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BUILDING YOUR TAX BUILDING YOUR TAX BASEBASECREATING AND USING REDEVELOPMENT CREATING AND USING REDEVELOPMENT
INCENTIVESINCENTIVES
Presented by:
Robert P. Franke, AICP - Robert P. Franke & Associates
Jeffrey L. Oris, CEcD - Planning and Redevelopment
Consultants, Inc.
Corey W. O’Gorman, AICP - PLACE Planning and Design
APA FLORIDA ANNUAL CONFERENCE
Tampa, Florida September 16, 2010
CRA OVERVIEW
TYPES OF INCENTIVES
ESTABLISHING INCENTIVE POLICIES
TARGETING INCENTIVES
KNOW THE RISKS OF INCENTIVES
PRO FORMAS
RETURN ON INVESTMENT (ROI)
September 16, 2010APA FLORIDA
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September 16, 2010APA FLORIDA
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Authorization for CRA’s was passed in the Redevelopment Act of
1969 which became Chapter 163 Part III of the Florida Statutes
As of last review there are 202 CRA Districts registered with the
Florida Department of Community Affairs
Currently the only form of Tax Increment Districts in widespread
use in the State of Florida
CRA’s may be created by a City or County to assist in the
elimination of slum and/or blighting conditions
State is not involved in the creation of CRA’s
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APA FLORIDA September 16, 2010
Every CRA is required to have a Community
Redevelopment Plan
The CRP is the guiding document of the CRA outlining the
projects and programs to be undertaken
Projects/programs not outlined in the CRP cannot be
undertaken by the CRA
The Plan can be amended through a public process as
determined appropriate
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F.S. 163.345 - Encouragement of Private Enterprise
Any county or municipality, to the greatest extent it
determines to be feasible in carrying out the provisions of
this part, shall afford maximum opportunity, consistent
with the sound needs of the county or municipality as a
whole, to the rehabilitation or redevelopment of the
community redevelopment area by private enterprise.
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APA FLORIDA September 16, 2010
The county or municipality shall give consideration to Private Enterprise in the: Formulation of a workable program Approval of:
Community Redevelopment Plans Communitywide plans or programs for community redevelopment General neighborhood redevelopment plans
Development and implementation of community policing innovations Exercise of its zoning powers Enforcement of other laws, codes, and regulations relating to the use
of land and the use and occupancy of buildings and improvements Development of affordable housing Disposition of any property acquired, subject to the limitations of s.
73.013 Provision of necessary public improvements.
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In giving consideration to the objectives outlined, the
county or municipality shall consider making available the
incentives provided under the Florida Enterprise Zone Act
and Chapter 420.
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Limitations on the type, size, height, number, and proposed
use of buildings.
Property intended for public improvements
Identify any publicly funded capital projects to be
undertaken within the CRA
Contain a detailed statement of the projected costs of the
redevelopment
Provide a time certain for completing all redevelopment
financed by increment revenues
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APA FLORIDA September 16, 2010
Acquire and hold property
Demolish buildings
Dispose of property at FAIR VALUE
To develop property (including affordable housing)
Install, construct, and repair Streets
Parks
Utilities
Playgrounds
Other public improvements
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APA FLORIDA September 16, 2010
Solicit proposals for re/development (Developer RFP’s)
Borrow money or accept funds/grants from any source
(borrowing subject to approval of the Governing Body)
Close, vacate, plan, replan streets, sidewalks, other
places
Petition for changes to land use, zoning
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APA FLORIDA September 16, 2010
A CRA can borrow money with the approval of the Governing Body
This borrowing can be in the form of: Revenue Bond Bank Loan – including line of credit Loan from Governing Body
Repayment period cannot exceed the life of the CRA
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APA FLORIDA September 16, 2010
Any project or program a CRA wishes to undertake must be outlined in the Community Redevelopment Plan (CRP)
IF IT IS NOT IN THE PLANIF IT IS NOT IN THE PLAN
YOU CAN’T DO IT !!!!!YOU CAN’T DO IT !!!!!
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APA FLORIDA September 16, 2010
CRA District Assessed Value
2000Base Year
$100,000 valueTax $200.00
City and CountyReceive$200.00
in tax payments
2005Year 5
$150,000 valueTax $300.00
City and CountyReceives$300.00
($200.00 + $100.00) Redevelopment Trust Fund
Receives$100.00
Remits Increase 14
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Downtown Development Authorities
Neighborhood Improvement Districts
Special Assessment District
Main Street
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Administrative
Financial
Planning and Land Use
Marketing
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Streamline development review (one-stop approval)
Recruiting assistance / job fairs
Site selection assistance
Restructure permit fees for CRA projects
Waive demolition fees
Provide technical assistance for property owners, small
businesses, and small business start-ups
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Tax credits, tax abatements and tax increment rebates
Loans, interest or rent subsidies
Local, State, Federal Grants or Loans
Micro loans to small businesses
Public assembly of land / land donation /reduced land cost
Shared cost of upgraded / new utilities
Environmental remediation cost
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APA FLORIDA September 16, 2010
Relocation costs / training costs
Per Job Bounty
Cash Payments for Developer’s Costs
Reduce impact fees
Commercial interior space build-out
Signage upgrades
Façade improvement grants and loans
Affordable housing loans and grants to developers
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Land use / zoning amendments
Reduced parking requirements
Non-conforming use amendments
Shared infrastructure agreements (parking, stormwater, etc.)
Create density bonus program
Mixed use land use designation
Land banking
Prepare and complete streetscape projects
Prepare architectural plans for development on CRA owned
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Prepare market analysis
Assist with local business promotion
Hold design competitions to generate interest
Promote grand openings, ground breakings and ribbon cuttings
Recruiting assistance / job fairs
Prepare inventories of available land, buildings and storefronts
Provide how-to seminars
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Use of Public funds MUST have a Public Purpose
For CRA, Public Purpose is related to: Findings of Necessity
Redevelopment Plan
Challenges to CRA activities Political
Legal
Formulate & adopt policies and programs BEFORE you
need them
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Applicant
Predictable process and criteria
Public Agency
Transparency
Accountability
Reduces public objection
Reduces chance of successful challenges
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Establish Operating Parameters for Agency
Budgeting
General finance
Incurring debt
Purchasing
Incentives
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Identify the activities to incentivize New Construction Renovation – Adaptive Re-use Beautification Economic development Affordable housing Business retention and recruitment Zoning and development regulations Based on Redevelopment Plan and Established operating
policies and procedures
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Writing the program
Public Involvement
Ensuring sufficient program advertising
Ensuring consistent and equitable administration
Parameters for public expenditures
Determining grant versus loan
Staff capacity to implement
Incentive timing
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Timing – when does the Public money go in???
Upfront
On-going
Upon completion
Determination of Need
Agency Risk
Nature of incentive
Negotiation
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Agency Risk Minimize Agency Risk Ensuring project success
Minimal Agency Risk after project completion
Highest Agency Risk prior to construction
Don’t be a “spec” developer
Reimbursement Basis
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Advertising
Accept and review applications
Grant & Loan Agreements
Issuing payments
Compliance monitoring
Program review
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Advertising
Direct mail to businesses / developers / residents
Advertising in local newspapers
Agency Web Site
Public Posting
Social network sites
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Acceptance and Review of Applications
Review by staff
Clear, understandable, objective criteria
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Grant/Loan Agreements
Simple grant agreement for façade improvements
Detailed developer agreements for construction of new
buildings or establishing new employers
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Issuing Payments Reimbursement based on paid receipts
Monitoring Regular review of project to ensure that it complies with grant
agreement and other requirements
Evaluation Criteria Funds paid Goals met Market changes Jobs created Facades improved
Fiscal year-end review Changes for new FY
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APA FLORIDA September 16, 2010
Highest pay-off / increase taxable value Qualified groupsEmployment-based / job creation Location-basedHousingHistoric preservation
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CRA-owned land = zero taxable value
As downtown redevelopment has progressed, the City’s urban center has received an influx of new residents, offices, shops, and restaurants.
The redevelopment of city-owned lot resulted in downtown’s first hotel and conference facility.
The mixed-use development will offer approximately 124 hotel rooms, conference and meeting facilities, and ground floor retail space.
– GAINESVILLE
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APA FLORIDA September 16, 2010
Through the Commercial
Rent Subsidy program,
recipients receive
assistance with rent for the
first year for a new or
expanding business. It will
pay one-half or up to $600
a month to the landlord for
qualifying businesses.
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APA FLORIDA September 16, 2010
Businesses agree to generate a minimum value of five (5) new or
relocated qualifying jobs
The award amount shall be calculated based on the annual wages
that are paid to the qualifying employees at the start of employment.
The maximum grant award is $50,000.
Targeted projects are Class “A” office buildings and associated uses
5%, 10%, and 20% of all certifiable annual wages -up to $10,000 per
job or $50,000 per year for five years depending on target location
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Must be a retail and/or targeted commercial property
Property must be located in a participating CRA (Drew Park, East Tampa and/or Ybor City 1 and 2)
May be further restricted to target areas within each CRA
Funding limit is 50% of the project costs, up to $50,000
Funding can be used for exterior renovation, restoration and rehabilitation as well as landscaping improvements
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Intended to increase homeowner occupancy in the CRA in order to provide economic support to the downtown businesses
Designed to attract new residents to targeted areas within the CRA
There is no income limitations Persons currently residing
/claiming homestead exemption in the CRA district are not eligible
Multifamily or Office Conversion to be restored to single family: $20,000.00
Single family detached housing (zoned RB-2, RPB or currently renter occupied): $10,000.00
Single family detached infill housing: $10,000.00
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This historic landmark was one of the few lodgings in South Florida that welcomed African-Americans during the segregation era of the 1950s and 1960s
After much consideration, the community reached a consensus that affordable housing for low-income seniors would be the most desirable long-term use of the property
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The Risk with incentives is that the public will pay for a desired outcome which is not achieved. Jobs not created or eliminated shortly after incentives Business operations not continuing for sufficient period Buildings left vacant or abandoned after construction or
attraction of tenant(s)
Bad PR from money paid without meeting objectives (in total or in part) also poses a great risk.
September 16, 2010APA FLORIDA
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Competing goals with CRA Increase employment Increase economic activity Increase property values Elimination of slum and/or blighting influences
Other types of organization have a more clear cut objective Increase employment base
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Riskiest incentives are those that come up-front and are not dependent on desired outcome to occur or there is nothing tangible “purchased”
Any incentive without clear objectives and guarantees Up-front Direct Cash Business (Tenant) -Based Incentives
Rent Subsidies Tenant-specific improvements Cash for job creation
Construction Fee Payment Direct Loans Loan Guarantees/Interest Subsidies Landscaping Improvements
September 16, 2010APA FLORIDA
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Moderate Risk are those that are less likely to not meet or abandon objectives:
Installation of On-Site Improvements Parking Water/Sewer Visual Enhancements to Property
Interest Buy-Down on Loans Reimbursement-Based Incentives for
Job Creation Matching of Other ED Grants
Land Buy-Down Other Incentives with “Claw Back” provisions
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Low Risk are those that are not likely to not meet or abandon objectives:
Installation of Public Improvements Roadway enhancements Water/Sewer mains Public Parking facilities
Man-Power Incentives Development Liaison
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Risk can be reduced Keeping incentives to realm of items that are publicly
owned Full review of pro-forma for projects Delayed payment provided only after payment of property
taxes (source of CRA funding) Reduce exposure through limited return related to
Increment generated Strong agreements:
Clearly outlined desired outcome(s) Claw-back provisions Defined mile-marker dates Clearly defined non-performance measures Lien Property where appropriate
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Risk can be reduced
Utilize the “But For” Test
Do Not Get Caught in “We Need More” Spiral
Attach Liens or Other Claw-Backs Where Possible
Wherever Possible Fund Publicly Owned Infrastructure as
Your Incentive
Delay Incentive Payments Over Time and at Defined
Milestones
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Cash is risky when nothing tangible is purchased
Provision of public infrastructure is preferable
Risk can be reduced through:
Full review of pro-forma for certain projects
Delayed payment provided only after payment of property
taxes (source of CRA funding)
Reduce exposure through limited return related to
Increment generated
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When incentives are large or risky (real or perceived), it is best to undertake a review of the project Pro Forma to determine if the incentives are necessary.
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The Pro Forma is the developers financial expectations of the project and includes:
Anticipated Costs Construction Land Consultants Borrowing Return on Investment Developer Fees
Anticipated Revenues Sales Rentals
September 16, 2010APA FLORIDA
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Example of a Development Pro Forma and Budget Appleberry Apartments 40 Units of Family Supportive Housing
Project Development Budget
Acquisition vacant land $ 1,000,000
Construction Costs:New Construction 40,000 s.f. $ 4,400,000 Construction Contingency 10% $ 444,000 Architect 5% $ 220,000
Development Costs:Construction Period RE Taxes received abatement $ --
Construction Period Insurance $ 30,000 Construction Period Interest $ 15,000 Title and Recording $ 12,000 Furnishings and Equipment $ 150,000 Appraisal $ 5,000 Survey $ 5,000
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Professional Services: Legal:
Financing $ 10,000 Transaction $ 30,000 Syndication $ 5,000 Tax Opinion $ 10,000
Tax Credit Application Fee $ 1,000 Accounting $ 7,500 Soil Borings $ 4,000 Environmental Report $ 5,000 Marketing and Leasing $ 20,000 Developer Fee $ 610,000 Consultant Fee $ 40,000
Reserves:Operating Reserve $ 250,000 Tax and Insurance Escrow $ 20,000
Total Development Costs $6,389,500Costs per Unit (excluding reserves) $ 152,988
From Family Matters: A Guide to Developing Family Supportive Housing
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APA FLORIDA September 16, 2010
Excessive Developer Fees
Excessive Contractor Fees
Excessive Return on Investment
Excessive Interest Rate on Loans
Undervalued or Overvalued Revenues based on current
market
Lack of Developer Risk (own money in the project)
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The Return on Investment or ROI is the percentage of money
over or above the original investment that is returned to the
investor. (Commonly referred to as the investor’s “profit”)
ROI is the determining factor for an investor in placing their
money in a development project or seeking another option
for investment (i.e.. stock market, land, emerging business
venture)
When ROI is higher or the project less risky than other
investment options, development is more likely to happen.
September 16, 2010APA FLORIDA
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Standard Rate of Return on Development Projects
Historical
Average - 8 – 14 %
2005 - 16 – 20 %
2008 - 12 – 15 %
2010 - ??????
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Government influences Return on Investment through:
Regulation
Efficiency of Approval Process
Efficiency of Permit Process
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Costs which can not be easily estimated influence ROI negatively by increasing contingency and possibility of unforeseen costs:
Unclear development regulations
Inconsistent interpretation of development regulations
Unpredictable time frames for development
Risk of being denied by Board even when project meets
code
Arbitrary changes to requirements during design
More importantly arbitrary changes to requirements during
construction
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APA FLORIDA September 16, 2010
Regulation can add cost
Consistently applied regulation can add value
Predictability in interpretation is key towards
determining costs
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APA FLORIDA September 16, 2010
Governmental Agencies have their own list of wants and needs. Promoting items on this list is the reason for offering incentives:
Job Creation
Attraction of New Development
Tax Base Enhancement
Retail Attraction
Establishment of Public Spaces
Increasing Design Expectations
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Government ROI is much more difficult to determine as True ROI takes time to determine due time to recognition of return (in order of recognition of return)
Attraction of New Development
Job Creation
Tax Base Enhancement
Retail Attraction
Other Factors
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APA FLORIDA September 16, 2010
http://frankeplanning.comhttp://www.placepnd.comhttp://www.parconsultantsinc.comhttp://www.delraycra.orghttp://www.kissimmeecra.comhttp://www.gainesvillecra.comhttp://www.boyntonbeachcra.comhttp://www.tampagov.net/dept_economic_and_urban_development/programs_and_serviceshttp://www.redevelopment.net
September 16, 2010APA FLORIDA
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Florida Redevelopment AssociationCertification Program
Redevelopment 1019:00 am – 4:00 pm
Tuesday, October 12, 2010Peabody Orlando Hotel
Contact: Jan Piland @ (850) 701-3622JPiland@flcities.com
September 16, 2010APA FLORIDA
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