1. Transportation Operations Group Transportation Reinvestment Zones (TRZ) Financing Potential Case Studies in Texas Arturo Bujanda November 12, 2012

2. Contents 2 4 th Biannual Border to Border Conference | Isla Grand Resort, South Padre Island, TX | November 2012  TRZ Background  TRZ alignment and boundaries  Revenue estimates and TRZ financing potential  Final steps for implementation TRZ Background

3. TRZ Legal Framework—the Basics  A TRZ is a designated contiguous zone around a planned transportation improvement established as the necessary institutional arrangement to facilitate real estate value-capture via the property tax mechanism  Approved in 2007, Senate Bill 1266 allows the establishment of a dedicated tax increment account where captured revenues from the TRZ are set aside to finance project capital costs  Texas House Bill 563 passed in 2011 introduced significant changes in the law governing Transportation Reinvestment Zones (TRZ)  Two types of TRZs allowed under the law – Municipal – County TRZs 3

4. Value Capture Mechanism in a TRZ: How it works General Fund Tax Increment Account, RUD, or third party 4 Tax Rate (or County tax abatement) n Tax Rate (or County abated tax rate) n Tax Increment Base = Appraised Value in Base Year TRZ Life (yrs) Appraised Property Value Captured Appraised Value Tax Increment Base

5. Recent Legislative Changes Facilitate TRZ Implementation 5 Original Legislation Provisions SB 1266 (passed in 2007) New Legislation Provisions HB 563 (passed in 2011) Municipal TRZs County TRZs  Tax increment to be set aside only through a tax abatement and the creation of a Road Utility District (RUD)  Tax increment can be set aside through a tax abatement or other form of tax relief  County can pledge all or part of the increment to a public or private entity to pay for project, or create a RUD  Tax increment can be set aside through a tax abatement or other form of tax relief  County can pledge all or part of the increment to a public or private entity to pay for project, or create a RUD Applicable to any TRZ type  Only real property tax increments  Required a pass-through agreement with TxDOT  Only roadways projects eligible  TRZ boundaries could not be modified after designation  Only real property tax increments  Required a pass-through agreement with TxDOT  Only roadways projects eligible  TRZ boundaries could not be modified after designation  Real property tax increments and optionally, sales tax increments  Pass-through agreement is only required in cases involving sales tax increments  Any transportation project eligible, including aesthetic & transit.  TRZ boundaries can be expanded but not reduced, after designation  Real property tax increments and optionally, sales tax increments  Pass-through agreement is only required in cases involving sales tax increments  Any transportation project eligible, including aesthetic & transit.  TRZ boundaries can be expanded but not reduced, after designation  Required 100% of annual tax increment to be set aside  % of annual tax increment to be set aside is flexible (e.g. 20%, 50%)

6. Contents 6 4 th Biannual Border to Border Conference | Isla Grand Resort, South Padre Island, TX | November 2012  TRZ Background  Recent and past TRZ development efforts  TRZ alignment and boundaries  Revenue estimates and TRZ financing potential  Final steps for implementation Recent and past TRZ development efforts

7. City of El Paso TRZs  El Paso is the first major city in Texas to implement TRZs  Key funding mechanism for the El Paso Comprehensive Mobility Plan (CMP) – CMP is a multimodal plan (traditional roadways, transit, aesthetics, toll roads) – CMP Financial Plan includes $70 million in TRZ revenue along with tolls and other traditional funds  TRZ No 1 was first approved by City Council in late 2008, but had to be rescinded in 2010 due to data quality and contiguity issues  TRZs No 2 and No 3 were approved in 2010, after boundaries and revenue estimates were recalibrated 7

8. City of El Paso TRZ No 2 and 3 8

9. Hidalgo County TRZ No 1 and 2  First County TRZ set up in Texas, with TRZ No 1 adopted by the County Commissioners Court in December 2008  Led by the Hidalgo County Regional Mobility Authority with the objective of funding the Hidalgo Loop project  The Hidalgo County Commissioners Court rescinded TRZ No 1 and approved TRZ No 2 in December 2011 to expand original TRZ boundaries  Not active until a Commissioner’s Court order is passed to activate County tax abatement  Zone Terminates December 31, 2021 if not activated by that time 9

10. Hidalgo County TRZ No 2 (2 of 2) 10

11. City of Forney TRZ No 1 - History  TRZ No 1 was established in December 2008 and included over 5,000 acres of land  TRZ No 1 was rescinded in October 2011 - no new TRZ has been created yet – Because of economic downturn, TRZ No 1 did not accumulate much or any tax increment revenue – Project expected to drive the TRZ creation failed to be included in Pass-Thru-Toll agreement between TxDOT and City of Forney – Therefore, no specific projects were identified for TRZ No 1 funding 11

12. City of Forney TRZ No 1 - Boundaries 12

13. City of McAllen 1-mile Buffer (proposed) 13

14. El Paso County TRZ (proposed)  1/2-mile from the centerline 14

15. Horizon City TRZ | ½-mile from the centerline (proposed) 15

16. City of Socorro TRZ (proposed)  1/2-mile from the centerline 16

17. Contents 17 4 th Biannual Border to Border Conference | Isla Grand Resort, South Padre Island, TX | November 2012  TRZ Background  Recent and past TRZ development efforts  TRZ alignment and boundaries  Revenue estimates and TRZ financing potential  Final steps for implementation TRZ alignment and boundaries—How far? How big?

18. Historical Assessed Property Values for the 1-mile Buffer Joe Battle Blvd Case Study in El Paso 18

19. Historical Pace of Development for the 1-mile Buffer Joe Battle Blvd Case Study in El Paso 19

20. Historical Assessed Property Values for the 1-mile Buffer Expressway 83 and Bicentenario in McAllen 20

21. Historical Pace of Development for the 1-mile Buffer Expressway 83 and Bicentenario in McAllen 21

22. Contents 22 4 th Biannual Border to Border Conference | Isla Grand Resort, South Padre Island, TX | November 2012  TRZ Background  Recent and past TRZ development efforts  TRZ alignment and boundaries  Revenue estimates and TRZ financing potential  Final steps for implementation Revenue estimates and TRZ financing potential

23. Methodology  Discounted Cash Flow Model 23 Suggested TRZ Widths and Revenue Potential Demographics Proposed capacity improvement Development trends Growth rate trends TRZ corridor characteristics New development Existing development 1.Commercial 2.Industrial 3.Residential 4.Raw acreage or agricultural 5.Totally exempt Real estate parcel classification Source: Texas Transportation Institute The cadastral base is classified into vacant and developed parcels for analysis (i.e. existing and new development). 1 1 The TRZ corridor characteristics are assessed based on property value growth rates, development trends, demographics, and the proposed transportation improvement. 2 2 Totally exempt parcels are excluded from the financial analysis, but included to preserve contiguity. 4 4 The cadastral base is classified into five categories: 1.Commercial, 2.Industrial, 3.Residential, 4.Agricultural and 5.Totally Exempt parcels to account for different property value growth rates and development trends. 3 3

24. Analysis and outputs 24 Public land (exempt) Cash flows accruing to the TRZ over 30 years No ownership change Scenario 1: Existing development New development Vacant land Existing development New development Vacant land Discounted and undiscounted Discount rate: 5% (interest on debt/cost of capital) Discounted and undiscounted Discount rate: 5% (interest on debt/cost of capital) Private (non-exempt) uses TRZ Revenues Considered 2012 Present Value Net capital available El Paso County: 0.408870 Horizon City: 0.322791 City of Socorro: 0.565805 per $100 of real property taxable value El Paso County: 0.408870 Horizon City: 0.322791 City of Socorro: 0.565805 per $100 of real property taxable value Tax Rates Considered for El Paso Case Study 2012 Ownership changes Private (non-exempt) uses Scenario 2: Public land (exempt)

25. TRZ Revenue Potential per Jurisdiction (conservative) Total Multijurisdictional Revenue (conservative) 25 ½ Mile Buffer Scenario 1: No ownership changes from public land (exempt) to private uses (non-exempt)

26. TRZ Revenue Potential per Jurisdiction (pessimistic) Total Multijurisdictional Revenue (pessimistic) 26 ½ Mile Buffer Scenario 2: Ownership changes from public land to private (non-exempt) uses

27. Contents 27 4 th Biannual Border to Border Conference | Isla Grand Resort, South Padre Island, TX | November 2012  TRZ Background  Recent and past TRZ development efforts  TRZ alignment and boundaries  Revenue estimates and TRZ financing potential  Final steps for implementation Final steps for implementation

28. Percentage of the annual revenue that will go to the TRZ account—conservative scenario 28

29. Final Steps for Implementation  After – (i) analyzing new project costs, – (ii) consider joint funding agreements among jurisdictions, and – (iii) decide the percentage of the annual revenue that will go to the TRZ account  Conduct a final revision and assess the impact, if any, on expected revenues  Finally, extract and document parcels to be included in the approval of the final TRZs—list of parcels for: – City Ordinances – County Commissioners' Court Orders 29

30. Questions or Further Information  Arturo Bujanda Associate Research Specialist Email: a-bujanda@tamu.edua-bujanda@tamu.edu 30  Rafael Aldrete Senior Research Scientist Email: r-aldrete@tamu.edur-aldrete@tamu.edu  Sharada Vadali Associate Research Scientist Email: s-vadali@tamu.edus-vadali@tamu.edu