Presentation on theme: "1 Understanding Revenue Allocation Districts (“RADs”) Prepared for the Jersey City Redevelopment Agency Presented by: Glenn F. Scotland, Esq. & Jennifer."— Presentation transcript:
1 Understanding Revenue Allocation Districts (“RADs”) Prepared for the Jersey City Redevelopment Agency Presented by: Glenn F. Scotland, Esq. & Jennifer L. Credidio, Esq. McManimon & Scotland, L.L.C. January 9, 2009
2 What is a RAD? RAD is short for “revenue allocation district”. A RAD is an area designated pursuant to the Revenue Allocation District Financing Act, N.J.S.A. 52:272D-459 et seq. (the “RAD Law”). A RAD can be all or part of an “area in need of redevelopment” that has been established pursuant to the Local Redevelopment and Housing Law, N.J.S.A. 40A:12A-1 et seq. (the “Redevelopment Law”), and must be identified in the redevelopment plan for that area. N.J.S.A. 52:27D-462.
3 The Mission of the RAD Law: The RAD Law allows for the dedication of certain revenues within a RAD to the retirement of debt issued in connection with redevelopment within the RAD. This is regardless of whether or not the dedicated revenues actually arise from the redevelopment project within the district. Not to be confused with a RAB, or “redevelopment area bond” issue.
4 RAD – A New Twist on an Old Idea Don’t be intimidated by the complicated terms. Municipalities already use this kind of mechanism. For example, a RAD is similar to a municipal utility or to an improvement authority loan in that it is a book- keeping arrangement. A RAD is essentially a book-keeping arrangement that allows certain revenues generated within the district to be pledged to capital improvements in that district. With a RAD, there is no board or competing policy interests – decisions continue to rest with the municipality’s governing body. While the municipality retains decision making authority, it will also designate a “district agent”, either the municipality itself or another governmental entity, to act as an administrator for the district revenues on its behalf.
5 District Agents But what about the district agent? Won’t it take away some of the municipality’s control? No. The district agent, discussed at N.J.S.A. 52:27D-468 and N.J.S.A. 52:27D-480, is simply the entity that receives the pledged revenues, issues revenue bonds and pays the bondholders. Many of its functions are similar to that of a trustee in a bond transaction. Who will the District Agent be? The district agent can be the City, the JCRA, a county or county improvement authority, the New Jersey Redevelopment Authority, or, the New Jersey Economic Development Authority. It’s simply a matter of choice.
6 Eligible Revenues that may be Pledged Set out at length at N.J.S.A. 52:27D-469. Some examples include: Increases in property tax revenues Increases in PILOTs Increases in certain municipal revenues: Parking tax The municipally retained portion of Urban Enterprise Zone sales taxes Lease payments made to the municipality for property within the district Other miscellaneous revenues
7 Incremental Revenue May Be Pledged The RAD Law seeks to capture increases in revenues within a district and allow these revenues to be pledged to paying for the costs of capital improvements. The increment is the measure of those increased revenues. The RAD Law discusses calculation of the increment in detail, including at N.J.S.A. 52:27D-473 and N.J.S.A. 52:27D-479. [Next page]
8 Calculating the Increment For real property, the increment is measured as: (Taxable Value X Tax Rate) X (Taxable Value - Base) (Taxable Value) Base = Aggregate Taxable Value of property within the district on October 1 of year preceding designation, or in simple terms, what was there before it started. For example, if the base is 70 and current is 100, then the ratio is: (100-70) 100 or in other words, 30% of taxes within the district are eligible revenues which may be pledged.
9 Will a RAD Raise Taxes? No. The establishment of a RAD doesn’t create any new taxes or fees. It only addresses the allocation of incremental (new) revenues. Property owners outside of the RAD remain in the same position as today – the RAD doesn’t impact existing revenues.
10 How Do I Create a RAD? Step 1: Introduce, but do not immediately move to adopt, a municipal ordinance establishing the RAD. Step 2: Adopt a resolution authorizing application to the Local Finance Board. Step 3: Make application to the Local Finance Board. The application must contain the introduced ordinance establishing the RAD and adopting the revenue allocation plan on first reading, as well as all of the attachments required to be included in the ordinance. Step 4: The Local Finance Board will approve the ordinance if it reaches certain conclusions. Step 5: The Local Finance Board makes written recommendations. Step 6: Finally adopt the ordinance establishing the RAD, including any conditions or recommendations made by the Local Finance Board.
11 Introduction of a Final Revenue Allocation Plan Pursuant to N.J.S.A. 52:27D-470, the Final Revenue Allocation Plan must contain the same information as the Preliminary Revenue Allocation Plan, in addition to a copy of any proposed bond resolution. The bond resolution must include: a description of the bonds; and a description of the security features for the bonds. This includes the municipal guarantee, if any.
12 Local Finance Board Approval of the Final Revenue Allocation Plan The Local Finance Board will review and approve the final plan using the same criteria used to review the preliminary plan. N.J.S.A. 52:27D-471. Like the preliminary plan, if the Local Finance Board does not act on the final plan within sixty days, it is deemed approved. N.J.S.A. 52:27D-472. Once the Local Finance Board has approved the final plan, the municipality may finally adopt the plan by ordinance.
13 Issuance of Bonds Once the Revenue Allocation Plan has been finalized, and the pledged revenues are being deposited in accordance with the RAD Law, the district agent, on behalf of the municipality, may issue bonds secured by the pledged revenues to fund capital improvements within the district. N.J.S.A. 52:27D-480. The bonds are considered issued for “an essential public and governmental purpose” and are therefore tax-exempt obligations for State income tax purposes. N.J.S.A. 52:27D-488.
14 Security for the Bonds The district agent is empowered to enter into such covenants and execute such documents as are set forth in N.J.S.A. 52:27D-484 in order to secure the payment of the bonds. If the district agent is an entity other than the municipality: The bonds must be authorized by resolution in such a form and containing such items of description as set forth in the RAD Law. N.J.S.A. 52:27D-481. The municipality may guarantee the bonds in order to lower the costs of borrowing. N.J.S.A. 52:27D-483. The District must remain in existence while the bonds are outstanding. N.J.S.A. 52:27D-478.
15 Ongoing Compliance Matters Much like a municipality, the RAD’s annual budget must be submitted to the Director of the Division of Local Government Services in the Department of Community Affairs for approval, pursuant to N.J.S.A. 52:27D-475. The Director will either approve the budget within 45 days, or disapprove the budget and return it along with the reasoning therefor to the district for modification.
16 Pending Amendments to the RAD Law S-2299, currently before the State Senate Budget Committee, would make several changes to the RAD Law: To allow RADs in “areas in need of rehabilitation” as well as “areas in need of redevelopment; To expand the types of eligible revenues that can be pledged; To streamline the approval and oversight process.