ECONOMIC

DEVELOPMENT

IN 2016

Dissolution Recap – SB 107

Annual ROPS

First one due February 1, 2016

Can amend only once per year

New admin allowance provisions

Last and Final ROPS option

Commencing October 1, 2018, CAC’s will

conduct the PPA review and report to DOF

by February 1 – §34186(c)

Changes to Enforceable Obligations

Some new obligations allowed - §34171(d)(2)

Agreements related to payment of refunding or refinancing debt

State Highway Infrastructure improvements

HUD Section 108 Loans

No longer Enforceable Obligations - §34177.3(b)

No new enforceable obligations for “wind down” activities

Legal expenses when suing DOF

Can only be paid out of admin allowance unless positive final judgement

Oversight Boards

Local OB County OB – July 1, 2018

Staffed by County or selected City. Costs recovered

through ROPS.

Several OB actions do not need to be approved by DOF

Actions to implement a Long Range Property Management Plan

It just keeps going…

2011 Bond Proceeds §34191.4(c)

100% of housing bonds

Up to 45% of non-housing bonds based on time of issuance

Override Revenue – §34183(a)(1)(B)

Transfers back to issuing agency if not needed for debt service

Time and Financial Limits - §34189

Eliminated

ECONOMIC

DEVELOPMENT

IN 2016

The Most Press Goes To . . .

Enhanced Infrastructure Improvement

Districts (EIFDs)

Community Revitalization Authorities

(CRAs)

Real estate tools

Public benefit trade-offs

Monetizing other assets

Other approaches

IFD Tools in CA

Type Infrastructure

Financing

District

“IFD”

Infrastructure &

Revitalization

Financing

District

“IRFD”

Enhanced

Infrastructure

Financing

District

“EIFD”

Funding

Mechanism

TIF from Taxing

Agencies Electing

to Participate

TIF from Taxing

Agencies Electing

to Participate

TIF from Taxing

Agencies Electing

to Participate

Voter approval to

form?

2/3 2/3 No

Voter approval to

issue bonds

2/3 2/3 55%

Oversight Local jurisdiction Local jurisdiction Public financing

authority

Private facilities None Some Some

EIFDs (SB 628)

Formed by city, county

School districts, offices of ed, comm colleges

may NOT participate; other special districts

that levy taxes may

Establish a public financing authority

Board represented by members of forming

legislative bodies and 2 public members

Select a district boundary

Adopt an infrastructure financing plan

Noticing and public hearing requirements

The District May:

Purchase, improve, develop, rehabilitate, etc. public capital facilities or projects of “communitywide significance”

Roads, transit facilities, parking facilities

Sewer treatment/water reclamation

Flood control

Child care facilities, libraries, parks, recreational facilities

Facilities for solid waste

Brownfield restoration/mitigation

Projects on former military base

Affordable housing

Industrial structures

Some Rules

Participating agencies can decide how

much tax increment to dedicate to EIFD

Public vote is required to issue bonds –

55% voter approval

Cities/Counties that had RDAs must:

Have finding of completion

Not be in litigation

Have complied with SCO findings

Major Benefits of EIFD over

Prior Options

Lower voter approval for bond issuance

Greater menu of expenditure options

Some thought given to how former RDA

areas and other taxing agencies

participate

Can generally be formed anywhere

Community Revitalization and

Investment Authorities (AB2)

Tax increment financing tool

25% low/mod set-aside requirement

Funds projects to revitalize qualified areas

City or County creates Community

Revitalization and Investment Authority

(CRIA)

Authority can formed through adoption of

joint powers agreement with other taxing

agencies

Who can participate?

Cities, counties and/or special districts

No school entities

May be done as a JPA with multiple agencies

City/county that created an RDA may not form an

Authority unless SA:

Received finding of completion

Has no pending litigation with State

Complied with SCO Asset Review

Governing board:

3 (or majority for JPA) members of legislative body

2 members of public who live/work in area

Participation by Taxing

Agencies

Non-school entities can essentially opt in

or out at any time with 60 day notice to

Auditor Controller

Except can’t rescind share of taxes pledged to

repayment of debt issued

Makes pay-as-you-go projects higher risk

EIFD or CRIA and Project Area

Overlap

Project Area

EIFD or

Community Revit/

Investment Area

Some Rules

Establish a set boundary – “Investment

Area”

Adopt a Plan for reinvestment

May issue bonds, receive grants, or accept

other assistance/investment for projects

30 year limit to establish indebtedness

45 year limit to collect tax increment and

repay debt

Eligible Projects

Infrastructure improvements

Affordable housing*

Hazardous substance remediation

Building and other physical improvements*

Acquire property for ED purposes*

Direct business assistance for industrial and

manufacturing uses*

Encouraged reuse of previously developed

sites*

What area qualifies?

Area with at least 80% of land that is:

Low-income (max 80% AMI); and

Meets 3 of 4 conditions:

High unemployment

High crime

Deteriorated or inadequate infrastructure

Deteriorated commercial or residential structures

OR

Former military base “principally characterized” by deteriorated or inadequate infrastructure and structures

Public Meeting

Discuss Plan

Hearing 1

Consider comments

No action

Hearing 2

Consider comments

Modify or reject Plan

Hearing 3

Protest Hearing

<25% Protest: Adopt

25-50% Protest: Election by Mail

>50% Protest: Terminate

At least 30 days between hearings At least 30 days prior to

Hearing 1 notice

10 days prior online &

mail

10 days prior online &

mail

4 weeks prior

newspaper + 10 days

online/mail

10 days prior online, mail & newspaper

Noticing

Tax Increment – 3% AV Growth

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Base Year Revenue Tax Increment Revenue

$1M Base AV

45 Years

Non-Housing Revenue = $3.8M

Housing Set Aside = $1.3M

Reporting Requirements

Annual report due by June 30

Adopt at noticed public hearing

Progress report on projects, finances, and

housing

Annual audited financial statements

Protest proceeding held every 10 years

Noticed public hearing

Similar process to plan adoption protest

Housing compliance audit every 5 years

Required after allocating $1 million to LMIHF

Major Benefits of CRIA

Much greater economic development

powers, closer to a redevelopment

agency, but now with more checks and

balances

Mandated housing set aside

Public vote not required to issue debt

Leverage Real Estate Assets

Challenges with Real Estate

Ridiculously, jargon-plagued industry

New tools / old-school thinking

Lots of variables

Land use

Local market forces

Expectations and types of investors

Expectations and types of developers

Volatility of economic forces

FUNDAMENTALS OF

DEVELOPMENT

Investors

Developers

Users

Investors: invest in real

estate for cash flow

Developers: look to

increase the value of

land

Users: need real estate

for specific purposes

Today’s real estate investors

REITs

Institutional investors

Insurance companies

Investment banks

Commercial banks

Private equity

Traditional private investors

EB-5 / Direct Foreign Investment

Crowdfunding

City may

never meet

these people

nor know

their

expectations

Why Real Estate Matters

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Retail Prototype65 Jobs

Office Prototype266 Jobs

Hotel Prototype55 Jobs

Mixed UsePrototype29 Jobs

$ p

er L

and

SF

(3

Acr

e S

ite)

Value of Land vs. City Fiscal and Economic Benefits (Prototypical 3-acre Development in Sample City)

Land Residual / SF

Why Real Estate Matters

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Retail Prototype65 Jobs

Office Prototype266 Jobs

Hotel Prototype55 Jobs

Mixed UsePrototype29 Jobs

$ p

er L

and

SF

(3

Acr

e S

ite)

Value of Land vs. City Fiscal and Economic Benefits (Prototypical 3-acre Development in Sample City)

Land Residual / SF City Revenue / SF

Why Real Estate Matters

0

50

100

150

200

250

300

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Retail Prototype65 Jobs

Office Prototype266 Jobs

Hotel Prototype55 Jobs

Mixed UsePrototype29 Jobs

Job

s C

reat

ed

$ p

er L

and

SF

(3

Acr

e S

ite)

Value of Land vs. City Fiscal and Economic Benefits (Prototypical 3-acre Development in Sample City)

Land Residual / SF City Revenue / SF Jobs

REAL ESTATE TECHNIQUES

Ground Lease

Local agency executes

market (or sub-

vented) ground lease

with developer

Allows developer to

finance land “off

balance sheet”

Tax Subventions

Site specific tax

revenues reimbursed

to project developer

who finances local

agency’s contribution

to project

Can be legally and

politically challenging

Real Estate Techniques City Selling former RDA Property

Taxing Agency

Compensation

Agreements

SB 470 (2013)

Requirements

Allows city to sell at

fair reuse value, not

just fair market value

2/3 approval of

legislative body

Noticing requirements

No DOF Review

Successor Agency Selling RDA Property

Approval by Local

Oversight Board at Duly

Noticed Meeting

Consistency with LRPMP

Helpful

No DOF Review

City Purchasing Property

Private Use Voluntary Sale

Appraisal required if financing

Engage experts to perform due diligence

Title report

Environmental

Physical inspection

No tax benefits to seller

Relocation

Resale at FMV

Public Use

Voluntary Sale

(Friendly) Condemnation

Follow State’s Public

Acquisition Guidelines

Requires appraisal

first in all cases

Notice to property

owner of appraisal

Fair compensation

(maximum value)

Tax benefits to Seller

Relocation

Not for all circumstances

Pros

Control of site and land

use entitlements useful

Few developers willing

to act as your economic

developer

Many ways to ensure

optimal development

Appreciating markets

have lower risk

Cons

Risk spread to public

agency

Requires sophisticated

skills to underwrite

Difficult to subsidize

today

Can trigger additional

project costs and delay

San Carlos – Landmark Hotel

Project

Acquisition

1 Increase net revenues to General Fund

2 Maximize return on investment (ROI) for

City funds (ROI >5%)

3 Economic growth and diversification of

commercial base

4 Timing and readiness of project

5 Maximize private investment in City

6 Key site/location

(significant/substantive/catalytic)

7 Revitalization of commercial districts or

neighborhoods

8 Other, non-fiscal community (public

facility or infrastructure) benefits resulting

from project

A role for the city

Development in 2014

Threats Owner/User Impatient

for Deliveries

Costs Increasing (Title 24)

NIMBY, CEQA & Entitlement Delays

Build-to-Suit Risky

Not enough new models for retail real estate

Office transforming (utilization and design)

Multifamily higher yielding

Opportunities

Very attractive markets,

especially industrial,

office in some markets

Demand very strong for

new product

Infill sites, large logistics

center sites in demand

Financing and equity

available

Developer wants site, but

won’t close without permits…

Developer wants

contingencies in place

Property owner wants to sell now

Entitlements Building Permits

Developer Buys Property

Six Months

Sellers not interested in upside

to City or waiting, willing to sell

now…

Developer wants

contingencies in place

Property owner wants to sell now

Entitlements Building Permits

Developer Buys Property

Six Months

Property owner won’t

sell on contingency

City could acquire and hold site

during entitlement/permit

period…

Property owner wants to sell now

Entitlements Building Permits

Developer Buys Property

Six Months

City Buys Property – Takes on carrying

costs/risks

City could acquire and hold site

during entitlement/permit

period…

City Buys Property – Takes on carrying

costs / risks

City does not have enough money

City figures out how to finance

How Lease Financing Works

Basic Framework

“Lender”

•Submits proposed bid

•Agrees to provide up-front Lease Payment for Project

City

•Solicits bids

•Pledges budget appropriation for leaseback payments

Parties Involved

City

• Lessee / Lessor

Financing Authority

• Originates Leases & Assigns to Bank

“Lender”

• Bank or other Financier

Key Facts

Solicited bids from over 40 parties

Banks, private investors, pension funds, County

Process took few weeks

Lenders needed some coaching on applicability of tool

Terms very attractive

Rates as low as 3% taxable

Not all require pledge of essential asset

City required prevailing wage on construction

Innovative use of public financing

Developer closed on project 2 days ago

Other Opportunities

Public Benefits

Permitted by Right

Discretionary

Public Benefits

What is the VALUE of the additional floors to the developer,

And should they be the sole beneficiary of that value?

Should there be a PUBLIC benefit as well?

Discretionary

Talent Pipeline Management

Source: US Chamber of Commerce

Talent Pipeline

Academies

Foundation Board School District

Partners

Pa

rtn

ers

City

Chambers

Businesses

De

sir

ed

Re

su

lt

Ne

two

rk

Businesses need

employees

Employees need

training

Businesses and

schools often

struggle to work

together

And what is the

City’s role?

Cell Towers

Can only produce revenue for the City if

it is NOT in public right of way

Be careful how original site is permitted

New legislation means that once the site is

established, instrument can be changed

Technology Infrastructure

City as internet service provider –

preparing for the Internet of Things

Concerns

Security

Personal data

Volume needs not well understood

Changes/fluidity in billing structures

If nothing else – need to understand how

data can be used

The Future City