Building Your Tax Base: Creating and Using Redevelopment Incentives

BUILDING YOUR TAX BASEBUILDING YOUR TAX BASE
CREATING AND USING REDEVELOPMENT INCENTIVESCREATING AND USING REDEVELOPMENT INCENTIVES
Presented by:
Robert P. Franke, AICP - Robert P. Franke & Associates
Jeffrey L. Oris, CEcD - Planning and Redevelopment Consultants, Inc.
Corey W. O’Gorman, AICP - PLACE Planning and Design
APA FLORIDA ANNUAL CONFERENCE
Tampa, Florida September 16, 2010

 CRA OVERVIEW
 TYPES OF INCENTIVES
 ESTABLISHING INCENTIVE POLICIES
 TARGETING INCENTIVES
 KNOW THE RISKS OF INCENTIVES
 PRO FORMAS
 RETURN ON INVESTMENT (ROI)
September 16, 2010APA FLORIDA
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 Authorization for CRA’s was passed in the Redevelopment Act of
1969 which became Chapter 163 Part III of the Florida Statutes
 As of last review there are 202 CRA Districts registered with the
Florida Department of Community Affairs
 Currently the only form of Tax Increment Districts in widespread use
in the State of Florida
 CRA’s may be created by a City or County to assist in the elimination
of slum and/or blighting conditions
 State is not involved in the creation of CRA’s
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APA FLORIDA September 16, 2010

 Every CRA is required to have a Community Redevelopment Plan
 The CRP is the guiding document of the CRA outlining the projects
and programs to be undertaken
 Projects/programs not outlined in the CRP cannot be undertaken by
the CRA
 The Plan can be amended through a public process as determined
appropriate
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 F.S. 163.345 - Encouragement of Private Enterprise
 Any county or municipality, to the greatest extent it determines to be
feasible in carrying out the provisions of this part, shall afford
maximum opportunity, consistent with the sound needs of the county
or municipality as a whole, to the rehabilitation or redevelopment of
the community redevelopment area by private enterprise.
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 The county or municipality shall give consideration to Private
Enterprise in the:
 Formulation of a workable program
 Approval of:
 Community Redevelopment Plans
 Communitywide plans or programs for community redevelopment
 General neighborhood redevelopment plans
 Development and implementation of community policing innovations
 Exercise of its zoning powers
 Enforcement of other laws, codes, and regulations relating to the use of land
and the use and occupancy of buildings and improvements
 Development of affordable housing
 Disposition of any property acquired, subject to the limitations of s. 73.013
 Provision of necessary public improvements.
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 In giving consideration to the objectives outlined, the county or
municipality shall consider making available the incentives provided
under the Florida Enterprise Zone Act and Chapter 420.
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 Limitations on the type, size, height, number, and proposed use of
buildings.
 Property intended for public improvements
 Identify any publicly funded capital projects to be undertaken within
the CRA
 Contain a detailed statement of the projected costs of the
redevelopment
 Provide a time certain for completing all redevelopment financed by
increment revenues
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 Acquire and hold property
 Demolish buildings
 Dispose of property at FAIR VALUE
 To develop property (including affordable housing)
 Install, construct, and repair
 Streets
 Parks
 Utilities
 Playgrounds
 Other public improvements
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 Solicit proposals for re/development (Developer RFP’s)
 Borrow money or accept funds/grants from any source
(borrowing subject to approval of the Governing Body)
 Close, vacate, plan, replan streets, sidewalks, other places
 Petition for changes to land use, zoning
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 A CRA can borrow money with the approval of the Governing Body
 This borrowing can be in the form of:
 Revenue Bond
 Bank Loan – including line of credit
 Loan from Governing Body
 Repayment period cannot exceed the life of the CRA
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 Any project or program a CRA wishes to undertake must be outlined
in the Community Redevelopment Plan (CRP)
IF IT IS NOT IN THE PLANIF IT IS NOT IN THE PLAN
YOU CAN’T DO IT !!!!!YOU CAN’T DO IT !!!!!
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CRA District
Assessed Value
2000
Base Year
$100,000 value
Tax $200.00
City and County
Receive
$200.00
in tax payments
2005
Year 5
$150,000 value
Tax $300.00
City and County
Receives
$300.00
($200.00 + $100.00) Redevelopment
Trust Fund
Receives
$100.00
Remits
Increase
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 Downtown Development Authorities
 Neighborhood Improvement Districts
 Special Assessment District
 Main Street
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Administrative
Financial
Planning and Land Use
Marketing
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 Streamline development review (one-stop approval)
 Recruiting assistance / job fairs
 Site selection assistance
 Restructure permit fees for CRA projects
 Waive demolition fees
 Provide technical assistance for property owners, small businesses,
and small business start-ups
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 Tax credits, tax abatements and tax increment rebates
 Loans, interest or rent subsidies
 Local, State, Federal Grants or Loans
 Micro loans to small businesses
 Public assembly of land / land donation /reduced land cost
 Shared cost of upgraded / new utilities
 Environmental remediation cost
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 Relocation costs / training costs
 Per Job Bounty
 Cash Payments for Developer’s Costs
 Reduce impact fees
 Commercial interior space build-out
 Signage upgrades
 Façade improvement grants and loans
 Affordable housing loans and grants to developers
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 Land use / zoning amendments
 Reduced parking requirements
 Non-conforming use amendments
 Shared infrastructure agreements (parking, stormwater, etc.)
 Create density bonus program
 Mixed use land use designation
 Land banking
 Prepare and complete streetscape projects
 Prepare architectural plans for development on CRA owned land
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 Prepare market analysis
 Assist with local business promotion
 Hold design competitions to generate interest
 Promote grand openings, ground breakings and ribbon cuttings
 Recruiting assistance / job fairs
 Prepare inventories of available land, buildings and storefronts
 Provide how-to seminars
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 Use of Public funds MUST have a Public Purpose
 For CRA, Public Purpose is related to:
 Findings of Necessity
 Redevelopment Plan
 Challenges to CRA activities
 Political
 Legal
 Formulate & adopt policies and programs BEFORE you need them
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 Applicant
 Predictable process and criteria
 Public Agency
 Transparency
 Accountability
 Reduces public objection
 Reduces chance of successful challenges
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 Establish Operating Parameters for Agency
 Budgeting
 General finance
 Incurring debt
 Purchasing
 Incentives
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 Identify the activities to incentivize
 New Construction
 Renovation – Adaptive Re-use
 Beautification
 Economic development
 Affordable housing
 Business retention and recruitment
 Zoning and development regulations
 Based on Redevelopment Plan and Established operating policies and
procedures
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 Writing the program
 Public Involvement
 Ensuring sufficient program advertising
 Ensuring consistent and equitable administration
 Parameters for public expenditures
 Determining grant versus loan
 Staff capacity to implement
 Incentive timing
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 Timing – when does the Public money go in???
 Upfront
 On-going
 Upon completion
 Determination of Need
 Agency Risk
 Nature of incentive
 Negotiation
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 Agency Risk
 Minimize Agency Risk
 Ensuring project success
 Minimal Agency Risk after project completion
 Highest Agency Risk prior to construction
 Don’t be a “spec” developer
 Reimbursement Basis
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 Advertising
 Accept and review applications
 Grant & Loan Agreements
 Issuing payments
 Compliance monitoring
 Program review
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 Advertising
 Direct mail to businesses / developers / residents
 Advertising in local newspapers
 Agency Web Site
 Public Posting
 Social network sites
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 Acceptance and Review of Applications
 Review by staff
 Clear, understandable, objective criteria
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 Grant/Loan Agreements
 Simple grant agreement for façade improvements
 Detailed developer agreements for construction of new buildings or
establishing new employers
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 Issuing Payments
 Reimbursement based on paid receipts
 Monitoring
 Regular review of project to ensure that it complies with grant agreement and
other requirements
 Evaluation Criteria
 Funds paid
 Goals met
 Market changes
 Jobs created
 Facades improved
 Fiscal year-end review
 Changes for new FY
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Highest pay-off / increase taxable value
Qualified groups
Employment-based / job creation
Location-based
Housing
Historic preservation
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 CRA-owned land = zero taxable
value
 As downtown redevelopment has
progressed, the City’s urban
center has received an influx of
new residents, offices, shops, and
restaurants.
 The redevelopment of city-owned
lot resulted in downtown’s first
hotel and conference facility.
 The mixed-use development will
offer approximately 124 hotel
rooms, conference and meeting
facilities, and ground floor retail
space.
– GAINESVILLE
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 Through the Commercial Rent
Subsidy program, recipients
receive assistance with rent for
the first year for a new or
expanding business. It will pay
one-half or up to $600 a
month to the landlord for
qualifying businesses.
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 Businesses agree to generate a minimum value of five (5) new or relocated
qualifying jobs
 The award amount shall be calculated based on the annual wages that are
paid to the qualifying employees at the start of employment.
 The maximum grant award is $50,000.
 Targeted projects are Class “A” office buildings and associated uses
 5%, 10%, and 20% of all certifiable annual wages -up to $10,000 per job or
$50,000 per year for five years depending on target location
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 Must be a retail and/or targeted
commercial property
 Property must be located in a
participating CRA (Drew Park,
East Tampa and/or Ybor City 1
and 2)
 May be further restricted to target
areas within each CRA
 Funding limit is 50% of the project
costs, up to $50,000
 Funding can be used for exterior
renovation, restoration and
rehabilitation as well as
landscaping improvements
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 Intended to increase homeowner
occupancy in the CRA in order to provide
economic support to the downtown
businesses
 Designed to attract new residents to
targeted areas within the CRA
 There is no income limitations
 Persons currently residing /claiming
homestead exemption in the CRA district
are not eligible
 Multifamily or Office Conversion to be
restored to single family: $20,000.00
 Single family detached housing (zoned
RB-2, RPB or currently renter occupied):
$10,000.00
 Single family detached infill housing:
$10,000.00
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 This historic landmark was one
of the few lodgings in South
Florida that welcomed African-
Americans during the
segregation era of the 1950s
and 1960s
 After much consideration, the
community reached a
consensus that affordable
housing for low-income seniors
would be the most desirable
long-term use of the property
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 The Risk with incentives is that the public will pay for a desired
outcome which is not achieved.
 Jobs not created or eliminated shortly after incentives
 Business operations not continuing for sufficient period
 Buildings left vacant or abandoned after construction or attraction of
tenant(s)
 Bad PR from money paid without meeting objectives (in total or in
part) also poses a great risk.
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 Competing goals with CRA
 Increase employment
 Increase economic activity
 Increase property values
 Elimination of slum and/or blighting influences
 Other types of organization have a more clear cut objective
 Increase employment base
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 Riskiest incentives are those that come up-front and are not dependent on
desired outcome to occur or there is nothing tangible “purchased”
 Any incentive without clear objectives and guarantees
 Up-front Direct Cash
 Business (Tenant) -Based Incentives
 Rent Subsidies
 Tenant-specific improvements
 Cash for job creation
 Construction Fee Payment
 Direct Loans
 Loan Guarantees/Interest Subsidies
 Landscaping Improvements
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 Moderate Risk are those that are less likely to not meet or abandon
objectives:
 Installation of On-Site Improvements
 Parking
 Water/Sewer
 Visual Enhancements to Property
 Interest Buy-Down on Loans
 Reimbursement-Based Incentives for
 Job Creation
 Matching of Other ED Grants
 Land Buy-Down
 Other Incentives with “Claw Back” provisions
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 Low Risk are those that are not likely to not meet or abandon
objectives:
 Installation of Public Improvements
 Roadway enhancements
 Water/Sewer mains
 Public Parking facilities
 Man-Power Incentives
 Development Liaison
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 Risk can be reduced
 Keeping incentives to realm of items that are publicly owned
 Full review of pro-forma for projects
 Delayed payment provided only after payment of property taxes
(source of CRA funding)
 Reduce exposure through limited return related to Increment
generated
 Strong agreements:
 Clearly outlined desired outcome(s)
 Claw-back provisions
 Defined mile-marker dates
 Clearly defined non-performance measures
 Lien Property where appropriate
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 Risk can be reduced
 Utilize the “But For” Test
 Do Not Get Caught in “We Need More” Spiral
 Attach Liens or Other Claw-Backs Where Possible
 Wherever Possible Fund Publicly Owned Infrastructure as Your
Incentive
 Delay Incentive Payments Over Time and at Defined Milestones
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 Cash is risky when nothing tangible is purchased
 Provision of public infrastructure is preferable
 Risk can be reduced through:
 Full review of pro-forma for certain projects
 Delayed payment provided only after payment of property taxes (source
of CRA funding)
 Reduce exposure through limited return related to Increment generated
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When incentives are large or risky (real or perceived),
it is best to undertake a review of the project Pro Forma to
determine if the incentives are necessary.
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 The Pro Forma is the developers financial expectations of the project
and includes:
 Anticipated Costs
 Construction
 Land
 Consultants
 Borrowing
 Return on Investment
 Developer Fees
 Anticipated Revenues
 Sales
 Rentals
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 Example of a Development Pro Forma and Budget Appleberry Apartments
40 Units of Family Supportive Housing
 Project Development Budget
Acquisition vacant land $ 1,000,000
Construction Costs:
New Construction 40,000 s.f. $ 4,400,000
Construction Contingency 10% $ 444,000
Architect 5% $ 220,000
Development Costs:
Construction Period RE Taxes received abatement$ --
Construction Period Insurance $ 30,000
Construction Period Interest $ 15,000
Title and Recording $ 12,000
Furnishings and Equipment $ 150,000
Appraisal $ 5,000
Survey $ 5,000
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 Professional Services:
Legal:
Financing $ 10,000
Transaction $ 30,000
Syndication $ 5,000
Tax Opinion $ 10,000
Tax Credit Application Fee $ 1,000
Accounting $ 7,500
Soil Borings $ 4,000
Environmental Report $ 5,000
Marketing and Leasing $ 20,000
Developer Fee $ 610,000
Consultant Fee $ 40,000
Reserves:
Operating Reserve $ 250,000
Tax and Insurance Escrow $ 20,000
Total Development Costs $6,389,500
Costs per Unit (excluding reserves) $ 152,988
From Family Matters: A Guide to Developing Family Supportive Housing
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 Excessive Developer Fees
 Excessive Contractor Fees
 Excessive Return on Investment
 Excessive Interest Rate on Loans
 Undervalued or Overvalued Revenues based on current market
 Lack of Developer Risk (own money in the project)
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 The Return on Investment or ROI is the percentage of money over or
above the original investment that is returned to the investor.
(Commonly referred to as the investor’s “profit”)
 ROI is the determining factor for an investor in placing their money in
a development project or seeking another option for investment (i.e..
stock market, land, emerging business venture)
 When ROI is higher or the project less risky than other investment
options, development is more likely to happen.
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Standard Rate of Return on Development Projects
Historical
Average - 8 – 14 %
2005 - 16 – 20 %
2008 - 12 – 15 %
2010 - ??????
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Government influences Return on Investment through:
 Regulation
 Efficiency of Approval Process
 Efficiency of Permit Process
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Costs which can not be easily estimated influence ROI negatively by
increasing contingency and possibility of unforeseen costs:
 Unclear development regulations
 Inconsistent interpretation of development regulations
 Unpredictable time frames for development
 Risk of being denied by Board even when project meets code
 Arbitrary changes to requirements during design
 More importantly arbitrary changes to requirements during
construction
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 Regulation can add cost
 Consistently applied regulation can add value
 Predictability in interpretation is key towards determining costs
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Governmental Agencies have their own list of wants and needs.
Promoting items on this list is the reason for offering incentives:
 Job Creation
 Attraction of New Development
 Tax Base Enhancement
 Retail Attraction
 Establishment of Public Spaces
 Increasing Design Expectations
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Government ROI is much more difficult to determine as True ROI
takes time to determine due time to recognition of return (in order
of recognition of return)
Attraction of New Development
Job Creation
Tax Base Enhancement
Retail Attraction
Other Factors
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http://frankeplanning.com
http://www.placepnd.com
http://www.parconsultantsinc.com
http://www.delraycra.org
http://www.kissimmeecra.com
http://www.gainesvillecra.com
http://www.boyntonbeachcra.com
http://www.tampagov.net/dept_economic_and_urban_development/
programs_and_services
http://www.redevelopment.net
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Florida Redevelopment Association
Certification Program
Redevelopment 101
9:00 am – 4:00 pm
Tuesday, October 12, 2010
Peabody Orlando Hotel
Contact: Jan Piland @ (850) 701-3622
JPiland@flcities.com
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Building Your Tax Base: Creating and Using Redevelopment Incentives

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