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Home My WebLink AboutTIF intro updated 3.2018Tax Increment Financing Update 2018 A method of reallocating property taxes resulting from an increase in taxable valuation The increment is the change between the former value and the new value The only significant source of funds for cities to use for Economic Development incentives What is Tax Increment Financing? Consolidated levy (fy17) -Protected Debt levy (fy17) TIF levy (fy17) $38.74 per $1,000 -$8.33 per $1,000 $30.41 per $1,000 Tax Rates in FY 17 All levies are determined annually… •Consolidated levy = each taxing entity’s request of tax payers •Protected Debt levy = the debt portion of each taxing entity’s request of tax payers •TIF levy = the remainder $0 $50,000 $100,000 $150,000 $200,000 Owner pays 100% Property taxes: + the original $39,000 goes to all Taxing Jurisdictions + $33,000 to Protected Debt levy to all taxing jurisdictions INCREMENT = $4 million Which generates $155,000 NEW taxes every year new value AFTER = $5 Million How TIF works (it’s all about the increment and there is no TIF if there is no new value) b $39,000 goesto all Taxing Jurisdictions BEFORE = $1 Million Owner pays 100% of the Property taxes: of which $122,000 is TIF money created by the NEW VALUE Where does the TIF money go? The $122,000 tax increment may be used for •Annual rebates to a developer •Annual payments for loans for “up front” financing •To pay for City projects in URA/TIF districts Property Tax Revenues base value County ICCSD City TIF rebated to project $- $50,000.00 $100,000.00 $150,000.00 $200,000.00 $250,000.00 $300,000.00 $350,000.00 $400,000.00 $450,000.00 $500,000.00 BEFORE DURING AFTER County ICCSD City TIF rebated to project Hieronymus Square: A real example Where property taxes go the year before, the years during, and the year after TIF o Sustainability –New construction must be LEED silver certified with at least 8 points awarded from Energy Performance category o Downtown building heights and character –must fulfill vision of the Downtown and Riverfront Crossings Plan o Historic Preservation –projects may be eligible for TIF; those demolishing historic buildings are not o Affordable Housing –any TIF project with any housing must provide at least 15% of the units as affordable to tenants at or < 60% AMI o Economic Justice –fairness to workers on TIF projects o Quality Jobs –when incentivizing companies based on job creation, jobs shall be high quality jobs o Other public interests shall be considered for TIF such as arts and cultural facilities, historic preservation and public improvements serving as a catalyst for Economic Development Tax Increment Financing Policies Urban Renewal Projects in Iowa City Plaza Towers Packing & Provisions Park @ 201 CBD Streetscape The Chauncey Sabin Townhomes Augusta Place Owens Brockway Mercer Sycamore Plamor IC Marketplace Alpla UNFI Pepperwood Towncrest Med Office Riverside West Apts Ped Tunnel TIF Project examples Base value: $ 569,520 2015 value:$ 10,160,280 New value: $ 9,590,760 $2.5 million TIF 3 Floors Class A Office space First floor retail MetaCommunications Number of Jobs: 60+ Park @ 201 before Base value: $ 885,880 2015 value:$ 2,454,570 New value: $ 1,568,690 $625,000 TIF $325,000 Towncrest Catalyst Retained 2 Medical Offices Medical Office Building, Towncrest before Base value: $ 3,594,340 2015 value: $ 16,676,470 New value: $ 13,082,130 Number of Jobs: 200+ Payroll : $6 million+ (est.) Alpla of Iowa, Inc. …and others Tax Increment Financing in Johnson County 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2%9%16%18%21%22%22%31%36%38% Percent of Each Town’s Valuation Captured in TIF PORTION NOT capturing TIF PORTION CAPTURING INCREMENT for TIF Jan. 1, 2017 valuation year; FY 2018/2019 $0 $1 $2 $3 $4 Oxford Lone Tree Swisher Shueyville University Hts Solon Tiffin North Liberty Coralville Iowa City Total Value of Community in Billions Total Town Value, TIF Increment NOT CAPTURING TIF INCREMENT CAPTURING TIF Jan. 1, 2017 valuation year; FY 2018/2019 $0 $1 $2 $3 $4 Iowa City Oxford North Liberty Solon Lone Tree Tiffin Swisher University Hts Coralville Shueyville Total Value of Community in Billions Total Town Value, TIF Increment, NOT CAPTURING TIF INCREMENT CAPTURING TIF Jan. 1, 2017 valuation year; FY 2018/2019 Johnson County’s TIF Pie –who has how much? Oxford , 0.34% Swisher, 1.67% Lone Tree, 2.25% University Hts, 2.23% Shueyville, 2.38% Solon, 4.03% Tiffin , 5.40% Iowa City, 11.29% North Liberty, 21.36% Coralville, 49.06% Jan. 1, 2017 valuation year; FY 2018/2019 TIF in use over time $0 $100,000,000 $200,000,000 $300,000,000 $400,000,000 $500,000,000 $600,000,000 $700,000,000 $800,000,000 20 0 6 20 0 7 20 0 8 20 0 9 20 1 0 20 1 1 20 1 2 20 1 3 20 1 4 20 1 5 20 1 6 20 1 7 Coralville Iowa City Lone Tree North Liberty Oxford Shueyville Solon Swisher Tiffin U Heights Financial Analysis What is the financial gap? Total Project Costs * -Permanent Debt (maximized) -Condo sales (comm or residential) -Equity (sized to a market return) =Financing Gap * Are Project Costs reasonable? Acquisition Cost + Renovation/Construction Cost + Fees (arch/engineer/developer) =Project Cost Are Operating Assumptions reasonable? Gross Rent + Tenant Contributions =Gross Income =Vacancy contingency =Effective Gross Rent -Operating Expenses =Net Operating Income (NOI) -Debt Service 1 -Debt Service 2 =Cash Flow Due diligence: Ensure that all costs, prices, debt, income and expense projections are reasonable. Financial Analysis How Permanent Debt is determined: Lender’s underwriting criteria is influenced by cap rate and applied to projected value using: •Loan to Value Ratio •Debt Coverage Ratio •Capitalization Rate •Interest Rate •Term How Fair Market Value (FMV) is determined FMV =Net Operating Income (NOI) Capitalization Rate Example:NOI =$20,000 =$190,500Cap rate .105 Due diligence: Ensure that developer attracts the maximum loan size possible based on value of project. City will not fill gap where loan can be larger. Due diligence: Ensure that cap rate is reasonable. Use market cap rate as a guide. Cap rate expresses “For every $X of income at Y price, I expect this rate of return” Financial Analysis Finally, are Returns to the Developer Fair? Cash Flow =Money out of a project =Cash Flow (out) Equity invested Money in the project Equity (in) Due diligence: Ensure that returns do not unduly enrich developer. Adjust developer’s debt or equity to control. This measure combines all benefits of owning real estate, including cash flow and taxes and converts to a single rate of return. IRR is the discount rate at which the present value of a stream of income equals the equity investment.