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HomeMy WebLinkAboutAgenda - 05-15-2014 - 2ORANGE COUNTY BOARD OF COMMISSIONERS ACTION AGENDA ITEM ABSTRACT Meeting Date: May 15, 2014 Action Agenda Item No. 2 SUBJECT: Ephesus Church Road - Fordham Boulevard Public Improvements DEPARTMENT: Finance and Administrative PUBLIC HEARING: (Y /N) No Services ATTACHMENT(S): A) Town of Chapel Hill Public Improvements Financing Summary B) Town of Chapel Hill Potential Tax Revenue Analysis C) County Revenue Analysis INFORMATION CONTACT: Michael Talbert, 919 - 245 -2308 Clarence Grier, 919 - 245 -2453 PURPOSE: To receive an overview and additional analysis of the County's potential involvement in the Ephesus Church Road / Fordham Boulevard (Ephesus Fordham) Public Improvement Plan. BACKGROUND: The Town of Chapel Hill at the March 27, 2014 Joint Meeting with the Board of County Commissioners presented an improvement project for the Ephesus Church Road — Fordham Boulevard area within the Town of Chapel Hill. In order to support the renewal of the Ephesus Fordham area, the Town of Chapel Hill must make investments in much needed traffic and stormwater capital improvements. The project would be financed with the use of Tax Increment Financing or Project Development Financing. Under this method of financing, economic development projects move forward by pledging the anticipated growth in tax base as a source of repayment. The theory is that the project being financed is enabling the tax growth and therefore the project is and will be self- financing because, if not for the project, the tax growth would not have occurred. The Town of Chapel Hill would like the County to participate in the Ephesus Fordham Renewal Project by pledging the lesser of 50% of the actual increment property tax revenues received or 50% of the actual annual debt service cost. The County could potentially benefit from participating with the Town of Chapel Hill from increased property and sales tax revenues. The budget impacts for the County would be committing an average of $385,612 over 18 years for a total of $6,941,017 for the project (Attachment C). This also takes in account the possible impact of adding approximately 450 new students in the Ephesus Fordham area of the Chapel Hill — Carrboro City Schools District (CHCCS) over an 18 -year period that could increase the 2 need for a new elementary and /or move up the timeline for Elementary #12 and Middle School #5 for CHCCS. Additionally, if a new high school and /or major additions have to be made to one of the existing CHCCS high schools to accommodate the projected increase in students, the additional debt service would reduce the net amount of property taxes received as result of the planned project improvements. FINANCIAL IMPACT: There is not a financial impact with receiving this information. The financial impact will occur if the Board of County Commissioners determines that the County will participate in the project. RECOMMENDATION(S): The Manager recommends that the Board receive the information and provide feedback to staff. ATTACHMENT A FINANCING EPHESUS FORDHAM PUBLIC IMPROVEMENTS Financing Ephesus Fordham Public Improvements 3 February 2014 In order to support the renewal of the Ephesus Fordham area the Town must make investments in much needed traffic and stormwater capital improvements. The total cost of these improvements is $10.0 million ($8.8 million for traffic improvements and $1.2 million for stormwater). The Town plans on issuing debt to finance the capital cost for these public improvements. The most efficient and cost effective way for the Town to finance this project is to coordinate the financing with other projects that can provide collateral for a combined financing. Financing Plan The Town is planning on financing the Town Hall Renovation project and other CIP projects with debt. By combining the financing of these projects using two common forms of debt that the Town has used numerous times, the total cost of financing all of these projects will be reduced and can be completed on the timetable established for the Ephesus Fordham Project. The Projects Town Hall Repair & Renovation $ 900,000 AV- 800,000 Ephesus Fordham: Traffic Improvements 8,800,000 •' Stormwater Capital 1,200,000 i � ti 10,000,000 Total All Projects S 11,700,000 -1 k 1 t r The Projects Town Hall Repair & Renovation $ 900,000 High Priority CIP Projects 800,000 Ephesus Fordham: Traffic Improvements 8,800,000 Stormwater Capital 1,200,000 Total Ef Project 10,000,000 Total All Projects S 11,700,000 The Debt Two - thirds General Obligation Bonds $ 1,700,000 Installment Financing 10,000,000 Total Planned Debt issuance S 11,700,000 TOWN OF CHAPEL HILL I BUSINESS MANAGEMENT DEPARTMENT 1 !In FINANCING EPHESUS FORDHAM PUBLIC IMPROVEMENTS February 2014 Although the forms of debt the Town is planning to use are familiar; the Town Operations Center and the 140 West Parking Garage were built using installment financing and as recently as 2012 the Town used two- thirds bonds for parks facilities and streets, the repayment plan is somewhat unique to the Town because it relies on a "tax increment." Repayment Plan Debt Management Fund: The portion of debt used for Town Hall and CIP will be repaid through the Debt Management Fund. The Debt Fund was established in 2009 with a dedicated property tax to provide a source of funds to pay off Town debt obligations. "Synthetic Tax Increment Financing (TIF) ": The portion of the debt used for the Ephesus Fordham public improvements will be repaid by the incremental increase in tax revenues resulting from redevelopment. In other words, the redevelopment we are hoping to generate through the Ephesus Fordham Renewal Project will increase property tax receipts from the area. Those tax receipts, over and above the base level of tax receipts that existed prior to the project, will be dedicated to pay off the debt for the public improvements. Although this method of financing economic development projects is fairly common in North Carolina, it is the first time that the Town has used incremental tax receipts as a primary source of debt repayment. Synthetic versus "traditional" TIF: In 2004 the State Legislature approved Tax Increment Financing (aka: Project Development Financing) legislation that enabled local governments to finance economic development projects with a pledge of future additional (incremental) tax revenues from an established TIF district. Because of the cost, complexity and length of the process for approval there have only been two traditional TIFs approved in North Carolina in the last 10 years. Part of the reason for the unpopularity of traditional TIFs in North Carolina is the availability of an easier, faster and less expensive alternative. Many local governments in North Carolina have opted for installment financing that uses a physical asset as collateral and repayment from a tax increment to finance economic development projects. This accomplishes the same thing as the traditional TIF, but is less expensive (lower interest rate) and takes less TOWN OF CHAPEL HILL I BUSINESS MANAGEMENT DEPARTMENT r 2 5 FINANCING EPHESUS FORDHAM PUBLIC IMPROVEMENTS February 2014 time to issue. The Ephesus Fordham project does not have an asset that can be used as collateral for an installment financing and therefore we have planned to combine the financing with the Town Hall Renovation Project. By combining the projects in one financing the Town Hall property can be used as collateral for both projects. This practice of sharing collateral among projects is a common way of reducing the cost of borrowing for municipalities by providing the best possible security for installment debt. Backstop: There will be a time gap between when we issue the debt and when the redevelopment will begin to generate a tax increment sufficient to pay debt service. To the extent possible, we will structure the debt for the Ephesus Fordham Public Improvements to defer debt payments to match the anticipated timing of incremental tax revenues. However, it may be impossible to avoid a gap between the tax increment and the debt service payments in the early years of the project. The Debt Management Fund has sufficient balance to cover the mismatch in the timing of available tax increment and we plan on using the Debt Management Fund to backstop debt service on the Ephesus Fordham Public Improvements portion of the debt. Any amounts used would be restored to the Debt Fund once the tax increment surpasses what is needed for debt service. One of the possible consequences of using the debt fund for this purpose is the delay of planned capital expenditures such as the Public Safety Facility and the Transfer Station. Stormwater Management Costs In addition to the $1.2 million of initial investment in stormwater facilities to serve the Ephesus Fordham Area, the Town is planning to establish a Municipal Service District to finance additional improvements and ongoing stormwater management costs. The planned Municipal Service District will impose an annual property tax of 4 cents. TOWN OF CHAPEL HILL I BUSINESS MANAGEMENT DEPARTMENT 3 x N FINANCING EPHESUS FORDHAM PUBLIC IMPROVEMENTS February 2014 Glossary of Terms ❖ Tax Increment Financing (TIF) aka Project Development Financing —A method of financing economic development projects by pledging the anticipated growth in tax base as a source of repayment. The theory is that the project being financed is enabling the tax growth and therefore the project is, in some respects, self- financing because if not for the project the tax growth would not have occurred. In North Carolina the enabling legislation is called Project Development Financing. ❖ Synthetic TIF —The use of an informal pledge of incremental growth in tax revenues to pay debt service for debt secured by other means. Typically, a synthetic TIF uses installment financing that is secured by an asset. This form of financing avoids the statutory requirements of the Project Development Financing and is less expensive. ❖ Two - thirds General Obligation Bonds - General obligation (GO) bonds are secured by the full faith and credit of the issuer and, with the exception of two - thirds bonds, require a public vote for approval. Under State Law GO bonds can be issued in an amount up to two - thirds of the reduction in prior year outstanding GO bond principal without a public vote. ❖ Installment Financing — A form of debt financing that is secured by a physical asset, similar to a mortgage or a car loan. ❖ Collateral — Physical asset that stands as security for a debt obligation. Failure to pay the obligation may result in the forfeiture of the collateral to the debt holder. ❖ Debt Management Fund — In FY2008 -09 the Town established the Debt Management Fund to pay the debt service for the Town's outstanding debt. The Debt Fund receives a dedicated portion of the Town's property tax rate. The purpose of the fund is to better manage the Town's growing debt load by separating the expenses associated with debt from the rest of the Town's operating expenses. ❖ Backstop —A secondary means of security should the primary prove to be inadequate. For the financing of the Ephesus Fordham Public Improvements the anticipated tax increment is the primary source of debt repayment and the Debt Fund is the secondary source or backstop. ❖ Municipal Service District — Under North Carolina Law, subject to some restrictions, cities and towns can form Municipal Service Districts to provide specific services to a defined geographic area. A property tax can be levied on the district to fund the cost of providing services. ❖ Capital Improvement Program (CIP) — Each year the Town Council, as part of the annual budget process, approves a capital improvement plan. The plan lists the Town's capital needs for the next 15 years. TOWN OF CHAPEL HILL I BUSINESS MANAGEMENT DEPARTMENT i 4 Ephesus Fordham Renewal 20 year Cash Flow County & Schools Property Tax Increment of Actual Debt Service Cost of Actual Increment Property Taxes Impact Fees ATTACHMENT B 7 0 1 2 3 4 5 6 7 8 9 10 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 Phase 3 172,486 2029 New Multifamily Housing Units Phase 1,000 0 0 347,345 694,690 1,389,379 1,389,379 1,389,379 1,427,178 1,464,978 1,502,777 1,540,576 0 401,250 401,250 401,250 401,250 401,250 401,250 401,250 401,250 401,250 401,250 0 0 1 173,672 347,345 1 0 0 0 0 0 0 0 0 0 u 0 84,367 168,734 337,467 337,467 337,467 346,648 355,829 365,010 374,191 0 0 0 1,286,000 0 0 0 0 192,900 0 unty Participation in Debt Service Cost lesser of 50% of the incremental property Tax Increase or 50% of the actual annual debt service expense County Increment Schools Increment Phase 1 1,389,379 2019 Phase 1 337,467 2019 Phase 2 151,197 2024 Phase 2 36,724 2024 Phase 3 710,141 2029 Phase 3 172,486 2029 New Multifamily Housing Units Phase 1,000 Phase 2 150 Phase 3 345 M phesus Fordham Renewal 0 year Cash Floww/+ �+ County & Schools 11 12 13 14 15 16 17 18 19 20 FY2025 FY2026 FY2027 FY2028 FY2029 FY2030 FY2031 FY2032 FY2033 FY2034 ounty Property Tax Increment 1,540,576 1,718,111 1,895,647 2,073,182 2,250,717 2,250,717 2,250,717 2,250,717 2,250,717 2,250,717 M 0% of Actual Debt Service Cost 0% of Actual Increment 401,250 0 401,250 0 401,250 0 401,250 0 401,250 0 401,250 0 401,250 0 401,250 0 401,250 0 401,250 0 Wet County Increment (401,250) (401,250) (401,250) (401,250) (401,250) (401,250 (401,250) (401,250) (401,250) (401,250) .. Property Taxes Impact Fees 374,191 0 417,313 0 460,434 0 503,556 443,670 546,677 0 546,677 0 546,677 0 546,677 0 546,677 546,677 :ounty Participation in Debt Servic( he lesser of 50% of the incremental property Tax 9 Attachment C Ephesus - Fordham Renewal Project Projections 5 Year Summary Projections * Based on $3269 per pupil funding FY2014 -2018 FY2019 -2023 FY2024 -2028 FY2029 -2033 Total Increase in property tax receipts $ 2,431,414 $ 7,098,092 $ 8,730,293 $ 11,253,585 $ 29,513,384 Impact fees $ 1,286,000 $ 192,900 $ 443,670 $ - $ 1,922,570 Projected County Contribution $ (922,267) $ (2,006,250) $ (2,006,250) $ (2,006,250) $ (6,941,017) Increase funding for Education $ (980,700) $ (5,050,605) $ (5,979,001) $ (7,338,905) $ (19,349,211) Net $ 1,814,447 $ 234,137 $ 1,188,712 $ 1,908,430 $ 5,145,726 Added new students to CHCCS 300 45 104 449 * Based on $3269 per pupil funding Ephesus - Fordham Project Projections 20 Year Individual Projections Increase in property tax receipts impact fees Projected County Contribution increase funding for Education Net Added new students to CHCCS * Based on $3269 per pupil funding 2014 2015 2016 2017 2018 2019 $ - $ - $ 347,345.00 $ 694,690.00 $ 1,389,379.00 $ 1,389,379.00 - - - - 1,286,000 - - - (173,672) (347,345) (401,250) (401,250) - - - - (980,700) (980,700) $ - $ - $ 173,673.00 $ 347,34S.00 $ 1,293,429.00 $ 7,429.00 300 10 11 Ephesus - Fordham Project Projections 20 Year Individual Projections * Based on $3269 per pupil funding 2020 2021 2022 2023 2024 Increase in property tax receipts $ 1,389,379.00 $ 1,427,178.00 $ 1,427,178.00 $ 1,464,978.00 $ 1,502,777.00 Impact fees - - - 192,900 - Projected County Contribution (401,250) (401,250) (401,250) (401,250) (401,250) Increase funding for Education (980,700) (980,700) (980,700) (1,127,805) (1,127,805) Net $ 7,429.00 $ 45,228.00 $ 45,228.00 $ 128,823.00 $ (26,278.00) Added new students to CHCCS 45 * Based on $3269 per pupil funding Ephesus - Fordham Project Projections 20 Year Individual Projections Increase in property tax receipts Impact fees Projected County Contribution Increase funding for Education Net Added new students to CHCCS * Based on $3269 per pupil funding 2025 2026 2027 2028 2029 $ 1,540,576.00 $ 1,718,111.00 $ 1,895,647.00 $ 2,073,182.00 $ 2,250,717.00 - - - 443,670 - (401,250) (401,250) (401,250) (401,250) (401,250) (1,127,805) (1,127,805) (1,127,805) (1,467,781) (1,467,781) $ 11,521.00 $ 189,056.00 $ 366,592.00 $ 647,821.00 $ 381,686.00 103 12 Ephesus - Fordham Project Projections 20 Year Individual Projections Increase in property tax receipts Impact fees Projected County Contribution Increase funding for Education Net Added new students to CHCCS * Based on $3269 per pupil funding 2030 2031 2032 2033 Total $ 2,250,717.00 $ 2,250,717.00 $ 2,250,717.00 $ 2,250,717.00 $ 29,513,384.00 - - - - 1,922,570 (401,250) (401,250) (401,250) (401,250) (6,941,017) (1,467,781) (1,467,781) (1,467,781) (1,467,781) (19,349,211) $ 381,686.00 $ 381,686.00 $ 381,686.00 $ 381,686.00 $ 5,145,726.00 148 13