Introduction to District Improvement Financing (DIF) Financing infrastructure for today’s needs and tomorrow’s development City Staff & RKG Associates October 11, 2017
Agenda Introduction (Mayor) 1. Proposed Infrastructure Program (City Staff) 2. DIF: An Important Financial Tool (RKG) 3. Proposed USQ DIF (City Staff) 4. DIF Financial Analysis (RKG) 5. Next Steps (City Staff) 6. 2
Why we’re here • We’re seeking BOA approval for: Funding for significant infrastructure in and around USQ 1. A key financial tool for this work: District Improvement Financing 2. (DIF) • Tonight we will present an overview and high-level financial analysis of the infrastructure work and the DIF • At a future meeting we will present an in-depth financial analysis 3
Infrastructure is the final piece of the puzzle GLX USQ Zoning Infrastructure 4
Union Square is our greatest infrastructure challenge • City’s pipe network moves 60% of flow through Union Square • Connects to 140- year-old MWRA pipe shared with neighboring cities 10-Year Flood • Storm flows many Volume (mgd) times larger than 19 High level estimates for flood Sanitary Flow sanitary volume based on 24-hour precipitation, calculated area, 76 (mgd) 33 imperviousness per EPA source • Pipes overloaded 0.53 data and factors for runoff 1.82 reaching the system. 1.02 during intense rain High level estimates of sanitary flow based on 2017 assessors 98 data for bedrooms and building 2.67 square footage time typical wastewater generation rates.
We have to solve this challenge to serve our neighborhoods It’s our decision whether to maintain control of these infrastructure decisions or risk ceding control to DEP through an administrative consent order (ACO) 6
The same infrastructure also unlocks development in Union Square • Provides 0.5 million gallons of sewer capacity for new buildings • Enables developers to remove 2.0 million gallons of stormwater from our stressed system 7
Without infrastructure investment, we risk: $13M MassWorks Grant Public health and safety of our residents, potential administrative consent order Our ability to afford GLX The USQ our community planned for debt service payments 8
DIF is an infrastructure financing tool • DIF = D istrict I mprovement F inancing • DIF fundamentals Infrastructure unlocks development, bringing in new tax revenue 1. to offset borrowing costs Unlocks development through utility and streetscape improvements Infrastructure Development Generates new revenue to offset 9 borrowing costs
DIF is an infrastructure financing tool DIF makes infrastructure affordable in the short term through 2. better borrowing terms By shifting significant borrowing costs out 3 years, it aligns debt service payments with anticipated development tax revenue Year 1 2 3 4 5 6+ BAN BAN Principal Principal Principal Principal Debt service without DIF payment payment + Interest + Interest + Interest + Interest BAN BAN BAN BAN BAN Principal Debt service with DIF payment payment payment payment payment + Interest Debt service without DIF is nearly twice as much during this period as debt service with DIF Bond Anticipation Note (BAN): short-term, interest-only security, typically with very low interest rate 10
The Assembly Square DIF is working Assembly Square DIF Revenue vs. Debt Service 5 $Millions 4.5 Projections 3.5 3 2.5 2 1.5 1 0.5 0 Captured Debt Increment Service 11
Proposed Infrastructure Program 12
USQ Infrastructure Projects Somerville Ave Utility & Streetscape Improvements (Multiple Types) Nunziato Stormwater Storage (Sewer) Poplar Street Stormwater Pump Station (Sewer) Spring Hill Sewer Separation (Sewer) Union Square Streetscape & Plaza (Streetscape) 13
Somerville Ave. Utility & Streetscape Improvements Formerly known as Union Square Phase 1 Estimated Anticipated Estimated Purpose Scope Construction Funding Cost Timeline Sources Provide flood Dramatic FY18-FY21 $63M $13M hazard relief and upgrades to MassWorks improve water water, sewer, Grant and sewer and streetscape $4M Water service for 60% infrastructure Enterprise of City from Union $32.5M Square to Improve safety Sewer McGrath and traffic flow Enterprise Highway, for all transit including $13.5M modes construction of General Fund 800,000 gallon Potential for box culvert additional grant funding 14
Nunziato Stormwater Storage Estimated Anticipated Estimated Purpose Scope Construction Funding Cost Timeline Sources Provide flood Construction of FY18-FY20 $14.5M $14.5M hazard relief 1.6 million Sewer through gallon Enterprise stormwater stormwater Potential for storage tank grant funding (The non-DIF component of the project will rehabilitate the park and athletic field). 15
Poplar Street Stormwater Pump Station Formerly known as Redbridge Estimated Anticipated Estimated Purpose Scope Construction Funding Cost Timeline Sources Remove up to 50 Connection of FY19-FY20 $19.5M $19.5M million gallons per Somerville Sewer day of stormwater Ave. Enterprise from our sewer stormwater Potential for system by system to new grant funding allowing runoff to pump station flow to Charles River Connection of pump station to Expand sewer MBTA drain system capacity that connects and improve to Charles service; provide River flood hazard relief 16
Spring Hill Sewer Separation Estimated Anticipated Estimated Purpose Scope Construction Funding Cost Timeline Sources Separate sewer Targeted FY20-FY21 $13M $13M Sewer pipes that connect sewer Enterprise to Somerville Ave. separation Potential for drain in order to throughout grant funding fully realize Spring Hill benefits of Somerville Ave., Nunziato, and Poplar Street projects 17
Union Square Streetscape and Plaza Improvements Formerly known as Union Square Phase 2 Estimated Anticipated Estimated Purpose Scope Construction Funding Cost Timeline Sources Improve traffic Reconstruction FY20-FY24 $31.5M $31.5M and create safe of the plaza General spaces for Fund walking, cycling, Streetscape Potential for and gathering in improvements grant funding Union Square on Somerville Developer Ave., Bow St. contributions Prospect St., Webster Ave., and lower Washington St. 18
USQ Infrastructure Projects Somerville Ave Utility & Streetscape Improvements (Multiple Types) Nunziato Stormwater Storage (Sewer) Poplar Street Stormwater Pump Station (Sewer) Spring Hill Sewer Separation (Sewer) Union Square Streetscape & Plaza (Streetscape) 19
USQ Infrastructure Projects Estimated Costs and Sources Estimated Project Estimated Sources Cost Grant Sewer Water General Funding Enterprise Enterprise Fund Somerville Ave. Utility & $63M $13M $32.5M $4M $13.5M Streetscape Improvements Nunziato Stormwater Storage $14.5M $14.5M Poplar St. Stormwater Pump $19.5M $19.5M Station Spring Hill Sewer Separation $13M $13M USQ Streetscape & Plaza $31.5M $31.5M Improvements Total $141.5M $13M $79.5M $4M $45M This is conservative and does not reflect potential grant opportunities, expected developer contributions, use of reserves, or sale of assets. 20
DIF An Important Financial Tool
RKG Associates • Economic consulting and planning firm • 35 years of experience • Work on both large and small scale projects • Previous track record working with City of Somerville • Green Line Extension Value Capture Study • Inclusionary Zoning Analysis
What is D istrict I mprovement F inancing (DIF)? • Economic tool used across the U.S. • Provided under Mass General Law 40Q, which was authorized in 2004 • Approved DIFs in Massachusetts include Worcester, Quincy, Springfield, Brockton, and Somerville • Local authorities have power to establish DIFs 23
What does DIF do? • Enhances how the City can finance infrastructure improvements • Aligns infrastructure investment with planned growth areas, supporting real estate development • Allows the City to borrow short term at a very low interest rate for 5 years instead of 2 years, aligning debt service payments with anticipated future revenue increases 24
Debt Service Payment Schedule * Without DIF $10.0 $8.0 Millions $6.0 $4.0 $2.0 $0.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Debt Service (No DIF) *First ten years of payments shown. 25
Debt Service Payment Schedule * With DIF $10.0 $8.0 Millions $6.0 $4.0 $2.0 $0.0 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 DIF Debt Service Debt Service (No DIF) *First ten years of payments shown. 26
DIF Procedural Basics • Two components Development district 1. A specified area within a city or town that is to be developed by the municipality under a development program. Development program, including financial plan 2. A statement of means and objectives that is designed to improve the quality of life, physical facilities and structures, and the quality of pedestrian and vehicular traffic control and transportation within a development district. • Administration submits proposed development district and development program to BOA for approval • Administration submits infrastructure bond authorization requests to BOA for approval 27
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