Revenue-Based Development Incentives Property Tax Revenues Bob Rychlicki Kane, McKenna and Associates, Inc.

I. “Upfront” Review Review Project Economics Basic assumptions: Background of applicant, experience, track record, etc. Review of market information – feasibility studies, commitments, etc. Detailed sources and uses of funds Project pro forma review Review Need for TIF Assistance

I. Review the Assumptions Developer Background: Demonstration of prior experience or track record. Can references be provided including credit references or evidence of financial capacity? Identify other team members or support personnel and their experience. What is their experience in other municipalities?

I. Review the Assumptions Market Analysis: Compare project assumptions regarding rents, absorption, sales prices, etc. to project market studies. Determine if independent studies are needed. Is appraisal data available to support acquisition prices or costs, are the amounts in line with the data? Are there leases or other commitments in place – what are the relevant provisions regarding timing, occupancy, anchor tenants, etc.?

I. Review the Assumptions Need for TIF Assistance Is the amount of TIF assistance reasonable in relation to the total project costs and private financing? Is the project TIF request supported by incremental revenues? Can the project be implemented in a timely manner? Are “benchmarks” or criteria negotiated that protect the municipality (redevelopment agreement)?

I. “Upfront” Review: Municipal Needs What are the municipal costs/constraints? Identify: Ongoing TIF administration or project review Any new or additional services Needs for infrastructure or utilities Other taxing districts – any new services? Impacts of assistance on current or projected credit position of the municipality.

II. TIF Financing Options Starting Point in TIF Financial Analysis Basic options: Bonds are issued upfront “Pay as you go” or Notes - performance based structure is utilized Combination of the above

II. TIF Financing Options Identify Project Financial Requirements Timing for TIF financing – when are the dollars needed ? Sizing – how many TIF dollars are needed? Need for TIF Dollars – identify true public and private funding requirements and compare to TIF dollars

II. TIF Financing Options Preparation of the TIF Analysis Prepare TIF revenue projections Identify community needed public improvements Complete “but for” or gap analysis Identify critical project assumptions related to the receipt of TIF revenues Identify other sources of revenues or funds that could complement the financing

II. TIF Financing Options Other Requirements : Review/calculate any school district payments or intergovernmental agreements, if applicable Identify other TIF obligations or liens Identify any administrative or ongoing monitoring requirements that need annual funding

III. Refining the Analysis Risk Assessment What is the financial position of the municipality- can bonds be issued and not negatively impact ongoing or future financings ? What are the municipal policies and fiscal position relating to G.O. debt financing ? What is the likelihood that TIF revenues will be available: has sensitivity analysis (with any coverage requirements) been factored into the analysis ? Are any guarantees necessary, and if so, what are the implications for tax exempt or taxable financing?

III. Refining the Analysis Risk Assessment ( continued) What is the track record of the developer or entity that is responsible for the project implementation ? Has the redevelopment agreement included adequate protections and timetables for performance ? Have the valuation estimates been compared to market data or similar uses in the area ? Will the financing establish a precedent for future developments, will criteria be identified ?

Upfront Financing Options General Obligation vs. Revenue Bonds The different interest rates, coverage requirements, and other purchaser requirements will affect the net financing amounts supported by the project. Taxable vs.Tax Exempt Interest Rates What is the trade off in interest cost compared to the greater certainty of repayment through letters of credit, insurance, or other forms of guarantee ? III. Refining the Analysis

III. Refining the TIF Analysis Upfront Financing Options (continued) Revenue bond purchasers have more stringent requirements in relation to G.O. purchasers The revenue bond market is narrower and may not be available for all projects G.O. bonds provide a lower interest rate, but additional risks are borne by the municipality

III. Refining the TIF Analysis “Pay as you go” options  Shift risk to developer or private entity  Private sector financing will need to include upfront costs that are reimbursed by annual incremental revenues  Interest costs could be higher in relation to municipal borrowings (tax exempt or taxable)  Provide for Developer Note take out, if and when TIF revenues are “seasoned”

IV. Projection Assumptions: Users

IV. Project Assumptions: Timing

IV. Project Assumptions: Increment

IV. Project Assumptions: Financing Pay as you go or Notes Revenue Bonds G.O. Bonds Present Value of TIF Flows $7, 067,009 Estimate of Net Financing amount $3,956,945 Estimate of Net Financing amount $6,499,767 Interest Rate: 8.5% Interest Rate: 7.0%Interest Rate: 5.0% No coverage requirements or financing costs 1.35 x coverage plus costs, cap. int., and DSR 1.25 x coverage plus costs and cap. int. Developer holds note Bonds sold to investors

V. Policy Considerations Prior to finalizing the deal: Review municipal services that may be required to implement the project on an ongoing basis Integrate taxing district feedback or requests Carefully review funding mechanism and municipal fiscal condition Develop monitoring/feedback process in order to evaluate the project and the financing associated with the redevelopment area

V. Policy Considerations Prior to finalizing the deal (con’t):  Determine if an independent feasibility report or market studies are required  Review the redevelopment agreement in order to include key business points  Review all necessary project commitments and budgets associated with the redevelopment project

V. Policy Considerations Follow up Items Monitor revenues and project performance ( annually or more often) Prepare TIF annual reports or continuing disclosure reports ( as required by bond documents) Identify any tax protests or tax collection discrepancies Monitor development timetable and benchmarks

VI. Summary Important Steps Match financing to revenues after a thorough examination and testing of all assumptions Evaluate the proposed financing in relation to the overall municipal fiscal picture Carefully assess risk in relation to the project characteristics and development variables – how many variables are subject to change ?