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Washington Public Ports Association 2009 Finance and Administration Seminar Financing Tools for Publ

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Apply to DOR September 1, 2009 ... May special election eliminated after 2011. 52 day notice reduced to 45 days. 32. 32 ... indicate that election has been made ... – PowerPoint PPT presentation

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Title: Washington Public Ports Association 2009 Finance and Administration Seminar Financing Tools for Publ


1
Washington Public Ports Association 2009 Finance
and Administration SeminarFinancing Tools for
Public Ports
  • June 18, 2009Vancouver, Washington
  • Cynthia Weed, KL Preston Gates Ellis

2
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3
Financing Tools for Public Ports
  • Outline of Presentation
  • State tools for funding infrastructure A focus
    on recent developments
  • Levy lid lifts
  • Tax Increment Financing Washington style
  • The American Recovery and Reinvestment Act of
    2009
  • Build America Bonds
  • Recovery Zone Economic Development Bonds
  • Recovery Zone Facility Bonds

4
State tools for funding infrastructure A focus
on recent developments
  • Levy Lid Lifts
  • A simple majority of voters can approve a levy
    lid lift, allowing the taxing district to levy
    an amount approved by its voters up to the
    applicable statutory rate limitations (RCW
    84.55.050).
  • The new base can apply for a limited or unlimited
    period
  • But nine year limit for debt service

5
Levy Lid Lifts
  • With a majority vote of its electors, a taxing
    district may lift its levy for the following year
    or for up to six consecutive years, within
    statutory rate limitations (RCW 84.55.050).
  • In approving a multi-year (up to six years) levy
    lid lift, voters may approve the amount of the
    initial lift plus a growth factor (such as the
    consumer price index) for calculating the amount
    of increases in subsequent years.

6
Legislative Update Levy Lid Lifts
  • SB 5433, Delivered to Governor for signature
  • Eliminates non-supplanting language for
    multi-year levy lid lifts
  • King County eliminated only for lifts in
    2009-2011

7
State tools for funding infrastructure
Tax-increment Financing
  • Bond Infrastructure
  • Attracts Development
  • Taxes Pay Bonds

8
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9
What taxes?
  • Traditional TIF financing taps increased property
    taxes generated by development.
  • A particular development will be located within
    various overlapping taxing district.

10
Overlapping taxing districts
11
Include state taxes for the common schools?
  • State property taxes are collected to fund
    schools.
  • Constitution requires
  • But the entire revenue derived from the common
    school fund and the state tax for common schools
    shall be exclusively applied to the support of
    the common schools.
  • Article IX, Section 2

12
Struck down
  • Leonard v. Spokane, 127 Wash.2d 194, 897 P.2d 358
    (1995)
  • Reviewed the 1982 statute to determine whether it
    violated Article IX, Section 2, of the state
    constitution
  • Concluded that the Act redirected incremental
    property taxes, including the state property tax,
    to pay for public infrastructure.
  • Diversion of state property tax inconsistent with
    Article IX, Section 2, which requires application
    of such taxes to the support of the common
    schools.
  • Rejected the citys argument in the absence of
    the Act the tax dollars allegedly diverted would
    not have been generated.

13
TIF is constitutional in most states
  • Annot., "Validity, Construction, and Effect of
    Statutes Providing for Urban Redevelopment by
    Private Enterprise," 44 A.L.R.2d 1414, 1418
    (1955) (In the overwhelming majority of cases in
    which the validity of redevelopment statutes have
    been questioned, the courts have upheld them.)
  • D. Mandelker, "Public Entrepreneurship A Legal
    Primer," 15 Real Est.L.J. 3, 13 (1986) (Almost
    all state courts hold tax increment financing
    constitutional)

14
So where does this leave us?
  • Constitutional prohibition addresses only the
    state property tax for the common schools
  • So the Legislature and municipalities have tried
    to achieve TIF-like (or TIF-lite) financing by
    focusing on
  • Local property taxes
  • Excise taxes

15
101 and TIF
  • Because traditional TIF applies the increased
    property taxes generated by new development to
    finance the infrastructure to attract this
    development, the 101 cap on increased property
    taxes disrupts the TIF mechanism.
  • Can only capture increased property taxes from
    the new construction, not from any resulting
    appreciation in the property values of
    neighboring properties.

16
Three TIF-lite statutes
  • Ch. 39.89 RCW, which permits local jurisdictions
    to agree to divert local property taxes to
    finance public infrastructure.
  • Local Infrastructure Financing Tool (LIFT),
    which provides a state sales tax credit for
    qualifying local tax increment districts.
  • NEW legislation Community Revitalization
    Areas, also providing a state sales tax credit
    for qualifying local tax increment districts

17
Chapter 39.89 RCW
  • Cities, counties, ports and any combination
  • May designate an increment area, finance public
    improvements expected to encourage private
    development within the increment area
  • Repay this financing with the additional regular
    local property taxes generated by such private
    development

18
LIFT (Chapter 39.102 RCW)  
  • Local Infrastructure Financing Tool (LIFT)
    program
  • Provides a form of tax increment financing for
    public infrastructure projects within revenue
    development areas (RDAs) created by a local
    government
  • State sales and use tax credit
  • Local infrastructure projects intended to
    encourage private development to generate
    increased tax revenues within the RDA
  • Increased state and local tax revenues are, in
    turn, necessary preconditions to receipt of the
    state sales and use tax credit (BUT see
    legislative update).

19
LIFT funding components
  • Three main sources of tax revenues to project
    financing
  • local property taxes
  • local sales and use excise taxes
  • state sales and use tax credit 
  • These funding sources interact and are subject to
    complicated limitations under the LIFT statute.

20
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21
Legislative update LIFT
  • Chapter 267, 2009 Laws Effective date 7/26/2009
  • Technical amendments to make LIFT more workable
  • State tax increment ? estimated and reported

22
Community Revitalization Areas
  • Chapter 270, 2009 Laws
  • Signed by the Governor April 29, 2009
  • Effective date July 26, 2009

23
Allowable Projects
  • Public infrastructure projects
  • Planning, analysis, retail promotion, maintenance
    and security of common areas

24
Sources of Funding
  • State contribution through state sales tax credit
  • Lesser of award amount and
  • Local match for prior calendar year
  • Must be used for debt service on general
    obligation bonds

25
Sources of Funding
  • Local match through local tax increment
  • 75 of increased property taxes from new
    construction
  • Sales taxes (percent determined by interlocal
    agreement)
  • Plus federal sources and private sources
  • Can carry forward excess match
  • Can be used for debt service or pay as-you-go

26
Taxes collected in Revitalization Area?
  • Property taxes counties, cities and ports
  • That do not opt out
  • Within 30 day notice period
  • By ordinance
  • Sales taxes
  • That do not opt out
  • Within same time frame

27
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28
Two pots of money for state contribution
  • Demonstration projects (annual awards)
  • Whitman - 200k
  • University Place - 500k
  • Tacoma - 500k
  • Bremerton - 330k
  • Auburn - 250k
  • Vancouver - 220k
  • Spokane - 250k
  • Demonstration project award winners can opt out
    of demonstration project status to try for more
  • Competitive Pool - 2.5m in annual awards

29
Application Process
  • Tight timeline
  • Send notice to taxing districts
  • Conduct public hearing
  • Adopt ordinance forming RA
  • Enter into interlocal agreement
  • Enter into developer contract or LOI
  • Apply to DOR September 1, 2009
  • DOR is creating an electronic application
    (anticipated release is August)
  • Program will have date/time stamp feature
  • Demonstration projects must submit application as
    well
  • DOR to decide within 60 days

30
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31
Finance-related Legislation continued..
  • Special election dates changed/eliminated
  • ESHB 1018, delivered to Governor for signature
  • Eliminates March special election
  • Moves February special election to 2nd Tuesday
  • May special election is only for tax levies that
    failed previously in that calendar year and new
    bond issues
  • May special election eliminated after 2011
  • 52 day notice reduced to 45 days

32
The American Recovery and Reinvestment Act of
2009 (ARRA)
  • Build America Bonds (BABs)
  • Recovery Zone Economic Development Bonds
    (RZ-EDB)
  • Recovery Zone Facility Bonds (RZ-FB)
  • Other stimulus provisions

33
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34
Build America Bonds (BABs)
  • New taxable financing option authorized in ARRA
  • Designed to stimulate economy by encouraging
    development
  • Two Types
  • Direct Subsidy
  • Payments are made directly to the issuer
  • Market has responded to this new type of
    financing tool
  • Tax Credit
  • Credit is allocated to the bondholder
  • Market has yet to respond

35
BABs (Direct Subsidy)Direct Subsidy to Issuer
equal to 35 of Interest
Federal Government
Subsidy
Debt Service
Governmental Issuer
Owner of Taxable Bond
Bond Proceeds
Project
36
BABs (Tax Credit)Tax Credit to Bondowner equal
to 35 of Interest
Federal Government
Tax Credit
Debt Service
Governmental Issuer
Owner of Taxable Bond
Bond Proceeds
Project
37
Direct Subsidy BABs
  • All State and local government issuers may issue
    BABs
  • Limited and unlimited tax general obligation
    bonds and revenue bonds may be issued as BABs
  • The interest on BABs is taxable
  • Must be issued before January 1, 2011
  • Bonds must otherwise qualify as governmental
    bonds
  • Bonds must be issued to pay or reimburse new
    money capital expenditures
  • Bonds may also be issued to refund short-term new
    money financings issued after 2/17/09 to pay new
    money expenditures paid or incurred after that
    date
  • Subsidy funds can be used to offset interest
    expense on the bonds, finance capital projects or
    finance working capital

38
BABs Other Requirements
  • Issuers of BABs must comply with all requirements
    applicable to the issuance of tax-exempt
    governmental bonds, including
  • the private business use and private loan
    restrictions,
  • the arbitrage and rebate rules,
  • the registration requirements,
  • federal guaranty limitations,
  • advance refunding limitations,
  • reporting requirements, and
  • hedge bond limitations

39
Direct Subsidy BABs lessons learned so far .
  • Examples of successful direct subsidy BABs issues
  • Market review when does it make sense to issue
    BABs?
  • Permitted uses of subsidy payment
  • Treatment of direct subsidy payment for purposes
    of bond covenants
  • Refunding and defeasance options
  • Will the money go away?
  • Extraordinary call in the event that the subsidy
    is discontinued

40
How the Subsidy is Paid
  • A federal subsidy equal to 35 of interest will
    be paid directly to the issuer
  • For fixed rate debt, subsidy will be paid on each
    interest payment date
  • For variable rate debt, subsidy will be paid
    quarterly, in arrears

41
Procedural Requirements for Direct Subsidy BABs
  • Issuer must elect to treat obligations as Direct
    Subsidy BABs by making election on books and
    records on or before issue date
  • 8038-G must indicate that election has been made
  • Debt service schedule must be attached to 8038-G
  • For fixed rate BABs, file 8038-CP between 45 and
    90 days prior to each interest payment date
  • For variable rate BABs, file 8038-CP with 45 days
    after last payment in each calendar quarter

42
Recovery Zone Bonds
  • New financing options authorized in ARRA
  • Designed to finance certain kinds of business
    development activities in areas of significant
    economic distress
  • Two types
  • Recovery Zone Economic Development Bonds
    (RZ-EDB)
  • Recovery Zone Facility Bonds (RZ-FB)

43
Recovery Zone Bonds - Issuers
  • Eligible Issuers States, political subdivisions
    and on behalf of issuers
  • Volume cap allocated to counties and large
    municipalities (greater than 100,000 in
    population) based on proportionate decline in
    employment from December 2007 to December 2008
  • An eligible issuer may issue Recovery Zone Bonds
    based on the allocation received by the eligible
    issuer itself or by a conduit borrower or other
    ultimate beneficiary of the bond issue
  • States (with respect to allocations waived or
    deemed waived by any county or large
    municipality), counties and large municipalities
    may allocate volume cap to ultimate beneficiaries
    in any reasonable manner as they shall determine
    in good faith in their discretion for use for
    eligible costs for qualified economic development
    purposes or recovery zone property, as applicable

44
Designating a Recovery Zone
  • Recovery zone is defined as
  • any area designated by the issuer as having
    significant poverty, unemployment, rate of home
    foreclosures, or general distress or
  • an area that has already been federally
    designated as an Empowerment Zone or Renewal
    Community.  
  • Recipient of volume cap may designate areas
    within its jurisdiction as a recovery zone
  • The locality must use the proceeds in a recovery
    zone, but the issuer itself can designate the
    zone and it appears that issuers have broad
    discretion in defining the zone (can be made in
    any reasonable manner so long as made in good
    faith)

45
Recovery Zone Economic Development Bonds
(RZ-EDB)
  • Eligible expenditures
  • Proceeds must be used to finance qualified
    economic development purposes within designated
    recovery zones, including
  • New money capital expenditures for property
    located in a recovery zone
  • Public infrastructure (wherever located) that
    promote economic activity in a recovery zone
  • Expenditures for job training and educational
    programs
  • Includes working capital expenditures to promote
    development or other economic activity in a
    recovery zone
  • Volume Cap
  • 10 billion total (90,000,000 to Washington) for
    2009 and 2010

46
Recovery Zone Economic Development Bonds
  • Similar to BABs (Direct Payment)
  • Bonds are issued as taxable
  • Issuers must comply with all requirements
    applicable to the issuance of tax-exempt
    governmental bonds
  • Designation and reporting requirements apply
  • Bonds must be issued prior to January 1, 2011
  • Unlike BABs
  • Subsidy is 45 (instead of 35)
  • Project must be located in a recovery zone
  • Volume Cap limitations
  • Federal Davis-Bacon prevailing wage rules apply

47
Recovery Zone Facility Bonds (RZ-FB)
  • New category of tax-exempt private activity bonds
    to finance depreciable property for use in areas
    designated as recovery zones
  • Eligible Expenditures
  • Private activity bonds issued to finance
    recovery zone property located in recovery
    zones
  • Property that was constructed, reconstructed,
    renovated or acquired by purchase after it was
    deemed in a recovery zone,
  • Property first used in a recovery zone by a
    taxpayer, and
  • Substantially all of the property is in the
    recovery zone and is being used as a qualified
    business
  • A qualified business is any trade or business
    except residential rental property or certain
    businesses such as private golf courses, massage
    parlors, hot tub facilities, suntan facilities,
    gambling facilities or liquor stores
  • The property may be privately owned and operated
  • Volume Cap
  • 15 billion total (135,000,000 to Washington)
    for 2009 and 2010

48
Recovery Zone Bonds Volume Cap
  • Volume Cap allocated among the States and
    counties and large municipalities within the
    States based on relative declines in employment
    in 2008
  • Treasury Notice 2009-50, released June 12, 2009,
    allocates the bonds to all 50 states, the
    District of Columbia and American territories,
    and made sub-allocations within each State

49
Washington State Volume Cap
  • Area RZ-EDB RZ-FB
  • City of Bellevue 2,491,000 3,736,000
  • City of Seattle 13,278,000 19,918,000
  • City of Spokane 104,000 156,000
  • City of Tacoma 3,320,000 4,979,000
  • City of Vancouver 1,639,000 2,459,000
  • Asotin County 9,000 14,000
  • Clallam County 806,000 1,209,000
  • Clark County 2,627,000 3,940,000
  • Cowlitz County 3,668,000 5,502,000

50
Washington State Volume Cap (cont.)
  • Area RZ-EDB RZ-FB
  • King County 23,169,000 34,754,000
  • Kitsap County 7,527,000 11,290,000
  • Lewis County 494,000 740,000
  • Pacific County 580,000 870,000
  • Pierce County 9,741,000 14,612,000
  • Skagit County 5,276,000 7,914,000
  • Skamania county 100,000 149,000
  • Snohomish County 13,210,000 19,816,000
  • Spokane County 136,000 204,000
  • Whatcom County 1,825,000 2,738,000

51
Other Stimulus Provisions
  • Temporary suspension of AMT
  • Expansion of bank qualified
  • Expansion of IRS 2 De Minimis Rule to Banks
  • Expansion of tax-exempt funding for
    manufacturing facilities

52
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53
Questions?
  • Contact Information
  • Cynthia.Weed_at_klgates.com
  • Stacey.Crawshaw-Lewis_at_klgates.com
  • Deanna.Gregory_at_klgates.com
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