Public Infrastructure: New Tools, New Opportunities

1. Public Infrastructure: New Tools, New Opportunities Eric M. BraunPartnerK&L Gates

2. Overview I. Introduction II. Special Assessment Districts III. Tax Increment Financing IV. Development Agreements

3. I. Introduction • Public infrastructure continues to deteriorate • Citizens demand higher levels of service, amenities and improved infrastructure • Tax revenues continue to decline • In order to: deliver higher levels of service; meet citizen demands improve existing infrastructure, all with less tax revenue, • Must use of new financing techniques

4. http://www.ncruralcenter.org/water2030/index.html

5. http://www.ncruralcenter.org/water2030/index.html

6. II. SAD Background • On August 3, 2008, Session Law 2008-165 was signed into law authorizing Special Assessment Districts. • Langtree at the Lake in Mooresville • SADs are initiated by a petition of at least a majority of owners constituting 66% of the assessed value of the proposed district and created by a Town, City, or County to finance public improvements benefitting the district. • Assessments are paid in annual installments, and the installments are used to pay debt service on assessment bonds. • The following types of facilities are eligible to be financed through an SAD: • Sanitary sewer systems • Storm sewers and flood control facilities • Water Systems • Public transportation facilities • School facilities • Streets and sidewalks • Legislative effort to expand potential uses of SAD’s

7. SAD Bond Structure Overview • SAD bonds are non rated, land secured debt often referred to as “dirt bonds”. • Debt service on the bonds is paid by the owners of benefited property within the SAD. • Bondholders look to the underlying value of the land as security for the bonds. • Up to two years of capitalized interest can be funded from bond proceeds. During the capitalized interest period, no debt service payments are made by owners of property within the SAD. • A reserve fund is funded from bond proceeds. The reserve fund is used to ensure timely payments to bondholders in the case of delinquent installments.

8. SAD Bond Structure Overview(continued) • The cost of district formation and issuance of bonds is payable from bond proceeds. • All administrative expenses related to the SAD are included in the assessment installments paid by property owners within the SAD. Therefore, the SAD is fiscally neutral to the Town. • Prior to the issuance of bonds, a market study will be performed. • Prior to the issuance of bonds, an appraisal will be performed. • Municipality is not responsible for the debt of the SAD.

9. SAD BondSecurity Jon Snyder Managing Principal Development Planning & Financing Group (512)732-0295 Jon.snyder@dpfg.com

10. Impact of SADs on Local Governments • No obligation to repay SAD bonds under any circumstances. • The SAD is fiscally neutral to issuing government. • Potential up-front funding of facilities accelerates absorption and tax collections by local government.

11. III. Tax Increment Financing • Means of creating a revenue stream to finance public infrastructure • Process of issuing bonds without a referendum • In NC, called “project development financing” or “self-financing bonds” • Typically used to attract new business or industry

12. Tax Increment Financing (continued) • When a district is created, a base property valuation is established • This base value is used for general tax revenue purposes • New public investment is then made, creating “new value” • This “incremental” increase in assessed value is used to finance bonds used for additional public improvements

13. Tax Increment Financing (continued) • May be used for: • Any use authorized for General Obligation Bonds • Any purpose for which a municipal service district may be established in N.C.G.S. 160A-536 • Beach erosion control, flood, hurricane protection, utilities, water resources, drainage and control, Streets, streetscapes, sidewalks, transit-oriented development, parking, healthcare, civic, cultural, entertainment, affordable housing, industrial development, historic preservation, and redevelopment

14. Approval Process Required By Statute • Define Development Financing District • Total land area may not exceed 5% of the total land area of the local government • Property must be comprised of either: • Blighted, deteriorating or underdeveloped; • Appropriate for rehabilitation or conservation activities; or • Appropriate for economic development of the community

15. Statutory Approval Process (continued) • Establish a Development Financing Plan • Apply to Local Government Commission • Determination of Incremental Valuation • Owners may agree to a “Voluntary Minimum Assessed Value” • Minimizes risk that no “increment” will be created • Revenue Increment Fund • Used to finance bonds or pay for new infrastructure

16. Statutory Approval Process (continued) • Local Government Commission Guidelines for Approval of a Project • Proposal is necessary to secure significant new project development for district • The amount of the bond issuance is adequate and not excessive • The proposed project is feasible • The local government’s debt management policies and procedures are good

17. Statutory Approval Process (continued) • The proposed private development would likely not occur without the proposed public projects • The proposed bond issue can be marketed at a reasonable cost to the local government • A development financing plan has been adopted

18. Recent TIF Projects • Carolina Crossroads Music & Entertainment District - Roanoke Rapids, NC • This was the first project development financing project approved in North Carolina. Roanoke Rapids issued $21.5 million to purchase a newly-constructed 1500-seat theater intended as a centerpiece for a future entertainment complex at the intersection of Interstate 95 and NC Highway 125. http://www.carolinacrossroads.com/contact/index.php

19. Recent TIF Projects • North Carolina Research Campus - Kannapolis, NC • The Local Government Commission approved over $160 million in project development financing bonds for projects associated with the North Carolina Research Center in Kannapolis, NC. This project is supported by the City of Kannapolis and Cabarrus County, and is a joint venture between Dole Foods, Duke University, and the University of North Carolina system. The NC Research Campus encompasses a 350-acre site, that will include research facilities, office space, retail uses and town homes. Infrastructure improvements in the TIF district include roadway, streetscape, stormwater, utility, and waterline improvements. http://www.ncresearchcampus.net/

20. Recent TIF Projects • Woodfin Downtown Corridor - Woodfin, NC • In August 2008, Buncombe County issued $12.6 million in project development revenue bonds to finance public improvements in order to create a town center for Woodfin, NC. The county is authorized to issue up to $25 million total in TIF bonds. The TIF district is 205 acres along Interstate 26, near Asheville, NC. The infrastructure improvements to be paid with bond proceeds include streets, water/sewer extensions, pedestrian walkways and bike trails, and possibly a parking facility. http://www.buncombecounty.org/news_Detail.asp?newsID=4043

21. IV. Development Agreements • Many states have used Development Agreements (“DAs”) for years

22. Evolution of Development Agreements • Emerging Trends in Real Estate Development • More complex projects (i.e., vertical and horizontal mixed-use) • Larger tract development – especially in coastal and mountain regions (±1,000 acre developments more common) • Facilitates installation of infrastructure-more certainty

23. Evolution of Development Agreements • Need for more certainty • Demands on public infrastructure • Citizen demand for services and amenities • Limitations on vested rights • Common Law • Statutory

24. To Take Advantage of the Statute Authorizing DAs: • The property must contain 25 acres (exclusive of wetlands, mandatory buffers, unbuildable slopes, and other undevelopable portions of the property) • So, may need substantially more than 25 acres to utilize statute

25. The DA must contain the following: • Legal description of property and the names of its owners; • Duration of the agreement (up to a maximum of 20 years); • Uses permitted on the property, including population densities and building types, intensities, site layout, and design; • Description of developer provided public facilities that will serve the property along with construction schedule;

26. The DA must contain the following: • If the agreement calls for the local government to provide public facilities, then agreement must specify that providing the facilities will be tied to successful implementation by the developer of the proposed development; • Description of land to be dedicated and provisions to protect environmentally sensitive areas of property; • Description of all local permits approved or needed to be approved for the development;

27. The DA must contain the following (continued): • Description of conditions of approval to protect public health, safety, and welfare; and • Where applicable, provisions related to historic structures

28. Why Use a Development Agreement? • Nature and complexity of development necessitates more certainty over time • Lack of predictability costs developers and local governments alike • Helps coordinate funding and installation of private and public infrastructure • Encourages creativity

29. Benefits of Development Agreement • Provides certainty to government and development • Allocates risk and responsibility • May encourage better planning • May encourage more effective large scale planned communities • May foster more creative projects and development styles

30. Specific items that may be addressed in DAs: • Affordable housing • Water and sewer capacity reservations • School sites and construction • Off-site improvements (otherwise, generally prohibited by Statute) • Public safety (i.e., police, fire & rescue) • Parks, open space & greenways • Public water and sewer infrastructure • Streets • Lock-in impact fees • Public parking • Land banking • Protection of sensitive environmental areas

31. Questions??

32. For More Information Contact: Eric M. Braun Partner K&L Gates 430 Davis Drive, Suite 400 Morrisville, NC 27560 Tel. 919-466-1263 or 919-743-7315 Email: eric.braun@klgates.com