New York State Economic Development Council 2013 Basic Economic Development Course Financial Packaging & Economic Development Kenneth W. Bond Partner Squire Sanders (US) LLP College of Nanoscale Science & Engineering Albany, New York June 25, 2013 37 Offices in 18 Countries
Kenneth W. Bond Partner, New York T +1 212 872 9817 kenneth.bond@squiresanders.com Kenneth W. Bond has nearly 40 years of experience as transaction counsel involving infrastructure and project finance including economic and industrial development, public utility, privatization of public facilities and public purpose facilities. He represents and advises public sector issuers, corporations and financial institutions in the areas of public funds and public debt management, public sector energy projects and policy, and the development Practice Focus of financial services products. • Public Finance • Real Estate Mr. Bond is a member of the firm’s public finance and financial services practices. He serves on the Executive Committee of the Municipal Law Section of the New York State Bar Association. He is a member of the Council of Education • New York University, the State and Local Government Law Section of the American Bar Association, having served as chair of the Public LL.M., 1976 Finance Committee from 2006 to 2011. served The Municipal Forum of New York, Inc. as a governor since 1991 • University of California, and as secretary from 1993 to 2010. He is a trustee of the Citizens Budget Commission and co ‐ chair of its Hastings, J.D., 1972 • Johns Hopkins Committee on State Fiscal Reform. University, B.A., 1969 Mr. Bond is an adjunct professor of state and local government finance law at Albany Law School and serves on the Admissions advisory board of the Government Law Center of Albany Law School. He is a Fellow of the American College of • New York; Bond Counsel. He is an editor of State and Local Government Law in a Federal System (8 th ed., Mandelker, et al, • Florida (inactive); • United States Supreme LEXUS/NEXIS). Court; • United States Tax Court; Languages: English, Spanish • United States Court of Appeals for the Second REPRESENTATIVE EXPERIENCE Circuit; • United States District • Serving as counsel to municipalities, school districts, district corporations and local public benefit corporations in Courts, Eastern and Southern Districts of New York in the authorization and issuance of municipal securities and the management of public funds. New York • Serving as counsel to financial institutions in the underwriting of municipal securities and the management of public funds. • Serving as counsel to not ‐ for ‐ profit and corporate borrowers in public finance transactions. 2 • Serving as counsel to municipalities in the issuance of public utility debt and public utility debt policy.
The Concept of Financial Assistance from an Industrial Development Agency (IDA) • Economic Development as a Public Purpose is distinguished from public purposes for which tax dollars are spent. Tax dollars are used for purposes which provide goods and services for the public to no particular private benefit (roads, schools, sewers etc.). Tax dollars may not be spent on private purposes (developer projects) but tax incentives may be granted where the private project accomplishes economic development, which is a public purpose, i.e. job creation and retention, eliminating blight, etc. • State tax incentives – real property tax abatement (PILOTS), sales tax exemption, abatement of mortgage recording tax, various forms of tax credits, non ‐ recourse financing (TIFs and PIFs), corporate income tax credits (Excelsior Jobs Program), new market tax credits financed by ESDC for job creation. 3
The Concept of Financial Assistance from an Industrial Development Agency (IDA) (Continued) • TIFS and PIFS – tax increment financing is a non ‐ FF&C municipal bond to finance economic development from special taxes in a designated area – like urban renewal. TIF is available to municipalities, and maybe school districts if amendments pass: enviro remediation projects, sales tax and assessment back ‐ up. PILOT increment financing shifts PILOT payments from taxing jurisdiction to debt service on other bonds under questionable state law authority. Recent § 1.141 ‐ 15(k) Treasury Regs limit PILOT to generally acceptable taxes, not special charges like debt service. 4
The Concept of Financial Assistance from an Industrial Development Agency (IDA) (Continued) • IDA, as a tax exempt entity, owns the project; IDAs do not lend money. Bonds and other debt of an IDA are sold to a bank or underwriter (which lends money), the proceeds of which are used to finance the project. Payment of the IDA bonds is secured by project revenues, developer guarantees, and commercial forms of credit or liquidity enhancement (i.e. bank letter of credit [LOC]). 5
The Concept of Financial Assistance from an Industrial Development Agency (IDA) (Continued) • Securing financial assistance begins with submitting an application to the IDA then obtaining an inducement resolution from the IDA which qualifies project expenditures for reimbursement with tax ‐ exempt debt. The IDA staff, IDA counsel and IDA bond counsel are professionals who can assist in determining if your project is suitable for IDA financing. 6
Tax Increment Financing: An Economic Development Tool for Optimists • What is Tax Increment Financing (TIF)? Economic Development Tool ‐ Tax Increment Financing (TIF) is a tool • to stimulate redevelopment and finance public improvements through a pledge of increased taxes that result when property is redeveloped to pay the costs of associated public investment TIF began in 1952 in California and has since spread throughout the • country 49 states and the District of Columbia have TIF enabling legislation • Uses of TIF include a variety of costs and improvements pertaining to • public infrastructure, land acquisition, demolition, utilities and planning costs, and other improvements: Sewer expansion & repair, storm drainage, street construction & • expansion, water supply, park improvements, curbs and sidewalks, traffic control, street lighting, landscaping, environmental remediation, bridge construction & repair, parking structures, libraries, emergency services facilities, schools Projects include: mixed ‐ use, residential, commercial, industrial, retail • development projects and amenity creation 7
The Municipal Redevelopment Law • Enacted in 1984 (L. 1984, c. 916) (the “Act”) • Authorizes an incremental real property tax to pay debt service on municipal bonds which are revenue bonds, not general obligation bonds • Bonds known generically as tax increment bonds (TIF bonds) • TIF bonds authorized in 49 states; New York was late to the game in 1984 • Art XVI (Taxation) of NYS Constitution amended to make incremental tax not a real property tax subject to the faith an credit pledge of Art. 8, sec. 2 of the NYS Constitution 8
Purpose of TIF Bonds • To alleviate blight, promote economic development, enhance social well ‐ being • Site clearance and assembly of unproductive land, removal of deteriorated and unsafe buildings, installation of utilities (water, sewer, electric, etc.), streets and sidewalks, parking facilities, docks and flood control facilities, parks and playgrounds, “other public improvements integral to the redevelopment project” • Similar to urban renewal purposes (GML Arts. 5 and 5 ‐ A) but not limited to urban areas • TIF bond proceeds are used for “gap” or “wedge” financing – the last piece of the capital stack • Financing package for a large ‐ scale private sector project with public purposes • Examples: housing, shopping centers, arenas, hotels, office buildings, mixed ‐ use 9
Process for Authorizing TIF Bonds • Follows processes in urban renewal law – initiated by the municipality with the developer • First the governing board conducts a study of the feasibility of the redevelopment project • Subject to the increment tax – when it comes to the T.I. itself, are we not actually just referring to the existing AV property taxes, not a new tax, just the bounce in the regular AV assessment from a bounce in value? If so, then perhaps replace “incremental tax” with “ad valorem taxes with prodeuce incremental tax receipts over the base value” • The study must determine the “project area” – the parcels subject to the incremental tax – similar to an urban renewal area • The study must include SEQRA review • After the study, the governing board drafts the “redevelopment plan” – similar to an urban renewal plan 10
Process for Authorizing TIF Bonds (cont’d) • The plan is submitted to the planning agency • After planning agency approval, the governing board conducts a pubic hearing • After the hearing, the plan is approved (or not ) by the governing board • Subsequent steps begin to more specifically contemplate and approve items directly related to debt issuance, including legal and disclosure (offering) documents 11
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