Alternatives to Financing Lake Development Infrastructure in Mississippi Public Improvement District

1
Alternatives to Financing Lake Development
Infrastructure in MississippiPublic Improvement
Districts and Tax Increment Financing

• February 4, 2009
• Lucien L. Bourgeois
• Butler Snow, OMara Stevens Cannada, PLLC
• Phone [phone]
• Fax [phone]
• Email lucien.bourgeois_at_butlersnow.com
• Website www.butlersnow.com

2
Public Improvement Districts

• Developers in Mississippi may take advantage of
  significant economic incentives for the financing
  of basic project infrastructure.
• Typically developers have to accept the risks
  associated with out-of-pocket expenses related
  to the construction of such infrastructure.
• For example, developers have been forced to rely
  on traditional financing to finance
  infrastructure which would be repaid as lot sales
  are completed with financing over a maximum of
  five to seven years.
• With the creation of the Public Improvement
  District Act (the Act), developers may reduce
  these risks associated with traditional financing
  by creating an independent public body known as a
  Public Improvement District (PID).

3
What is a PID?

• A PID is a political subdivision of the State
  which can be established by a city or county at
  the request of a developer to qualify to finance
  basic infrastructure via tax-exempt revenue bonds
  thus providing an economic development
  incentive through a lower tax-exempt interest
  rate.
• Enabling Legislation Section 19-31-15, et seq.
  of the Mississippi Code of 1972, as amended (the
  Act).
• A PID can be established to undertake the
  following developments
• Residential
• Commercial
• Industrial
• A PID is empowered to finance the following type
  of public infrastructure
• Streets/Roads/Sidewalks
• Water/Wastewater Facilities and Lines
• Bridges and Drainage Improvements
• Water Management Control Facilities
• Also, with the consent of the affected local
  government (i.e. one creating the PID), the PID
  may finance the acquisition or construction of
  other infrastructure, including parks
  recreational facilities, and fire prevention
  facilities and equipment.

4
PID Financing

• A PID is authorized to issue tax-exempt revenue
  bonds to finance qualified infrastructure.
• Revenue Bonds issued by the PID are payable
  solely from the levy of special assessments by
  the District on benefited land within the PID and
  other sources that may be available.
• Interest rates, maturity and terms and conditions
  of any revenue bonds will be based on the
  strength of the developer, the type of
  development and specifications of the bond
  purchaser.
• The bonds may be sold as bank-qualified,
  tax-exempt (if less than 10 million per year,
  however the stimulus package being considered by
  Congress raises this threshold to 30 million
  during 2009-2010) at a substantial interest
  savings, or to investors as nonrecourse or
  recourse debt at market rate (subject to
  underwriting restrictions).
• In addition, a PID has the authority to enter
  into Contribution Agreements with government
  entities to provide additional security and/or
  other incentives to directly benefit the project.

5
Creation of PID

• Petition to City/County Governing Body by the
  Developer.
• If land within the PID is entirely within City
  then petition should be provided to municipality.
  If land within the PID is within County, then
  petition should be provided to County Board of
  Supervisors. If portion of land is within City
  and portion within County, then County would
  accept petition, but City would have to approve
  of the Petition and creation of the PID.
• Petition shall contain
• Description of the boundaries of the PID.
• Written consent of all (100) of landowners in
  the PID.
• Designation of five (5) persons to be initial
  members of the Board of Directors.
• Proposed name of the PID.
• Map of proposed PID, showing existing
  infrastructure, if any.
• Proposed timetable for construction of
  infrastructure and estimated cost.
• Public hearing by City/County Governing Body.
• Public hearing requirement within 45 days of
  filing of petition
• Public notice of hearing required to be published
  in at least once a week for four (4) successive
  weeks immediately prior to hearing.
• Once established, a PID is a political
  subdivision of the State and is subject to the
  same requirements as other political subdivisions
  and local governments (i.e. open meetings, public
  bid laws, etc.).

6
PID Does Not

• A PID does not impact or affect
• State and local regulations regarding
  development.
• Zoning Regulations.
• Impact Costs.
• DEQ and Other State Agencies Regulations/Permits.

7
Potential Applications of PID

• Industrial Parks
• The State of Mississippi, its cities and counties
  are under constant pressure to furnish industrial
  parks to provide property for industrial and
  commercial prospects.
• An incentive which can assist private developers
  in undertaking development of industrial parks is
  the availability of setting up a PID by a local
  government. The PID would allow the
  infrastructure (streets, water and sewer
  improvements, drainage, street lights) to be
  financed on a tax-exempt basis as allowed by the
  federal government.
• The PID (Industrial Park) is allowed ongoing
  maintenance if wanted or needed.
• The security for debt issued by the PID would be
  land and improvements in the PID and special
  assessments on benefited property within the PID.
  

8
Potential Applications of PID (cont.)

• Commercial Developments
• An incentive for urban, suburban, and rural areas
  to assist developers in providing qualified
  infrastructure (streets, water and sewer
  improvements, drainage, street lights) which can
  be financed on a tax-exempt basis.
• Commercial and retail developments provide
  employment and generate economic activity. In
  addition, Sales Taxes are generated for our
  cities and counties.
• Security for debt issued by the PID would be land
  and improvements in the PID and special
  assessments on benefited property in the PID.
• Debt is not backed by City, County or State of
  Mississippi.

9
Potential Applications of PID (cont.)

• Residential Housing Developments
• An incentive for residential housing developers
  trying to provide a quality development which
  meets city/county development requirements.
  Streets, drainage, water/sewer improvements,
  street lights, sidewalks and parks can be
  financed on a tax-exempt basis.
• A traditional residential housing development
  financing would be repaid as lot sales are
  completed with the financing usually maturing in
  five to seven years. Some improvements such as
  parks, etc. may be repaid over a longer period of
  time.
• Again, the security for the debt issued by the
  PID would be land and improvements in the PID and
  special assessments on benefited property within
  the PID. Debt is not backed by City, County or
  the State of Mississippi.
• The residential lots are assessed based on
  benefited property. Special assessments appear
  on residential tax bills, just like ad valorem
  taxes, but show up as special line items on the
  tax bills.

10
PID Additions

• Recent amendments to the legislation allows PIDs
  to
• Finance (and levy assessments) for up to 40
  years.
• Enter into Development/Reimbursement Agreement
  with developer of the project---creating easier
  private financing for front end construction.
• Be created that actually cross County
  jurisdictions.

11
Tax Increment Financing (TIF)

• What is a TIF?
• Tax Increment Financing Bonds
• Cities or counties may issue tax increment
  financing bonds to finance public infrastructure
  improvements in connection with redevelopment
  projects without the necessity of issuing general
  obligation bonds.
• Enabling Act Cities and counties are authorized
  to issue tax increment financing bonds pursuant
  to Section 21-45-1, et seq. of Mississippi Code
  of 1972, as amended.
• Tax Increment Financing Plan Under the Enabling
  Act, the local government shall prepare the tax
  increment financing plan which describes the
  public infrastructure improvements to be financed
  and the economic development project to be
  constructed by the private company.
• After the publication of a notice of the tax
  increment financing plan as provided by the
  Enabling Act, the local government shall have a
  public hearing for the tax increment financing
  project.

12
Tax Increment Financing (cont.)

• Eligible Expenditures Public infrastructure
  improvements (i.e. roads, utilities, and
  drainage).
• Rate Bond issue rate (tax-exempt rate for
  eligible public improvements and taxable rate for
  other projects).
• Term Maximum of 30 years.
• Collateral Tax increment financing bonds are
  limited obligations of the local government
  secured solely by the additional ad valorem taxes
  and/or sales taxes generated by the development
  of the economic development project described
  under the tax increment financing plan.
• Economic Development Incentives Local
  governments may issue tax increment financing
  bonds to provide public infrastructure
  improvements to encourage private companies to
  develop economic development projects within
  areas designated for redevelopment.

13
TIF Advantages

• Type of project TIF works best with significant
  increase in ad valorem and sales tax revenue over
  what property generated prior to development.
• Debt Limits TIF bonds not subject to statutory
  debt limits. Limited only by amount of TIF
  Revenue available to support debt service.
• No Tax Increase Debt service only from increase
  in tax revenue generated by new development. The
  full faith and credit of city and county cannot
  be pledged, i.e., no special tax can be levied to
  support the debt service.
• Not Subject to Protest A public hearing is
  required, but TIF bonds are not subject to
  protest or election.
• Developer Driven Schedule The TIF Act enables
  the city or county flexibility to contract with a
  developer to construct an entire project,
  including public infrastructure, with the
  agreement that upon completion of the project
  developer will be reimbursed.

14
TIF Process

• General Plan City must have General or
  Comprehensive Plan.
• Redevelopment Plan City must prepare
  Redevelopment Plan for the acquisition,
  reconstruction, rehabilitation, or future use of
  a redevelopment project area.
• TIF Plan City must prepare a TIF Plan specific
  to a particular project. Must include
• Statement of Objectives
• Statement indicated need and proposed use in
  relationship to Redevelopment Plan.
• Statement of costs estimates of redevelopment
  projects and sources of revenue, including tax
  increments and amount of indebtedness to be
  incurred.
• List of all real property to be included in the
  TIF Plan.
• Duration of TIF Plan
• Statement of estimated impact of TIF plan on
  revenues of taxing jurisdictions
• Statement requiring that a separate fund be
  established to receive ad valorem taxes and
  proceeds of other financial assistance.

15
TIF Process (cont.)

• Planning Commission Prior to adoption and
  implementation, planning commission must review
  and determinae proposed redevelopment plan in
  conformity with existing general plan.
• Public Hearing Prior to adoption and
  implementation, a public hearing must be held on
  the proposed Redevelopment and TIF Plans.
• Agreements Once TIF Plan has been approved, a
  development and reimbursement agreement is
  entered into with the developers, and, if
  applicable, interlocal agreements between
  participating city and county may be approved.
• Issuance of TIF Bonds TIF Bonds generally
  issued upon completion of the development.

16
Questions?

• Questions?