05-11-2022 Workshop Packet - Laserfiche WebLink

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Project Financing There are generally two ways in which assistance can be provided for most projects, either upfront or on a pay- as-you-go basis. With upfront financing, the City would finance a portion of the developer’s initial project costs through the issuance of bonds or as an internal loan. Future tax increment would be collected by the City and used to pay debt service on the bonds or repayment of the internal loan. With pay-as-you-go financing, the developer would finance all project costs upfront and would be reimbursed over time for a portion of those costs as revenues are available. Pay-as-you-go-financing is generally more acceptable than upfront financing for the City because it shifts the risk for repayment to the developer. If tax increment revenues are less than originally projected, the developer receives less and therefore bears the risk of not being reimbursed the full amount of their financing. However, in some cases pay as you go financing may not be financially feasible. With bonds, the City would still need to make debt service payments and would have to use other sources to fill any shortfall of tax increment revenues. With internal financing, the City reimburses the loan with future revenue collections and may risk not repaying itself in full if tax increment revenues are not sufficient. The developer’s initial request for assistance was through the establishment of a new tax increment financing housing district as a pay-as-you-go note. This method would provide additional annual cash flow to the project and subsequent increased debt financing amount as the remaining funding source to close the financial gap. A pay-as-you-go note would require the establishment of a 26-year housing district with semi-annual payments made to the developer for up to $1.0M of principal payments plus interest at a rate of approximately 4.5%. Additional details related to the tax increment revenue estimates from a new housing district are included under Tax Increment Revenue Assumptions Upon further review of the City’s existing tax increment districts, the City of Little Canada has a unique alternate option of providing up-front assistance to the developer to fill the approximate $1.0M gap. The temporary transfer authority is described in further detail below, and requires terms and conditions that would be outlined in a TIF Assistance Agreement. This option would not require the establishment of a new TIF district and rather than capturing the increased tax capacity, the proposed housing project would instead added to the general tax base for the City, County and School District. The developer has indicated this option would be treated as a loan with an interest component. Terms of potential loan repayment are still being discussed bu t initial terms may include interest only payments for 17 years with a balloon payment in year 17 which would coincide with the developer’s anticipated capital investment/refinancing. Other options include some principal and interest repayment in earlier years, subject to availability of cash flow and minimum debt coverage requirements. If this option is preferred, further analysis on potential repayment terms would occur following the workshop. Temporary Transfer Authority In 2021, the Legislature enacted expanded, temporary authority to transfer unobligated tax increments for purposes of assisting private development consisting of the construction or substantial rehabilitation of buildings and ancillary facilities, if doing so will create or retain jobs in the state. Proposed amidst the COVID-19 pandemic, the enacted law is narrower than initially proposed and is similar to 2010 legislation that temporarily expanded the use of TIF with the aim of stimulating economic recovery after the Great Recessi on. Authority and Purpose The new law temporarily permits the City to elect, by resolution, to transfer unobligated increment for certain specified purposes. The new law does not, however, override requirements to pay bonds to which increments are pledged. Any transfer under this provision must be for the purpose of assisting private development that meets all the following criteria: 1. It consists of the construction or substantial rehabilitation of buildings and ancillary facilities; 2. It creates or retains jobs in the state, including construction jobs; and 3. Construction commences before December 31, 2025 and the project would not have commenced before that date without the assistance.