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Unlocking the Development Finance Toolbox
Presented By
Toby Rittner, DFCP, EDFPPresident & CEO
Council of Development Finance Agencies
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Copyright CDFA 2019
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What is Development Finance?
▪ Development finance is the efforts of local communities to support, encourage and catalyze expansion through public/private investment in physical development/redevelopment and/or business/industry.
▪ It is the act of contributing to a project/deal that causes that project/deal to materialize in a manner that benefits the long term health of the community.
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What is Development Finance?
▪ Development finance requires programs and solutions to challenges that the local environment creates.
▪ Economic developers are the bridge between government and business and often direct the vision of a sound financing toolbox.
▪ Regional advantages can enhance development finance efforts through partnership, cooperation and mutually advantageous programming.
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What Does DF Include?
▪ Debt, equity, credits, liabilities, remediation, guarantees, collateral, credit enhancement, venture/seed capital, early stage, workforce, technical assistance, planning, short-term, long-term, incentives, gap, etc.
▪ Proactive approaches that leverage public resources to solve the needs of business, industry, developers and investors.
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What DF Does Not Include
▪ Free handouts and unabashed subsidies
▪ Duplicative assistance
▪ Poor due diligence and transparency
▪ Poor oversight and performance measures
▪ Irrational responses to immediate challenges
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Why is DF Important?
▪ Businesses need working capital and the ability to invest in themselves
▪ Developers need assistance to achieve an acceptable ROI
▪ Communities need infrastructure and amenities
▪ Citizens need opportunities for advancement –jobs, small business, education, etc.
▪ Regions need economic prosperity
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Development Finance Agency (DFA)
▪ Development finance agencies (DFAs) can be either public or quasi-public/private authorities that provide or otherwise support economic development through various direct and indirect financing programs.
▪ DFAs may issue tax-exempt and taxable bonds, provide credit enhancement programs, and offer direct lending, equity investments, or a broad range of access to capital financing mechanisms.
▪ DFAs can be formed at the state, county, township, borough or municipal level and often times have the authority to provide development finance programs across multi-jurisdictional boundaries.
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DFA Examples
▪ Industrial development authorities, boards or corporations
▪ Economic development authorities, corporations or councils
▪ Special purpose authorities (port, transportation, parking, development, energy, air, water, infrastructure, cultural, arts, tourism, special assessment, education, parks, healthcare, facility, etc.)
▪ Local and community development authorities, corporations or institutions
▪ Departments of development or commerce and finance authorities, divisions, or departments within state and local government
▪ Business development corporations, centers or districts
▪ Development and redevelopment authorities, commissions or districts
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High Impact DFA
▪ Every state has authorizing language to allow for the creation of the DFAs
▪ DFAs that are able to manage and implement a variety of toolbox programs are considered “high performing”
▪ For those communities that do not have the means or capacity to create a high performing DFA, partnerships are critical
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What is the Market?
▪ 55,000 bond issuers
▪ 25,000+ revolving loan funds
▪ 1000+ EB-5 regional centers
▪ 1000+ CDFIs
▪ 35,000+ public and private economic development organizations
▪ Hundreds of regional planning organizations
▪ 300 certified development corporations
▪ Thousands of banks and financial institutions,
▪ 65,000 foundations
▪ Hundreds of development non-profits and supporting agencies
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Landscape of Tools – 100s of Them
Credit Enhancement
Linked Deposit Programs
504 LoansCollateral Support
Historic Tax Credits
501(c)3 Bonds
Industrial Development Bonds Mezzanine
Funds
Property Assessed Clean Energy
EB-5
Revolving Loan Funds
New Markets Tax Credits
Special Assessment
Tax Increment Finance
Municipal Bonds
Grants
Impact Investing
Seed & Venture Capital
Community Reinvestment Act
Tax Abatements
Microlending
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Landscape of Tools – 100s of Them
▪ Federal – Over 100 federal financing programs for everything you can imagine – small business, redevelopment, environmental remediation, transportation, water, rural development, urban infill, underserved markets, capital improvements, energy, minority owned businesses, etc.
▪ State – Thousands of state programs including grants, loans, tax credits, subsidies, tax incentives, bonds, etc.
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Economy, Environment & Equity
▪ Many roadblocks to supporting sustainable development including
▪ Credit quality – borrowers, project, community
▪ Disinvestment – crumbling infrastructure, stressed workforce
▪ Environmental challenges – blight, contamination
▪ Costs – sustainability is expensive
▪ Resistance – equitable development is threatening to many
▪ Rebounding economy – easier paths to success (short lived as they may be)
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Economy, Environment & Equity
▪ How do we address these roadblocks?
▪ Analytics – What is the cost of doing development in the old manner and how can we monetize the savings to be sustainable?
▪ Scope – What problem are we trying to solve and can that problem be solved with a wider scope? One-offs hurt progress.
▪ Local Initiative, Wide Support – How do we engage the local community to not only support equitable development but to also invest in it? And, how do we get larger players (private entities) to foot the bill?
▪ Leverage – Using small public dollars to leverage large private investment
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Trends in DF Tool Use
▪ 50% of finance agencies issue bonds
▪ 41% act as conduit bond issuers
▪ 50% provide direct loans
▪ 27% provide loan guarantees (collateral support)
▪ 39% provide grants
▪ 62% provide technical assistance
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Despite these Trends
▪50% of all finance agencies allocate less than 20% of their actual budget to directly financing development.
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Tool Use Trends – Bonds
▪ Industrial Development Bonds (IDBs)
▪ Only 27% of agencies frequently use with 50% rarely or never using
▪ 501(C)(3) Bonds
▪ 40% of agencies do not use this tool
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Tool Use Trends – TIF
▪ Tax Increment Finance
▪ Nearly 40% of finance agencies do not use TIF (48 states have TIF capabilities)
▪ SIDs & BIDs (special districts)
▪ 65% of agencies do not use these tools
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Tool Use Trends – Tax Credits
▪ Less than 5% of finance agencies frequently employ the use of state & federal tax credit programs
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Tool Use Trends – Tax Credits
▪ Nearly 50% of agencies are actively using tax abatements
▪ Performance based incentive use is growing
▪ The competitive incentives practice is still very prevalent and rising
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Tool Use Trends – RLFs, Venture
▪ Over 43% of agencies use frequently
▪ RLFs represent the single most used finance concept nationally yet these tend to be largely overlooked and underutilized (and under appreciated)
▪ 26% of agencies have an RLF dedicated strictly to small business loans
▪ Only 9% of agencies are active in the venture capital finance industry (5% of agencies use alternative equity)
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Tool Use Trends – Federal
▪ CDBG – 40% frequently use
▪ EDA – 18% frequently use
▪ Reliance on federal funding remains strong yet this source is the most volatile and less reliable from year to year
▪ A note on grants – over 25% of agencies are actively providing grants to finance development
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So What is Happening Here?
▪ Why are agencies ignoring tried and true tax-exempt bond financing tools for addressing manufacturing & non-profit development?
▪ Why are economic developers ignoring targeting financing tools such as TIF for addressing redevelopment, business district and revitalization?
▪ Why are tax credits programs underutilized? Tax credits abound – NMTC, brownfields, historic, LIHTC, hundreds of replicable state program.
▪ Over 30 states have state sponsored venture funds?
▪ Why the reliance on federal funding?
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A Few Answers
▪ Complexity of financing programs
▪ Nature of locally controlled, political economic development efforts
▪ Lack of focus on financing strengths within community
▪ Little dedication to education and capacity building
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Public or Public/Private
▪ Public – 81% of public agencies allocated less than 20% of their budget directly towards financing development
▪ Public/Private – 33% of public/private agencies allocate over 50% of their budget directly towards financing development
▪ Consider your structure closely
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In the End…
▪ All economic development comes down to the access to financial resources for completing a given project or deal.
▪ Nearly all projects/deals hinge on the ability to leverage inexpensive sources of financing.
▪ As they say, cash is king, money makes the world go around and show me the money!
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Building the Development Finance Toolbox
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Introducing the Toolbox Approach
▪ The Toolbox Approach is a full scale effort to building local and regional financing capacity to serve and impact a variety of business and industry needs.
▪ This is an investment in programs and resources that harness the full spectrum of a community’s financial resources and is a dedication to public/private partnerships.
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Why the Toolbox Approach?
▪ Wide variety of programs already exist to help with both general and targeted financing needs
▪ One size does not fit all and there are different instruments for different users
▪ More parties can be involved with a comprehensive approach – banks, thrifts, educational providers, investors, angels, developers, planning authorities, etc.
▪ Diversity is very important in development finance efforts.
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Types of Financings
▪ Government projects are exactly what they sound like – roads, bridges, sewers, water facilities, schools, airports, docks, parking garages, broadband, utilities, etc.
▪ Established industry represents our industrial, office and retail sectors (depending on location). Examples such as industrial parks, manufacturing, tech/research hubs and commercial retail centers fall within this category.
▪ Development and redevelopment consists of the projects that require major public resource commitments to catalyze new private sector development. We see this throughout the country with urban revitalization, rural rejuvenation, adaptive reuse, brownfield development and other transformative projects that require significant public capital.
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Types of Financings
▪ Small Business and Micro-Enterprises are pretty self-explanatory as well. These projects represent our economic engine locally. Generally, a small business is defined as any company with less than 500 employees and a micro-enterprise is any company with fewer than five employees. There are approximately 30 million micro-enterprises in the U.S.
▪ Entrepreneurs represents our future businesses. These are one-two person companies that are working through the early stages of the business life cycle. Typically, entrepreneurs are not ready for traditional financing and need a unique approach to help them find the working capital needed to expand and grow.
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The Toolbox & Financing Spectrum
5 Practice Areas
Practice Area 1: Bedrock ToolsBonds and the Basics of Public Finance
Practice Area 2: Targeted ToolsTax Increment Finance, Special Assessment Districts, Government Districts, Project Specific District Financing & Tax Abatements
Practice Area 3: Investment ToolsTax Credits, EB-5
Practice Area 4: Access to Capital Lending ToolsRevolving Loan Funds, Mezzanine Funds, Loan Guarantees and Microenterprise Finance, Seed & Venture Capital
Practice Area 5: Support ToolsFederal Funding
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Bedrock Tools
▪ This is the large debt market generally known as bonds and makes up the foundation of all public finance in the U.S.
▪ Over 10,000 bonds are issued nationwide annually representing infrastructure, housing, education, development, non-profits, healthcare and manufacturing.
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Targeted Tools
▪ These tools target geographic areas through the use of taxation.
▪ Allow for direct reallocation of specific taxes to pay the current cost of development.
▪ Includes tax increment finance, special assessment districts, government assessment districts, payments in-lieu of taxes, project specific district tools.
▪ Also includes use of tax abatements, which is the relief from taxes, not a redirection.
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Investment Tools
▪ These tools encourage private sector investment in projects and businesses by attracting investors.
▪ Tools such as tax credits and the EB-5 investor program drive this sector.
▪ Incorporates largest cross-section of US and international investor potential.
▪ Involves community development, historic rehabilitation, housing, energy investments, manufacturing expansion, site selection, employment growth, and dozens of other targeted objectives
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Access to Capital Lending Tools
▪ These tools, such as revolving loan funds, mezzanine funds, loan guarantees and microenterprise, seed & venture capital financing programs, etc.
▪ Represent the resources for supporting small business access to capital on a broad scale.
▪ Constitutes the single largest development finance tool used in the US and abroad.
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Support Tools
▪ Represent our large federal funding resources provided by the federal government.
▪ There are over 175 federal programs to support economic development.
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The Toolbox & Financing Spectrum
5 Practice Areas
Practice Area 1: Bedrock ToolsBonds and the Basics of Public Finance
Practice Area 2: Targeted ToolsTax Increment Finance, Special Assessment Districts, Government Districts, Project Specific District Financing & Tax Abatements
Practice Area 3: Investment ToolsTax Credits, EB-5
Practice Area 4: Access to Capital Lending ToolsRevolving Loan Funds, Mezzanine Funds, Loan Guarantees and Microenterprise Finance, Seed & Venture Capital
Practice Area 5: Support ToolsFederal Funding
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Public Policy Goals
▪ Financing can be the driver of economic development policy and can in turn drive future dollars towards projects within a region.
▪ Communities already have the financial capacity for supporting sustainable development, smart growth and resource use.
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Bedrock Tools
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Bonds
▪ Bond use dates back over 100 years with the tax reform act of 1986 shaping today’s use
▪ A bond is a loan. A loan is a promise to pay
▪ Units of government (called issuers) borrow routinely in the tax-exempt bond market by pledging revenues to pay back the bonds (loans)
▪ Investors (bond buyers) buy these loans and are afforded exemption from income tax on interest income on these investment
▪ Government (GO) Bonds are tax-exempt, used for public projects
▪ Private Activity Bonds (PABs) are tax-exempt, utilized for economic development
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What do Bonds Finance?
▪ Roads, bridges, sewers, water treatment plants, dams
▪ City halls, prisons, schools, hospitals, libraries, YMCAs, museums
▪ Parks, swimming pools, community centers, universities,
▪ Stadiums, theaters, music halls, clinics
▪ Recycling plants, energy generation facilities, solar fields
▪ Small manufacturing facilities, first-time farmers, non-profits, affordable housing
▪ And much more
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Simplified Process
1. Issuer identifies a project and determines if it qualifies for tax-exempt financing
2. Counsel and underwriters prepare documents, legal opinions and offering statements to price and sell bonds in capital markets
3. Underwriter places (sells) bonds to investors (bond buyers) in capital markets raising cash for project
4. Issuer pledges revenues (taxes, fees, appropriations, proceeds, etc.) to pay back bond buyers (i.e. loan)
Note:
Issuer and borrower are not always the same entity. (i.e. conduit bonds)
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Simplified Process
1. Bond (loan) is paid back over course of time with both regular principle and interest payments
2. Trustee acts as fiduciary agent on behalf of bond holders (bond buyers) and manages payments
3. Under certain scenarios, issuer may refinance issuance at a later date
4. Bond holder (bond buyer) receives relief from federal/state income taxes on interest earnings on bonds
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Conduit Bond
▪ Issuers and borrowers are not mutually exclusive.
▪ An issuer can be a borrow (i.e. general obligation bonds, full faith and credit guarantees, bond banks, etc.)
▪ Certain borrowers (non-profits, first time farmers, manufacturers, hospitals, etc.) may use the authority of the issuer to issue bonds as a means to access the capital markets (i.e. conduit).
▪ Bonds issued on a conduit basis are not backed by the issuer
▪ Conduit bond debt is solely the responsibility of the borrower
▪ Issuer has no responsibility to pay back the bonds (i.e. non-recourse)
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Types of PABs
▪ Exempt Facility Bonds – Can be used for airports, docks, wharves, mass-community facilities, etc.
▪ Qualified Redevelopment Bonds – Infrastructure projects that do not meet the requirements of GOs may qualify for tax-exemption if they meet several tests of "qualified redevelopment bonds; " e.g., proceeds used for redevelopment purposes in designated blighted areas, etc.
▪ Qualified 501(c)(3) Bonds – Bonds used to finance projects owned and used by 501(c)(3) organizations. Two types -hospital bonds and nonhospital bonds
▪ Qualified Exempt Small Issues – IDBs for qualified manufacturing projects including purchase, construction, extension and improvement of warehouses, distribution facilities, industrial plants, buildings, fixtures and machinery.
▪ Aggie Bonds - Support beginning farmers and ranchers with eligible purchases of farmland, equipment, buildings and livestock.
▪ Other Revenue Bonds – Allow revenue-generating entities to finance a project and then repay debt generated revenue. Toll roads and bridges, airports, seaports and other transportation hubs, power plants and electrical generation facilities, water and wastewater (sewer).
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Why Communities Use Bonds?
▪ Opportunity to invest in projects and businesses and the ability to influence ROI in development projects
▪ Easy to promote and monitor with performance measures
▪ Low cost and secure source of support to industry
▪ Can issue on conduit basis without backing (IDBs)
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Why Industry Uses PABs?
▪ Lower interest rates (conventional loans vs. tax-exempt)
▪ Tax-exempt status to buyers of bonds – attractive
▪ Potential for lower cost to borrower
▪ Access to capital that may not otherwise exist
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Important Players
▪ Issuers – 55,000+ nationwide, must have authority to issue
▪ Bond Counsel – legal public finance experts
▪ Underwriters – sells and/or places the bonds in market
▪ Trustee – fiduciary agent for the bondholders
▪ Investors – those who actually purchase the bonds
▪ Financial Advisor – independent reviewer for issuer
▪ Rating Agencies – independent credit review entities
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Notes on PABs
▪ Market forces at play – when traditional interest rates are low, bond use tails off, when traditional interest rates go up, bond issuance tends to go up
▪ Need good bond counsel on transactions – don’t risk an issuance going taxable if it is not a qualified PAB
▪ Many rules and regulations – learn the programs before making any determinations
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Targeted Tools
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Targeted Tools
▪ Represent fastest growing area of development finance.
▪ Goal of targeted tools is to catalyze investment and transform the real estate values of a geographic area.
▪ Three general categories:
1. Special assessment district financing 2. Tax increment financing3. Tax Abatement
▪ These two categories often overlap and work in conjunction with each other as a layered financing mechanisms.
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Targeted Tools:Special Assessment
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Special Assessment District Financing
▪ Mechanism by which business, industry, commercial districts and governments generate funds by applying special tax assessments on geographic areas.
▪ Two general structures:
1. Business and Neighborhood Districts- Self assessment- BID, SID, NID, etc.
2. Government Districts- Sometimes self-assessed, often govt. created- SSD, SAD, CFD, CDD, TID
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Business & Neighborhood Districts
▪ Business and Neighborhood Districts help to support a variety of services:- security and safety patrols- snow removal- promotions, marketing and events- graffiti removal- beautification and cleanliness programs- economic development
▪ Typically run by property owners in defined area
▪ Property owners voluntarily impose tax to provide for infrastructure improvements or enhanced public-type services
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Business & Neighborhood Districts
▪ Business Improvement Districts (BID)
▪ Special Improvement District (SID)
▪ Community Improvement District (CID)
▪ Community Development Authority (CDA)
▪ Neighborhood Improvement District (NID)
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Government Districts
▪ Services and improvements directed by local government in defined area
▪ Can be initiated by property owners or by local government
- Special Services District (SSD)
- Special Assessment District (SAD)
- Community Facilities District (CFD)
- Community Development District (CDD)
- Transportation Improvement District (TID)
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Benefits of Special Assessment
▪ Can be leveraged with bonds
▪ Not development-dependent
▪ Can span two or more jurisdictions
▪ Generally strong collection enforceability – lien status
▪ Can be combined with TIF
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Challenges of Special Assessment
▪ Overburden to property owners
▪ Less likely to approve other necessary tax increases?
▪ If assessment can be imposed with less than unanimity, litigation is common by non-approving property owners
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Golden Triangle BID, Washington, DC
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Atlantic City SID, NJ
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Minneapolis SSDs, MN
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Elk Grove CFDs, CA
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Targeted Tools:Tax Increment Finance
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Tax Increment Finance
▪ Second and most common targeted form of financing.
▪ First created in 1952 in California to act as a catalyst for redevelopment areas.
▪ Quickly spread across the country – 48 states and District of Columbia have enabling legislation.
▪ Referred to by a variety of names:▪ TIF - Tax increment financing (most states)▪ TAD - Tax allocation district financing (GA)▪ PDF – Project Development Financing (NC)▪ TIRZ - Tax increment reinvestment zones (TX)
▪ California currently does not have a TIF law
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What is TIF?
▪ Special authority provided to a local governmental jurisdiction which allows them to allocate specific tax revenues towards the redevelopment, development or renovation of the built environment.
▪ A mechanism used to capture the future tax benefits of real estate improvements to pay the present cost of specific improvements.
▪ TIF is used to channel incremental taxes toward improvements in distressed or underdeveloped areas where development would not otherwise occur by using the increased property or sales taxes that new development generates to finance qualified costs related to development.
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What is Increment?
▪ Increase in taxes resulting from development,
▪ Difference between base frozen tax and future generated taxes.
▪ Types of taxes used:▪ Real estate – most common
▪ Sales tax
▪ Income tax
▪ Gross tax
▪ Value added tax
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Why Use TIF? (historically)
▪ Encourage Development
▪ Eliminate Blight
▪ Address Environmental Issues
▪ Adaptive Reuse
▪ Finance Infrastructure
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Why Use TIF? (present)
▪ Advances economic development or redevelopment projects that otherwise may not move forward in today’s economy
▪ Attracts economic development prospects by having infrastructure financing plan in place
▪ Allows localities to finance needed infrastructure that otherwise may not be financed in current fiscal environment, often ahead of development and at a higher level
▪ Job creation
▪ Preservation and strengthening of tax base
▪ Shifts portion or all of financial burden for infrastructure to the private sector through the usage of special assessment
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Who Controls TIF?
▪ States authorize enabling legislation.
▪ Local governmental jurisdictions (city or county) designate districts or project areas.
▪ Development agencies or other entities implement the program.
▪ Private developers, real estate and financial institutions partner with development agencies.
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Common TIF Developments
▪ Mixed-Use▪ Residential▪ Commercial▪ Industrial▪ Amenity Creation▪ Retail Development▪ Transportation
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Uses of TIF (generally)
▪ Infrastructure Improvements
▪ Site Preparation
▪ Facility / Amenity Construction
Such as:▪ Public Infrastructure▪ Land Acquisition▪ Relocation▪ Demolition▪ Utilities▪ Debt Service▪ Planning Costs▪ Direct Costs of Development (typically only in
blight situation)
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Typical Improvements - Infrastructure
▪ TIF is commonly used to finance necessary infrastructure improvements that allow a deal to move forward. While each state’s TIF statute establishes eligibility, some common infrastructure improvements that typically qualify include:▪ Publicly owned and maintained utilities▪ Sanitary sewers▪ Wastewater treatment facilities▪ Lift stations▪ Force mains▪ Transmission lines▪ Sewer pump stations and related equipment▪ Drainage facilities including storm sewer
systems, collection and detention facilities, pumps, inlets, canals and related channel equipment
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Typical Improvements – Infrastructure
▪ TIF can be used to finance a number of expenses related to infrastructure. While what is eligible varies by state, some examples of common TIF eligible expenses include:▪ Public roads and streets▪ Bridges▪ Lighting▪ Traffic signals and related equipment▪ Decorative pavers▪ Medians▪ Turn lanes▪ Property used for right of way▪ Compensable utility relocations that occur due
to the placement or construction of a roadway▪ Beautification components and related hardware
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Typical Improvements – Infrastructure
▪ TIF may finance improvements beyond typical infrastructure needs to include pedestrian-friendly amenities such as:▪ Hiking and biking trails▪ Pathways that facilitate intermodal
transportation▪ Sidewalks▪ Bike lanes in street right of way▪ Pedestrian bridge systems that link commercial
centers to transit systems▪ Sky bridges that link public buildings▪ Public tunnel systems for private buildings▪ Pedestrian platforms for rail or light rail transit
systems and similar facilities
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Two Categories of Public Improvements
▪ Generic Public Improvements
▪ Roads, bridges, sidewalks
▪ Utility extensions (water, sewer, electric, gas,
telecommunications)
▪ On-site Public Improvements
▪ Environmental Remediation
▪ Parking facilities
▪ Landscaping
▪ Storm water management
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Requirements for Use of TIF (generally)
▪ Establish TIF District
▪ “But for” Analysis
▪ Feasibility or Market Study
▪ TIF or Development Plan
▪ Development Agreement
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Leveraging TIF
Bond Financing
▪Challenges based on speculative revenue stream
▪Could be tax-exempt
Pay-As-You-Go Financing
▪ Developer responsible for financing and providing necessary security to lender
▪ Harder to do tax-exempt financing
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Leveraging TIF
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Project-Specific & District-Wide TIF
▪ TIF application is either project-specific or district-wide, depending on the scope of the effort: whether it is one site or an entire neighborhood.
▪ Both methods also have limitations and varying levels of risk.
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Project-Specific TIF
▪ Usually a single project or single piece of property ▪ Specific user▪ Less complicated▪ Cleaner process / fewer parties▪ Funds typically go to public improvements necessary
to make project feasible (parking garages, infrastructure and sewer / water improvements)
▪ In certain states, funds can be used to acquire land▪ Often, land is controlled by single owner▪ Effective in providing gap financing for a particular
improvement▪ More risk since the success of the project often relies
on one user▪ More difficult credit hurdles for bond investors▪ Can cause unfair development advantage▪ The community buy-in process must be fair and
transparent▪ Used as a complement to other finance mechanisms
addressing the greater community
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District-Wide TIF
▪ Multiple users and potentially many property owners.▪ Transactions more complex and require significant due
diligence▪ Traditionally applied to large area of land or entire
neighborhood▪ Communities use to eliminate blight and deterioration
in larger areas.▪ Typically support major infrastructure projects such as
roads, traffic lights, landscaping of public areas, parks, parking garages and other public benefit aspects
▪ Can support infrastructure and preparation of “ready to go” sites as part of an industrial, medical or research park
▪ Can allow land assembly▪ Can raise community suspicions of driving longtime
property owners out of area▪ Can be frustrating for property owners and developers
outside the TIF area
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Simple Project Based TIF Example
Using Up-Front Method of Financing:
▪ Existing property generates $10,000 a year in real estate taxes.
▪ Government designates the property as a “TIF” district.
▪ Tax base is frozen at $10,000 level.
▪ New project is proposed for the site and will in effect raise overall tax base generated to $15,000 (and rising) a year once completed.
▪ Developer agrees to make significant investment and seeks TIF funds from govt. for eligible public improvements.
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Simple Project Based TIF Example
▪ Government conducts “but for” test and agrees to TIF deal and issues tax-exempt bonds to finance proposed improvements.
▪ Bonds are sold generating cash for the project (several options on actual financing mechanism).
▪ Once project is complete, new assessment is completed on property ($15,000 in taxes a year as indicated before).
▪ Frozen base ($10,000) continues to flow to pre-existing coffers (city, county, schools, state, etc.).
▪ Increment (additional $5,000 plus) goes towards debt service on the bonds that were issued for the project.
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Simple Project Based TIF Example
▪ Increment is used to pay back bonds over time, anywhere from 10-40 years.
▪ Once bonds are paid off, the property taxes are “unfrozen” and the full tax base generated goes to existing coffers (city, county, schools, state, etc.).
▪ THE KEY - No new taxes are requested and no existing taxes are used in the financing of the project.
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Graphically Speaking
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3 Critical Public Policy Considerations
1. Due Diligence
2. Transparency
3. Accountability
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Due Diligence – Do the Work!
▪Go through all the step necessary to ensure an acceptable level of satisfaction.▪Take a conservative approach▪Application process and fees are okay▪Crunch all the numbers and do the math▪Request more data▪Ask lots of questions▪Be thorough and dig deep▪Seek partnerships with developers who want to
provide all the numbers▪KEY - Don’t accept assumptions
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Due Diligence – “But for” Test
▪ The “but for” test is a public policy test for measuring the appropriate need for TIF financing.
▪ Major part of the community buy-in process.
▪ TIF authorizing agencies should be conducting this test for every project.
▪ Provides a rational and justification for approving TIF funding.
▪ Eliminates the argument that the funding is “corporate welfare”.
▪ Sets the appropriate amount of TIF funding for the project. The project may not require 100% of the TIF funds for debt service and this test will help establish the necessary financing.
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Due Diligence – “But for” Test
▪ The test should be conducted using financial models or impact programs and outside professionals are almost always more equipped to crunch the numbers.
▪ Seek professionals if uncertain. They provided a 3rd party point of view and are invaluable to the process.
▪ Be aware and beware of the assumptions!
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Transparency – It’s All Out There
▪ It is not enough to act transparent, you must actually be transparent.
▪ Best Practices – open meetings, open records, all laws followed, sound leadership, community events, web/newsletters, single point of contact, etc.
▪ Address Failures – Play the “what if” game and answer the “what now” questions.
▪ Build Consensus – Determine primary, secondary and tertiary considerations for various stakeholders. Be prepared to compromise and be creative in addressing conflicting objectives or interests
▪ Strategize – Plan changes, roadblocks and find champions for solutions that come from third party supporters (not always the government entity) (i.e. Federal Reserve in Kansas City)
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Accountability
▪ Be accountable to stakeholders, report success and failure, draft policies that meet goals and objectives. For instance:
▪ Application and approvals process▪ Use standards – industrial, blight, retail
philosophy▪ Investment participation level policy▪ Geographical targeting policy▪ Transportation and housing policy
▪ Consider what the broader goals are in pursuing TIF:▪ Big picture items (jobs, investment, physical
change)▪ Master plan, redevelopment strategy, etc.
www.cdfa.net
Accountability
▪ Create process for vetting TIF developer assistance
▪ Establish a framework for community input
▪ Determine how TIF implementation can best meet objectives
▪ Document steps taken and results to aid in debt approval at the public level
▪ Detail the fiscal impact for each entity
▪ Diagram the increment financing process
▪ Provide sufficient analysis of the economic and fiscal impact and benefit to the city
www.cdfa.net
City of Milwaukee, WI
www.cdfa.net
City of Houston, TX
www.cdfa.net
Atlanta Beltline, GA
www.cdfa.net
Targeted Tools:PACE and Abatements
www.cdfa.net
Property Assessed Clean Energy (PACE)
▪ PACE financing is a mechanism for achieving energy improvements on existing privately-owned buildings through special assessment financing
▪ Loans are provided by private capital sources
▪ Loans are paid back via the property owners’ property tax bills
▪ Loan stays with the property, even if the property is sold or transferred
▪ New property owner assumes the special assessment and must make assessed payments
www.cdfa.net
PACE – General Process
1. Property owner identifies necessary and qualified energy efficiency upgrades, retrofit and/or generation investment for their home or business
2. Private capital provider (bank, energy company, etc.) provides loan to property owner for improvements
3. Once completed and certified, municipality places a special assessment on that property’s tax bill.
4. Assessment is collected during the regular property tax payment process with payments made to the private lender via the municipality.
5. Over time, the loan is paid off and the property sees measurable energy savings
www.cdfa.net
Property Assessed Clean Energy (PACE)
▪ PACE is a very flexible and easily implementable financing tool
▪ Currently authorized in over 30 states and hundreds of locals
▪ Programs can be established to address a single piece of property, a district, a region or an entire state
▪ Communities can create broad programs that encompass larger geographic districts and allow for multiple uses whole also being tailored to specific targeted users
▪ Tax bill enforceability ensures strong repayment thus eliminating private capital provider’s risk
www.cdfa.net
Tax Abatements
▪ The reduction of an entities tax liability for the purpose of job creation, investment or retention/location of business in community/state
▪ Widely used through United States
▪ Performance based approach emerging
▪ Highly political, often a zero-sum outcome with inner state/city business relocations
▪ #1 tool in state development agencies toolbox
▪ Notable abuse, misuse and failures
www.cdfa.net
Investment Tools
www.cdfa.net
www.cdfa.net
Investment Tools:Tax Credits
www.cdfa.net
Investment Tools
▪ Investment tools, such as tax credits play a major role in local economic development efforts
▪ States have created hundreds of programs with both targeted and broad based functions
▪ Federal government has numerous programs which are proving to be very successful
▪ Response to dwindling federal resources for financing development over the past 15 years
▪ Both federal and state govt. recognize power of credits – hundreds of programs
▪ Programs have emerged based on need for niche financing
▪ Can help capitalize new business ventures or solidify project financing for real estate projects
www.cdfa.net
Benefits of Tax Credits
▪ Fill a variety of roles in many types of marketplaces (urban, suburban, etc.) with targeted assistance (rehab, low-income)
▪ Increase ROI for investors
▪ State and local administration and control
▪ Bring many different players to the table beyond traditional sources
www.cdfa.net
Basics of Tax Credits
▪ Investors receive a state/federal credit on their tax liability for qualified cash investments in projects/deals
▪ Investors must demonstrate, with written proof, that the resource commitment has been made and in turn the distributor of the tax credit is only authorized to issue credit based on actual outlays of these resources
▪ Investor then takes the credit on govt. tax liability. Can be personal, business, corporate or other liability
▪ In some cases, the credit is transferable to others through sale creating a secondary financial market
www.cdfa.net
Distinctions & Challenges
▪ Require considerable oversight and understanding for qualified investments
▪ Require high level of disclosure
▪ Performance based tool so must be proved by investor
▪ Easier financing such as loans, grants, bonds, etc., reduce the interest in credits
▪ Misconceptions – often cited as corporate welfare
▪ General lack of application and understanding across the board – little marketing, few concrete training options, projects hard to define, lack of federal oversight
www.cdfa.net
New Markets Tax Credits (NMTCs)
▪ New Markets Tax Credits (NMTCs) are federal, dollar-for-dollar tax credits to assist in the funding of neighborhood changing/job creating commercial real estate projects and businesses located in low-income census tracts.
▪ According to a GAO study (2007), 88% of NMTC investors would not have considered investing in a project without the NMTC
▪ Credit is equal to 39% of total qualified investment
▪ Very complex, lots of terminology, requires considerable legal and accounting oversight
www.cdfa.net
NTMCs – What can be Financed?
▪ Charter schools, health care facilities, timberlands, child care providers, supermarkets, restaurants, museums, hotels
▪ Performing arts centers, pharmacies, convenience stores, manufacturers, processors, distributors, trucking companies, printing companies
▪ Waste management, renewable energy projects, sporting goods, office buildings, shopping centers
▪ Substance abuse treatment facilities, recording studios, movie studios, parking garages, etc., etc.
www.cdfa.net
NMTCs – About the Credit
▪ NMTCs are offered to investors for Qualified Equity Investments (QEIs) in the CDE
▪ Credit equals 39% of amount of QEIs
▪ Credit claimed over 7 Years:▪ 5% in each of the first three years
▪ 6% for each of the final four years
▪ QEI must remain invested in the same CDE for a seven year credit period (“compliance period”)
www.cdfa.net
NMTCs – Simplified Process
Step 1: Entities apply to the CDFI Fund for CDE certification (rolling basis).
Step 2: CDEs apply competitively to the CDFI Fund for a NMTC allocation.
Step 3: The CDFI Fund allocates NMTCs to CDEs that are selected.
Step 4: CDEs use allocations to offer NMTCs to investors for cash investments called a Qualified Equity Investment(“QEI”).
Step 5: CDEs use proceeds to make Qualified Low-Income Community Investments (“QLICIs”) in QALICB.
www.cdfa.net
NMTCs – Simple Example
▪ CDE receives a $10 million allocation of NMTCs.
▪ This is only allocation authority!
▪ $10 million of allocation x 39% credit = $3.9 million of
federal tax credits to be received by the investor.
▪ Single investor makes a $10 million investment in a
CDE and receives $3.9 million in tax credits as such.
Year 1 – 5% = .5 million
Year 2 – 5% = .5 million
Year 3 – 5% = .5 million
Year 4 – 6% = .6 million
Year 5 – 6% = .6 million
Year 6 – 6% = .6 million
Year 7 – 6% = .6 million
7 Years – 39% = $3.9 million
www.cdfa.net
Becoming a CDE?
▪ Entities can apply to become a CDE on a rolling basis but process is costly and complex
▪ CDEs have access to NMTCs through competitive application rounds each year.
▪ Alternatives – Collaborate with an existing CDE that either has allocation or expects to apply for future allocation.
▪ Pipeline projects and shop around to find CDE that is right fit and can be a partner in your efforts
▪ Dozens of national CDEs have allocation that is used throughout the country.
www.cdfa.net
Historic Preservation Tax Incentive (HTC)
▪ 20% income tax credit available for the
rehabilitation of historic buildings
▪ Credit claimed over 5 year period (2017 law
change)
▪ Credit investment qualifies on income-producing
buildings that are determined through the National
Park Service (NPS) to be “certified historic
structures”
▪ State Historic Preservation Offices and the NPS
review the rehabilitation work to ensure that it
complies with the Secretary’s Standards for
Rehabilitation
www.cdfa.net
HTC - Basics
▪ The IRS defines qualified rehabilitation expenses
on which the credit may be taken
▪ Owner-occupied residential properties do not
qualify for the federal rehabilitation tax credit
▪ Each year, NPS approves approximately 1200
projects leveraging $6 billion annually in private
investment
www.cdfa.net
State Tax Credit Programs
▪ Every single state and the District of Columbia have tax credit programs that address a number of different investment areas including▪ Machinery and equipment
▪ Low-income area investment
▪ Job creation
▪ Commercial revitalization
▪ Historic rehab
▪ Venture capital investment
▪ Brownfields
▪ Targeting hiring
▪ Relocation – manufacturing
▪ Expansion
▪ Critical industries
▪ Capital improvements
▪ Clean energy
▪ Many more
www.cdfa.net
CDFA State Financing Program Directory
www.cdfa.net
Strategies for Tax Credit Success
▪ Invest in understanding all available credits at both federal and state level and prepare fact sheets on available credits
▪ Categorize available credits for real estate property for potential investors, developers – they often do not know if a site is historic, brownfield or eligible for NMTCs (or state credits)
▪ Engage your financial community – many banks want deal flow and will buy and sell credits, get them active in available projects
▪ Consider mirroring credit programs that match state/federal programs
www.cdfa.net
Investment Tools:Opportunity Zones
www.cdfa.net
Source: Economic Innovation Group
www.cdfa.net
Source: Economic Innovation Group
www.cdfa.net
Source: Economic Innovation Group: www.eig.org
www.cdfa.net
www.cdfa.net
www.cdfa.net
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Investment Tools:EB-5
www.cdfa.net
EB-5 Immigrant Investor Program
▪ Federal program established in 1990 to encourage investment in U.S. business by immigrant investors
▪ Direct investment tool that encourages wealthy foreign individuals to invest in U.S. based economic development projects that create jobs
▪ If an immigrant investor creates U.S. jobs by his investment, investor receives a permanent Green Card
▪ Typically, EB-5 investment is raised and generated through regional centers that specialize in this program
▪ 1,000 reginal centers nationwide with varying footprints and focus areas
www.cdfa.net
EB-5 – How it Works
▪ Investment = $500,000
▪ Location = Targeted Investment Areas
▪ Three keys components:▪ Must create 10 permanent jobs (direct and/or indirect)
▪ Must pay investor 1% minimum return
▪ Must pay investor back after 5+ years
▪ What can it be used for?▪ Hotels, office, mixed use
▪ Health care, hospitals, universities
▪ Charter schools, mixed-use housing
▪ Film production, manufacturing
▪ Agriculture, food production
▪ Small business loans, revitalization projects
▪ Etc. etc.
www.cdfa.net
EB-5 - Details
▪ Regional center program has emerged as strongest option
▪ Investment is a security and regulared by the SEC
▪ Strict laws and enforcement of immigration elements involved
▪ Typical investor is very wealthy and making investment for their security and future of children
▪ Program under ongoing threat due to rolling re-authorizations status
www.cdfa.net
Access to Capital Lending Tools
www.cdfa.net
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Access to Capital Lending Tools: Traditional
www.cdfa.net
Small Business Investment
▪ Small businesses make up 99.7% of all firms, employ half of all private sector employees and account for 45% of the total U.S. payroll.
▪ Small businesses have also generated 60-80% of all new jobs annually over the past decade.
▪ Economic developers, however, have traditionally neglected small business development in pursuit of larger companies.
▪ Small businesses need access to affordable, reliable capital to get started and “working capital” for their day to day operations and for new investment.
▪ Communities that offer access to capital options are building relationships with their small business community as a partner and investor.
www.cdfa.net
Traditional Access to Capital Tools
▪ Access tools cover a wide variety of programs that are tailored to address specific industry needs, for businesses in different stages of development, largely at the local level. They can include:
▪ Revolving Loan Funds
▪ Mezzanine Funds
▪ Loan Guarantees
▪ Linked Deposit Programs
▪ Collateral Support Program
▪ Microenterprise Finance
www.cdfa.net
Revolving Loan Funds
▪ Gap financing measure primarily used for development and expansion of small businesses which struggle to obtain financing through traditional sources.
▪ Self-replenishing pool of money, utilizing interest and principal payments on old loans to issue new ones.
▪ Can be designed for broad sectors (small businesses) or for very targeted niches (facade improvements) to address myriad challenges in the community
▪ Designed to allow for greater flexibility for borrowers with significant consideration put on the growth opportunity of the borrower’s business.
www.cdfa.net
Capitalizing a RLF
▪ Numerous sources exist for capitalizing or “seeding” a RLF including:▪ Federal Govt – EDA, EPA, USDA, HUD, etc.
▪ State/Local Govt
▪ Foundations
▪ Banks – CRA contributions
▪ Crowdfunding
▪ Bond Issuances
▪ Tax Set Asides
▪ Annual Dues
▪ Rate Payer Revenue
▪ Appropriations
www.cdfa.net
RLF Characteristics
▪ RLFs don’t compete with convention funding sources, they compliment them.
▪ Loan interest rates and terms can very from very low to market rate and above.
▪ RLFs are not free money, they are loans with an expectation of repayment.
▪ RLFs require traditional loan procedures including:▪ Credit Analysis
▪ Underwriting
▪ Packaging
▪ Closing
▪ Servicing
▪ Monitoring
▪ Collections
▪ Workouts
www.cdfa.net
RLF Characteristics
▪ RLFs should be staffed by financial and/or lending professionals or should involve partnerships with banks, credit unions and other lending institutions
▪ RLFs carry the risk of default and are a risk lending instrument
▪ RLF policies and approaches should reflect the relative risk profile of the loan fund and adhere to decision making that reflects the goal of the program
▪ RLFs are intended to be “evergreen” meaning that the program revenue (interest) earned on outstanding loans replenishes the fund to allow for ongoing new loans.
www.cdfa.net
RLF Distinctions
▪ Key to a successful program is flexibility, adaptability, aggressiveness and efficiency of program.▪ Flexibility – working with borrowers to craft a loan and
repayment structure that works for the borrowers growth needs.
▪ Adaptability – willingness of fund managers to change with the economy and the local lending environment to fill needs of borrowers at any given time.
▪ Aggressiveness – effort made by loan fund manger to market program, catalyze leads and understand the needs of borrowers in the local market
▪ Efficiency – ability of fund to be nimble, easy to use and available in a reasonable timeframe.
www.cdfa.net
Critical RLF Point
▪ Should not offer zero interest loans that do not generate program revenue.
▪ Are not free money and are not structured like a grant.
▪ RLF managers must charge effective rates to sustain the program and buffer against defaults.
www.cdfa.net
CDFA RLF Program Database
www.cdfa.net
Mezzanine Funds
▪ Gap financing measure for growth-oriented small businesses that may not entirely qualify for loans or investments through traditional lending.
▪ Mid-level financing – Less risky than equity or venture capital but more risky than senior bank debt.
▪ Business usually has to cede some management or institutional control or give an ownership position to lender.
www.cdfa.net
Loan Guarantees
▪ Allows private sector to make loans and investments without carrying higher levels of risk.
▪ These programs shift risk from private sector to a third party – typically a governmental entity – by “guaranteeing” a portion of a loan or revenue source.
▪ Federal government operates several programs while states and cities are also now providing guarantees.
▪ Communities with strong balance sheet should consider building a program for projects that may need additional collateral support.
www.cdfa.net
Linked Deposit Program
▪ Uses power of government deposits to artificially buy down interest rates for small business borrowers
▪ Govt. places deposit with bank. Bank earns interest off of govt. deposit.
▪ In return for this deposit, bank provides low-interest loan to credit challenged borrowers
▪ Borrower savings typically 2-3%
▪ Useful when loan is to expensive or to enable larger loan
www.cdfa.net
Collateral Support Program
▪ Program pledges deposit with lender as collateralfor specific loan
▪ Useful for loan-to-value / collateral shortfall
▪ Seen growth of these programs in recent years –real benefits for manufacturers and other equipment-based sectors
www.cdfa.net
Microenterprise Finance
▪ Microenterprises are the smallest of the small businesses. Typically defined as business with:
- 5 or fewer employees- Capital needs of less than $35,000- Average loans of $7,000
▪ 24 million microenterprises in the U.S.
▪ Perceived by lenders as having a very high level of risk.
▪ SBA Microloan Program – Provides very small loans to start-up, newly established, or growing small businesses. SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.
▪ NSF SBIR/STTR – Provide competitive grants for small business development for high-tech and innovation industry business development.
www.cdfa.net
Access to Capital Lending Tools: Early Stage
www.cdfa.net
Research Capital
▪ Funds invested in support of basic research
▪ Funds could also be used for applied research
▪ Primary goal is to invest in the development of new products
www.cdfa.net
Seed Capital
▪ Funds invested in new or young companies which have not yet been fully commercialized
▪ Primary goal is to invest in launching new products
▪ Seed capital could also support continued research and product development
www.cdfa.net
Venture Capital
▪ Long term equity capital invested in rapidly expanding enterprises
▪ Investments have a high expectation of capital gains
▪ Typical companies receiving investments have demonstrated sales, but are not yet profitable
▪ Primary goal is to invest in product roll-out
www.cdfa.net
Providers of Seed & Venture Capital
▪ Grantors – federal or state grants, ex: SBIR
▪ Angel Investors – high net-worth individuals
▪ Seed Funds – professionally managed investment partnerships
▪ Venture Funds – firms investing in high growth businesses
▪ Private Equity Funds – private investors in established companies
www.cdfa.net
Public Agencies & Early State Capital
▪ Many public agencies at the state and local levels have innovation finance programs in place as part of their development finance toolbox.
▪ These programs are typically driven by the private sector with support from the public sector.
▪ At the state level, programs are primarily established with either incentive or contingent tax credits.
www.cdfa.net
Federal Support Tools
www.cdfa.net
Federal Financing
▪ Federal government plays a significant role in economic development financing and currently operates over 170 programs across 17 federal agencies.
▪ 39 federal programs offer assistance for energy related projects,
▪ 25 federal programs provide some type of access to capital
▪ 12 programs help address brownfield financing
▪ 7 provide resources for starting up or accessing a revolving loan fund
▪ 25 address innovation finance opportunities
▪ 9 programs provide resources to U.S. based business trying to access global markets
www.cdfa.net
Support Tools – Unique Partners
▪ Some of the most interesting and perhaps beneficial programs within the federal government are located in non-traditional agencies.
▪ This presents both a challenge and an opportunity.
▪ Challenge – finding and identifying the programs, getting engaged, resources, etc.
▪ Opportunity – these very unique and often targeted programs present a readily available resource to address your needs.
www.cdfa.net
HUD
▪ Community Development Block Grant Entitlement Program:
This program awards grants on a formula basis to entitled cities and counties to develop viable urban communities by providing decent housing and a suitable living environment, and by expanding economic opportunities, principally for low- and moderate-income persons.
Eligibility: Eligible communities include the principal city of an MSA, other metropolitan cities with a population of at least 50,000, and qualified urban counties with a population of at least 200,000.
https://www.hudexchange.info/cdbg-entitlement
www.cdfa.net
HUD
▪ Section 108 Loan Guarantee Program:Section 108 is the loan guarantee provision of the Community Development Block Grant (CDBG) program. Section 108 provides communities with a source of financing for economic development, housing rehabilitation, public facilities, and large-scale physical development projects. This makes it one of the most potent and important public investment tools that HUD offers to local governments.
Eligibility: Metropolitan cities, urban counties, nonentitlement communities that are assisted in the submission of applications by states that administer the CDBG program.
https://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/communitydevelopment/programs/108
www.cdfa.net
Department of the Treasury
▪ Native Americans CDFI Assistance (NACA) Program:
This program provides CDFI funds, grants, and technical assistance to Native Communities in order to increase the access to credit, capital, and financial services in Native Communities through the creation and expansion of CDFIs primarily serving Native Communities.
Eligibility: Native CDFI’s or an agency certified by the fund can apply for Financial Assistance or Technical Assistance awards whereas Emerging Native CDFI’s or Sponsoring Entities may only apply for Technical Assistance.
https://www.cdfifund.gov/programs-training/Programs/native-initiatives/Pages/default.aspx
www.cdfa.net
Department of the Treasury
▪ Small Business Lending Fund:
This is a fund that encourages lending to small businesses by providing Tier 1 capital to qualified community banks with assets of less than $10 billion. The SBLF aims to stimulate small business lending by reducing the dividend rate paid by a community bank on SBLF funding as the bank increases its lending.
Eligibility: Community banks, insured depository institutions with assets of less than $10 billion, and banks, savings, and loan holding companies with assets less than $10 billion.
http://www.treasury.gov/resource-center/sb-programs/Pages/Small-Business-Lending-Fund.aspx
www.cdfa.net
CDFI Fund
▪ Community Development Financial Institution (CDFI):
This program was created to promote economic revitalization in low-income communities. The purpose of the CDFI Program is to use federal resources to invest in CDFIs and to build their capacity to serve low-income people and communities that lack access to affordable financial products and services.
Eligibility: Only certified CDFI’s are immediately eligible for Financial Assistance (FA) awards, prospective applicants may also be able to receive FA. Certified and non-certified CDFI’s can apply for Technical Assistance (TA) awards.
http://www.cdfifund.gov/programs-training/Programs/cdfi-program/Pages/default.aspx
www.cdfa.net
Economic Development Administration
▪ Local Technical Assistance:
This program provides focused assistance, in the way of grants and technical assistance, to public and nonprofit leaders to help in economic development decision making. This program also includes the University Center Economic Development Program, which makes university resources available to the economic development community.
Eligibility: State, county, and city governments as well as public and private higher education institutions, Native American tribal governments, and nonprofits.
http://www.taacenters.org/locations.html
www.cdfa.net
Economic Development Administration
▪ Planning and Local Technical Assistance Program:
This program partners with district organizations, Indian tribes, community development corporations, non-profit regional planning organizations, and other eligible recipients to develop, implement, revise, or replace Comprehensive Economic Development Strategies (CEDS).
Eligibility: State, county, and city governments as well as public and private higher education institutions, Native American tribal governments, and nonprofits.
http://www.eda.gov/funding-opportunities/index.htm
www.cdfa.net
Economic Development Administration
▪ Public Works and Economic Adjustment Assistance Programs:
These programs provide investments to help distressed communities and regions leverage their resources and strengths to create new and better jobs, drive innovation, become centers of competition in the global economy, and ensure resilient economies. They utilize cooperative agreements, grants, revolving loan fund grants, and technical assistance.
Eligibility: State, county, and city governments as well as public and private higher education institutions, Native American tribal governments, and nonprofits.
http://www.eda.gov/funding-opportunities/
www.cdfa.net
Economic Development Administration
▪ Revolving Loan Fund Program:
This program is operated by EDA regional offices and awards competitive grants to units of local government, state governments, institutions of higher education, public or private non-profit organizations, approved economic development district organizations, and Indian tribes to establish Revolving Loan Funds (RLFs).
Eligibility: State, county, and city governments as well as public and private higher education institutions, Native American tribal governments, and nonprofits.
http://www.eda.gov/funding-opportunities/index.htm
www.cdfa.net
Environmental Protection Agency
▪ Brownfields Area-Wide Planning Program:
This program is an EPA grant program which provides funding to recipients to conduct research, technical assistance and training that will result in an area-wide plan and implementation strategy for key brownfield sites, which will help inform the assessment, cleanup and reuse of brownfields properties and promote area-wide revitalization.
Eligibility: Local governments, land clearance authorities, regional councils, redevelopment agencies, Indian tribes, and non profit organizations.
http://www.epa.gov/brownfields/areawide_grants.htm
www.cdfa.net
Environmental Protection Agency
▪ Brownfields Assessment PILOT’s/Grants:
This program provides funding for a grant recipient to inventory, characterize, assess, and conduct planning and community involvement related to both community-wide and site-specific brownfields sites. An eligible entity may apply for up to $200,000 to assess a contaminated site. A coalition of three or more eligible applicants can submit one grant proposal for up to $1,000,000.
Eligibility: State, local, and tribal governments as well as general purpose units of local government, regional councils, and redevelopment agencies.
http://www.epa.gov/brownfields/assessment_grants.htm
www.cdfa.net
Environmental Protection Agency
▪ Brownfields Cleanup Grants:
This program provides funding for a grant recipient to carry out cleanup activities at brownfield sites. An eligible entity may apply for up to $200,000 per site. No entity can apply for funding cleanup activities at more than three sites. These funds may be used to address sites contaminated by petroleum and hazardous substances, pollutants, or contaminants.
Eligibility: State, local, and tribal governments as well as general purpose units of local government, regional councils, and redevelopment agencies.
http://www.epa.gov/brownfields/cleanup_grants.htm
www.cdfa.net
Environmental Protection Agency
▪ Brownfields Revolving Loan Fund Grants:
This program provides funding for a grant recipient to capitalize a revolving loan fund and to provide subgrants to carry out cleanup activities at brownfield sites. When loans are repaid, the loan amount is returned into the fund and re-lent to other borrowers, providing an ongoing source of capital within a community.
Eligibility: State, local, and tribal governments as well as general purpose units of local government, land clearance authorities, regional councils, or redevelopment agencies. RLF applications must be community wide and not site-specific.
http://www.epa.gov/brownfields/rlflst.htm
www.cdfa.net
Environmental Protection Agency
▪ Clean Water State Revolving Fund (CWSRF):
This program provides more than $5 billion annually in recent years to fund water quality protection projects for wastewater treatment, nonpoint source pollution control, and watershed and estuary management. CWSRF monies are loaned to communities and loan repayments are recycled back into the program to fund additional water quality protection projects.
Eligibility: Water quality projects located in the U.S. and Puerto Rico
http://water.epa.gov/grants_funding/cwsrf/cwsrf_index.cfm
www.cdfa.net
Environmental Protection Agency
▪ Pollution Prevention Grant Program:
This program provides matching funds to state and tribal programs to support P2 activities across all environmental media and to develop state-based programs. EPA believes these environmental programs have the best opportunity to promote P2 because states have closer, more direct contact with industry and are more aware of local needs.
Eligibility: States, DC, U.S. Virgin Islands, Puerto Rico, any U.S. territory, any state agency, and federally recognized tribes.
http://www.epa.gov/p2/pubs/grants/index.htm#p2grant
www.cdfa.net
Environmental Protection Agency
▪ State and Tribal Response Programs:
These programs continue to be at the forefront of brownfields cleanup and redevelopment, as public and private markets recognize the responsibilities and opportunities of these response programs in ensuring protective and sustainable cleanups.
Eligibility: State’s and tribe’s that have demonstrated its response program includes the four elements of a response program and that they maintain and make available the public record of sites at which actions have or will be completed.
http://www.epa.gov/brownfields/state_tribal/index.html
www.cdfa.net
Environmental Protection Agency
▪ Targeted Brownfields Assessments:
This program is designed to help states, tribes, and municipalities - especially those without EPA Brownfields Assessment Pilots/Grants - minimize the uncertainties of contamination often associated with brownfields. Targeted Brownfields Assessments supplement and work with other efforts under the EPA's Brownfields Program to promote the cleanup and redevelopment of brownfields.
Eligibility: State, local, and tribal governments as well as general purpose units of local government, land clearance authorities, regional councils, redevelopment agencies, and nonprofit agencies.
http://www.epa.gov/brownfields/grant_info/tba.htm
www.cdfa.net
Small Business Administration
▪ Certified Development Company/504 Loan Program:
This program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.
Eligibility: Businesses must be for profit and fall within SBA size standards. A business must also have a tangible net worth under $15 million and not have an average after tax income greater than $5 million for the preceding 2 years.
http://www.sba.gov/content/cdc504-loan-program
www.cdfa.net
Small Business Administration
▪ SBA Microloan Program:
This program makes funds available to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries make loans to eligible borrowers.
Eligibility: Small businesses and certain not-for-profit child-care centers.
http://www.sba.gov/content/microloan-program
www.cdfa.net
Support Tools – Federal Relations
▪ Understand the Opportunities – Over 170 programs exist, explore these options and understand their capacity to assist your projects
▪ Consider Layering – Many federal programs can be used in combination with other federal resources. Layering resources is a critical component of using federal assistance.
▪ Relationships – Federal funding is relationship based. Engage your federal district or regional office early and often. Make these agencies a partner in your project and community.
▪ Persistence – The federal government is a bureaucracy. The first answer is usually “no” but persistence pays off. Work the agencies, push the project and keep them engaged.
www.cdfa.net
CDFA Federal Financing Clearinghouse
www.cdfa.net
CDFA Federal Financing Clearinghouse
www.cdfa.net
CDFA Federal Financing Clearinghouse
www.cdfa.net
CDFA Federal Financing Clearinghouse
www.cdfa.net
Federal Support Tools
▪ Here’s the big secret
▪ Open your book to page 59….
▪ And have fun!!!
www.cdfa.net
Implementing the Toolbox
www.cdfa.net
Keys to Toolbox Success
▪ Comprehensive effort involving bold thinking, innovative planning, considerable strategizing and a fully supported, cooperative effort from all involved.
▪ Agencies that fail to build partnerships typically fail to implement the toolbox.
▪ Bring stakeholders to the table – don’t try to operate all of these programs on your own.
▪ Partnerships should exist on the local, county, regional, state and federal level through the public, private, non-profit communities.
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Partnerships Matter
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Sharing Risk, Credit & Expenses
▪ Very few agencies are able or willing to accept all of the risks involved in the toolbox approach.
▪ Fewer have the resources or capacity to operate all of these programs.
▪ However, agencies within your community do have this capacity through their design and fee structures and should be part of the toolbox partnership (i.e. CDCs for the 504 program, etc.).
▪ The private sector should be considered a risk and credit sharing partner.
▪ Private sector is eager and willing to participate and they provide far greater depth of risk ability then other partners.
▪ State and federal laws mandate private investment (CRA). Use this to your toolbox advantage.
▪ Private sector also has the resources to absorb the expenses of running these programs and they will expect to earn a return.
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Think About Financing
▪ Create a Strategic Financing Plan that mirrors the community’s master plan and economic development strategy.
▪ Seek innovative strategies – think about industries not served by existing programs and create program that serve these needs.
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Think About Financing
▪ Operate programs with performance based measuring in place. Track returns closely, be accountable, report findings and use the internet.
▪ job creation, investment, taxes, blight removal, property values, population attraction, transformation, investment return, etc.
▪ Consider policy and procedures closely and engage in healthy dialogue to determine appropriate use of financing tools.
▪ Decide: Developer/business driven or community driven policy?
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Best Practices
State
▪ Alaska Industrial Development & Export Authority
▪ Business Oregon
▪ Colorado Housing and Finance Authority
▪ New Jersey Economic Development Authority
▪ Wisconsin Housing and Economic Development Authority
County/Regional
▪ Chester County Economic Development Council, PA
▪ Development Authority of Fulton County, GA
▪ Development Finance Authority of Summit County, OH
▪ Economic Development Growth Engine (EDGE) for Memphis and Shelby County, TN
▪ Region 9 Economic Development District of Southwest Colorado, CO
▪ Toledo-Lucas County Port Authority, OH
City
▪ Berwyn Development Corporation, IL
▪ City of Minneapolis Community Planning & Economic Development Department, MN
▪ Invest Atlanta, GA
▪ Louisville Forward, KY
▪ Philadelphia Industrial Development Corporation, PA
▪ Phoenix Industrial Development Authority, AZ
▪ Redevelopment Authority of the City of Milwaukee, WI
▪ St. Louis Economic Development Partnership, MO
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Business Oregon
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Business Oregon
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Colorado Housing & Finance Authority
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Colorado Housing & Finance Authority
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Alaska Industrial Development & Export Authority
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Alaska Industrial Development & Export Authority
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Toledo-Lucas County Port Authority
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Toledo-Lucas County Port Authority
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St. Louis Economic Development Partnership
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St. Louis Economic Development Partnership
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Chester County (PA) Economic Development Council
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Chester County (PA) Economic Development Council
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Berwyn Development Corporation
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DFA of Summit County, OH
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DFA of Summit County, OH
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Critical Development Finance Elements
▪ Defined Projects – A project is not a project until it is on one (maybe two) pages and clearly defined. That is what will attract investment.
▪ Sources & Uses – Find revenues (sources), find expenses (uses) and keep it simple
▪ Preference – Rural financing is a highly preferred investment class right now by the development community
▪ Leverage – Find small amounts of funding and financing to leverage bigger amounts. Look where you might not think to look.
▪ Complex – Financing today is complex, expect multiple sources of funding/financing to be part of your deal
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10 Key Toolbox Concepts
Thank You!
Toby Rittner, DFCP
President & CEO
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