INFRASTRUCTURE PUBLIC FINANCE 101 AMERICAN PLANNING ASSOCIATION 2017 - PowerPoint PPT Presentation

INFRASTRUCTURE PUBLIC FINANCE 101 AMERICAN PLANNING ASSOCIATION 2017 NATIONAL PLANNING CONFERENCE 9109946 M ODERATOR : L OURDES G ERMAN , L INCOLN I NSTITUTE OF L AND P OLICY P ANELISTS : S USAN K ENDALL , F IRST S OUTHWEST G ERRARD B USHELL , DASNY R ICHARD F ROEHLICH , N EW Y ORK C ITY H OUSING D EVELOPMENT C ORPORATION

H OW ARE COMMUNITIES USING PUBLIC FINANCE ? LAND VALUE CAPTURE PAY-AS- PUBLIC- YOU-GO / PRIVATE CURRENT PARTNER -SHIP REVENUE PAYMENTS IN LIEU OF TAXES MUNICIPAL POOLED DEBT PROGRAMS

INFRASTRUCTURE PUBLIC FINANCE 101 AMERICAN PLANNING ASSOCIATION 2017 NATIONAL PLANNING CONFERENCE 9109946 M ODERATOR : L OURDES G ERMAN , L INCOLN I NSTITUTE OF L AND P OLICY P ANELISTS : S USAN K ENDALL , F IRST S OUTHWEST G ERRARD B USHELL , DASNY R ICHARD F ROEHLICH , N EW Y ORK C ITY H OUSING D EVELOPMENT C ORPORATION

Bonds, Private Activity, P3 and TIF Richard Froehlich, NYC HDC COO and General Counsel

What are Municipal Bonds? • An IOU or obligation of the Issuer to repay the purchaser (with interest) over the life of the bond • Issued in order to finance a public purpose like roads, bridges, schools and affordable housing • Interest is usually tax exempt and attractive to high income people and corporations 5

Who is the Issuer? • A Government or Governmental Entity • Governmental Entities or Instrumentalities are created by the state or locality to perform tasks (including financing the task) for the government • Called a Conduit when the issuer has no obligation to repay the debt because a specific revenue source is pledged to the bondholders • HDC is a public benefit corporation which makes it a governmental entity of NYS. 6

Public Authorities • Somewhat autonomous organizations of a state or a locality that is created to perform functions that the government wants that can be generally financed by the issuance of municipal bonds • Created under state or local law with rules and regulations established by the legislature. Legislature may limit powers. Why? • Quasi public because they are formed to do things for governmental purposes but often not a direct part of the government • Usually controlled by a board selected by Governor or Mayor and other elected officials • Authority has a trust relationship with the public that purchases the bonds. That autonomy matters to bondholders. Why? 7

Public/Private Partnerships for Providing Affordable Housing • HDC can use the issuance of private activity tax exempt bonds coupled with low interest loans and low income housing tax credits to spur the development and preservation of affordable housing – Bond proceeds are used to finance new construction or acquisition/rehabilitation of housing for persons with low and moderate incomes – HDC profits coupled with City capital fund low interest loans • Private Developers (either charitable or profit- motivated entities) own such developments. – Rules require different levels of affordability and compliance is monitored by HDC. 8

Private Activity Bonds – Relate to bonds issued for private benefit – Usually projects that will be owned or controlled by private entities – Most regulated as you can only finance certain kinds of projects and there must be a public good related to the project. • Kinds of private activity bonds: • Multifamily rental housing • Bonds for public works (but privately controlled) • Single Family MRB – 1st time homebuyers – limits on mortgages • Airport facilities • Transportation facilities • Stadiums • Qualified industrial development • Qualified student loans 9

Private Activity Bonds for Housing • Qualified residential rental projects: – Bond proceeds are used to finance new construction or acquisition and rehabilitation of housing for persons with low and moderate incomes • To be for low and moderate income persons : – 20% of the units must be for people earning 50% of median income or 40% of the units must be for people earning 60% of median income • in NYC, it is 25% at 60% of median income because this is such a high-cost region 10

What is a P3? • Public Private Partnerships (P3) – P3’s are contractual agreements between a public agency and a private entity that allow for greater private participation in the delivery of projects – More than a Design-Bid-Build Conventional vs. P3 Conventional Projects P3 Projects (design-bid-build) (design-build-finance-operate-maintain) Public sector takes on most risks (except Risks shared between public and private sector construction) Public Financing (mostly) Private Financing (mostly) Lowest Bidder Best suited/best value Operations and Maintenance (O&M) and O&M carried out by private sector; ongoing ongoing rehabilitation (if any) carried out by rehabilitation overseen by public sector public agency once constructed stewardship of P3 agreement 4

Challenges in Using P3s • Public acceptance • Enabling Legislation • Organizational Capacity • Knowledge gap • Different oversight/contract management approach required High cost of private capital Revenue constraints • Federal and state toll restrictions • Revenue shortfalls due to lower tax receipts Difficulty in predicting traffic and revenue Difficulty in identifying and pricing risk and proper risk allocation Long-term nature of P3 Agreements • Concern about loss of upside revenue potential to public • inability to anticipate future performance issues or public needs 8

P3 Alternatives: Value vs. Risk/Responsibility 13

Basics of Tax Increment Financing • The name says it all. • An area is designated for improvement • Money is needed to develop the area • Increased property tax revenues relating to specific region are allocated to repay debt used to develop that area. • A tool to capture the value of increased development of the area

Benefits of TIF • Infrastructure improvement. • Industrial expansion. • Downtown redevelopment. • Historic preservation. • Firm-specific subsidies .

TIF Advantages • Allows government to borrow money to encourage development without tapping regular budget and not subject to local bonding limits • Reduces up-front costs of development and can be used to pay infrastructure and related costs. • A way to tap public redevelopment agencies that may have earmarked funds. • Don’t have to compete for $ during budget season. • Increases the tax base.

TIF Critique • Are we siphoning tax revenues that may be needed to cover additional costs to provide services (roads, schools, policing, etc.)? • Risk that increments won’t materialize and then the issuer or government must use other tax revenue to repay the debt. • Is it worth the additional costs of administering a special district? • Will the type of development being subsidized benefit the community it is in? Or is it Cronyism?

Questions & Answers Please visit our website: www.nychdc.com Contact: Richard Froehlich Chief Operating Officer, EVP for Capital Markets, and General Counsel Phone: (212) 227-7435 Email: rfroehlich@nychdc.com 18

INFRASTRUCTURE PUBLIC FINANCE 101 AMERICAN PLANNING ASSOCIATION 2017 NATIONAL PLANNING CONFERENCE 9109946 M ODERATOR : L OURDES G ERMAN , L INCOLN I NSTITUTE OF L AND P OLICY P ANELISTS : S USAN K ENDALL , F IRST S OUTHWEST G ERRARD B USHELL , DASNY R ICHARD F ROEHLICH , N EW Y ORK C ITY H OUSING D EVELOPMENT C ORPORATION

Contacts Susan Kendall Director (617) 619-4419 Tel Susan.Kendall@hilltopsecurities.com May 6, 2017 Infrastructure Public Finance 101

Financing Municipal Assets—the Basics  Pay-as-you-go (Annual Operating Budget) – Reserves  Grants – State – Federal  Loans – State Revolving Funds, WIFIA  Public Private Partnerships (P3s)  Long-Term Debt – Municipal Bonds o Tax-Exempt – Bank Loans/Private Placements

Advantages to Financing with Municipal Bonds  Easy access to established US Municipal Bond Market  Tax-exempt status for most bonds  Generally strong credit profiles with extremely low historical default rates  Credit enhancement available – Insurance – State intercept and enhancement programs  Strong demand = low borrowing costs

Several Options to Consider for Government Bond Financings  Who Will Issue the Bonds? – Local Government o General Obligation Bonds o Enterprise Revenue Bonds o Special Tax/Other Revenue Bonds – State Government or Agency o Pooled Financing o Bond Bank – Regional Solutions? o School or Other District or Authority

Approval Process is Key to Success  Multiple levels of approval are likely  Clearly articulate impact of new projects and facilities on operating budget  Understanding and consensus for goals and outcome  Thorough understanding of big picture financial impact  Consider stress testing scenarios

US Municipal Bonds: $3.8 Trillion Outstanding – 2016 was a record year of $445 billion in issuance – Previous record was $433 billion in 2010, largely due to BABs (Build America Bonds) program Source: The Bond Buyer