage facilities
� Acquisition of rights of way;
� Art;
� Creation of pedestrian malls;
� Erection of fountains;
� Landscaping and other aesthetics;
� Library facilities;
� Mass transit;
� Park, recreation and cultural facilities;
� Parking facilities; and,
� Acquisition, renovation and/or construction of affordable housing.
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Bond
� Construction Bonds – Up front proceeds secured by a lien on the
benefitted land as is but entitled and improved with proposed public
improvements
� Reimbursement Bonds – Secured by lien on the benefitted project at
the time of bond issuance
� Debt service of the bonds paid through an assessment (not a tax!)
allocated fairly across the benefitted property owners
Pay-as-you-go
� Assessment based on share of front foot, value or other
� Primarily for maintenance and beautification
� PID enters into contracts to carry out the work
Public Improvement Districts (cont.)
8
Risk:
Control: City/County appoints the Board, approves PID petition and issuance of bonds
No public bidding requirements
Capital Cost: Tax-exempt bonds
No pre-payment penalty for early pay off of assessments
Can be combined with other economic development incentives
Value Capture: Benefited property owner pays an assessment (not a tax)
Public Improvement Districts (cont.)
� Non-recourse to the Developer and City/County
� Conservatively underwritten (3:1 value to lien)
� Tax lien (superior to mortgage)
� No pledge needed for City/County to credit enhance bonds
� No reduction in City/County bonding capacity
� Only benefitted property owners pay assessment
� Magnitude of assessment fairly constant for property owner
� Assessment does not increase as value increases
Legislative body
commences Proceedings
1. Detailed staff &
consultant analysis of
PID
2. Preparation of service
and assessment plan
(SAP)
3. Prepare PID formation &
optional bond financing
documents
4. Publish notice of PID
formation hearing
City approving PID
formation
Optional: Levy PID
assessment and approve
land sale
1. Close bond issue
2. Record any levy PID
assessment
3. Commence
Construction
1. Initial Construction or
acquisition
2. Commence activities to
administer debt, levy
and collect special
taxes and comply with
continuing disclosure
requirements
1. Staff “global” review to
determine City/Issuer
benefit
2. Preliminary
legal/financial overview to
approve steps to proceed
1. 50% of the Land Owners
2. Payment of Pre-
Formation Costs
Public Improvement Districts (cont.)
PETITIONED INTIATED PID
PUBLIC HEARING
SUBSEQUENT ACTIONS
Typical Steps in Formation
10
5
2
1
1
1
2
1 2
Tessera On Lake Travis Case Study
Project Overview
� 877 Gross Acres/558 Net
Acres
� 2,000 Single Family
Residential Units
� Supporting Commercial
� Amenities Include
Swimming Pool,
Clubhouse, Hike and Bike
Trails, and Parks
The Challenge� Major upfront infrastructure requirements:
- $3.2m offsite water
- $1.2m offsite sewer
- $5.7m arterial roadway
- $1.7m drainage
- $2.5m parks, landscape, amenities
- $3.8m engineering, construction management, other
- $18.1m Total
� Banks unwilling or unable to lend at terms acceptable to developer
� Infusion of additional equity would significantly reduce returns to developer
Tessera On Lake Travis Case Study (cont.)
The Solution
Negotiated Development Agreement with City:
� Provide City with “Superior Development”
� Install Amenities Desired by City Upfront
� Public Improvement District (“PID”)
Tessera On Lake Travis Case Study (cont.)
PID Structure Major Improvement Area Bonds
� Bonds secured by Major Improvement Area land only
� Contractors paid directly from PID bonds
� Non recourse to Developer or City� 3.39:1 Value to Lien Ratio� 15 Year Term� 6.76% interest rate
Improvement Area #1 Bonds� Bonds secured by Improvement Area
#1 land only� Contractors paid directly from PID
bonds� Non recourse to Developer or City� Builder contracts in place� Developer guaranteed completion of a
portion of the finished lots in IA#1� 3.00:1 Value to Lien Ratio� 30 year Term� 5.88% interest rate
Tessera On Lake Travis Case Study (cont.)
Future PIDs for
Internal Costs
Tessera On Lake Travis Case Study (cont.)
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Tax Increment Reinvestment Zones
Provisions: New development or redevelopment
Proof of blight
“But for” or petition
Residential and appraised value limitations
Source: Craig Johnson, Indiana University (2002)
� Purchase of land for public infrastructure
� Relocation of public utilities
� Water, watewater, drainage systems
� Parks and landscape
� Public roads and buildings
� Façade improvements (public – easement or dedication)
� Environmental remediation
� Demolition of existing structures
� Debt service reserve, capitalized interest, cost of issuance
� Administration fees and marketing
Authority: Tax Code Chapter 311
Entity: Related City or County local government entity managed by Board of Directors
Uses:
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Tax Increment Reinvestment Zones (cont.)
Source: Craig Johnson, Indiana University (2002)
Bond TIFs
� Issuance of revenue bonds
backed against the
increment generated
Pay-as-you-go TIF
� Expenditure through
contracts from the annual
increment of the TIF
Participating taxing entities
forego use of the increment,
dedicating it to the District
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Tax Increment Reinvestment Zones (cont.)
Risk: Bond: Entity if increment not sufficient to pay debt
City/County if it pledged credit to credit enhance bonds
Pay-as-you-go: Whoever up-fronts cost of infrastructure (Developer)
Control: City/County - appoints the Board, approves plan, delegates authority to Board,
approves the issuance of bonds
TIF Board – recommendations to City/County, carries out plan
Capital Cost: Bonds: Tax-exempt bonds; Upfront bonds usually requires credit enhancement
Pay-as-you-go: Interest rate (if any) and length of reimbursement period
Value Capture: Increment of the ad valorem and/or local option sales tax within district
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Tax Increment Reinvestment Zones (cont.)
As of FY 2012:
� About 231 designated zones in
Comptroller’s Registry
� 159 (~70%) have detailed reports available
� Only 27 report outstanding debt
� Outstanding debt: $1.36 Billion
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Municipal Utility Districts
Authority: Water special districts have existed since 1917;
Texas Water Code Chapter 54 (1971) new development
Vehicle: Political subdivision in ETJ that taxes property in the district
Use: Water, watewater, drainage systems, parks, streetlights, fire prevention and
certain types of roads for new development
Risk: Developer pays for upfront cost of infrastructure (debt, equity)
MUD Bonds reimburse developer
Tax on property owners not capped – tax rate fluctuates to service M&O/Debt
City/County only impacted by debt if annex MUD before bonds paid off
Control: Developer / MUD Board of Directors
TCEQ oversight and approval
Capital Cost: Tax-exempt bonds; proven and robust bond market
Value Capture: MUD Board levies an ad valorem tax on all taxable improvements
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Municipal Utility Districts (cont.)
Water District Authority
Tax Supported Outstanding Bond Debt (in $millions)
$11,121 $10,870 $10,718
$10,461
$9,849
$9,101
$7,233
$6,668
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
2013 2012 2011 2010 2009 2008 2007 2006
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PIDs MUDs TIRZs MMD's WCIDs
Cost Recovery MethodAdvance of Construction
and/or ReimbursementReimbursement Only Reimbursement Only
Advance of
Construction and/or
Reimbursement
Reimbursement Only
Jurisdiction City, ETJ, or County City, ETJ, or County City or CountyCity/ETJ > 25,000
populationCity, ETJ, or County
Eligible Improvements
Water, Sewer, Drainage,
Right of Ways, Parks,
Streets, Sidewalks, Mass
Transit, Libraries, Street
Lights, Off Street
Parking, Pedestrian
Malls, Affordable
Housing, Formation
Expenses
Water, Sewer, Drainage,
Right of Ways, Arterial
Roads (only if granted
Road District powers),
Formation Expenses
Sewer, Street Lights,
Streets, Utilities, Water,
Flood and Drainage,
Parking, Park,s
Pedestrian Malls,
Educational Facilities,
Financing, Property
Assembly, Professional
Services, Administrative,
Organizational,
Operating Costs
Water, Sewer,
Drainage, Right of
Ways, Parks, Streets,
Sidewalks, Mass
Transit, Libraries,
Street Lights, Off
Street Parking,
Pedestrian Malls,
Advertising,
Marketing, Formation
Expenses
Water, Sewer, Drainage,
Right of Ways,
Formation Expenses
Source of repayment Assessments TaxesProperty & Sales Tax
Increment
Assessments/impact
fees/taxesTaxes
Credit Support None NoneSubject to Market
ConditionsNone None
Life of Entity Finite Ongoing Finite Finite Ongoing
Summary Comparison
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PIDs MUDs TIRZs MMD's WCIDs
Contract bid requirements None Public Public Public Public
SecurityAssessments & Land
and Improvements
Land and Improvements
and Unlimited Tax
Obligations
Negotiated
Land and
Improvements and
Unlimited Tax
Obligations
Land and Improvements
and Unlimited Tax
Obligations
Source of funding shortfall in
event of taxpayer default
Limited to defaulting
property owner
Other taxpayers in
districtPer nature of security Per nature of security
Other taxpayers in
district
Tax Status of Debt Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt Tax-Exempt
Approving Regulatory Entity -
Formation and Debt
Issuance
City or County/AG's
Office
City or
County/TCEQ/AG's
Office
City or County/AG's
Office
State
Legislature/TNRC/City
/AG's Office
City or
County/TCEQ/AG's
Office
Debt Status Upon City
AnnexationNone
City Assumes
Debt/Possible Impact
on City Bond Rating
N/A
City Assumes
Debt/Possible Impact
on City Bond Rating
City Assumes
Debt/Possible Impact
on City Bond Rating
Residential Use Limitations None None NoneRequires Legislative
ApprovalNone
Ongoing Administration Annual SAP update Monthly Meetings Per TIRZ Agreement Monthly Meetings Monthly Meetings
Administrative Costs Management
Management, Legal,
Assessor, Bookkeeping,
Property Tax, Engineer
Per TIRZ Agreement
Management, Legal,
Assessor,
Bookkeeping, Property
Tax, Engineer
Management, Legal,
Assessor, Bookkeeping,
Property Tax, Engineer
Governing Board City or CountyElected Board of
Directors
Appointed Public
District Board of
Directors
Elected Board of
Directors
Elected Board of
Directors
Summary Comparison (Cont.)
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Other Public Financing Mechanisms
� Economic Development Grants (LGC Chapter 380/381)
� Other types of tax exempt development bonds
� Infrastructure participation agreements
� Partnerships with 4A/4B Corporations
� Federal grants (through public agency)
� Others …..
Whatever it takes to fill the “gap” in the capital stack
25
The Dance: Questions to Consider
� How “close” do you want to dance with your
partner?
� Who is going to lead (control over who does what)?
� Marathon – will this match work?
� Do you know what is important all the parties ? Is
there an alignment of interests?
� Are you even in the right dancehall? (Did you
address everyone’s challenge?)
26
Christine Maguire, AICP, EDFP
Senior Manger ◊ DPFG
609 Castle Ridge, Suite 310
Austin, TX78746
Christine.Maguire@dpfg.com
512-732-0295
Question and Answer
If you ask me anything I don't know, I'm
not going to answer.
--- The Immortal Yogi Berra
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