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Home My WebLink AboutTIF intro updated 10.28.2019Tax Increment Financing Update 2019 ▪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? Other, $1.48 Other, $1.23 Iowa City, 15.83 Iowa City, 12.85 Iowa City, 2.98 County, $6.49 County, $4.23 County, $2.26 Schools, $14.79 Schools, $11.61 Schools, $3.18 consolidated levy $38.60/$1000 TIF levy $29.93/$1000 protected debt levy $8.67/$1000 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 Difference = Protected Debt Levy Property tax, protected debt & TIF levies each taxing entity’s request of tax payers: city (~41%), county (~17%), schools (~38%), other. the debt portion of each taxing entity’s request of tax payers continues to flow to taxing entities the portion of the consolidated levy that can be used for TIF projects FY 2020 $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 goes to 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 Foster Rd District (Bold) District projects indented (not bold) Start date End Date Base Value of Project 2019 Assessed Valuation New Value Created in TIF projects District Type Sycamore & First Avenue URA 2000 2020 ED Sycamore Mall/IC Marketplace 2004 2010 $4,662,900 $12,392,400 $7,729,500 Plamor Redevelopment 2006 2011 $972,150 $2,529,210 $1,557,060 Scott Six Industrial Park 2001 2021 ED Owens Brockway 2005 2009 $30,010 $6,903,780 $6,873,770 City-University Project I 2001 n/a*S&B Hieronymous Square Hilton Garden Inn 2015 $417,380 $17,305,550 $16,888,170 Park at 201 2012 $569,520 $11,553,140 $10,983,620 Plaza Towers 2004 2010 $0 $43,282,330 $43,282,330 Sabin Townhomes 2015 $0 $6,649,240 $6,649,240 The Chauncey 2015 $0 $21,752,650 $21,752,650 Vito's building rehab 2011 $813,350 $2,374,060 $1,560,710 Riverside Drive 2013 2025 S&B Riverside West 2015 2027 $1,326,840 $15,567,410 $14,240,570 Northgate Corporate Park 2002 2022 ED Seabury & Smith 2005 2011 $264,520 $ 8,620,470 $8,355,950 Heinz Road 2002 2022 ED Alpla of Iowa (agreement #1)2003 2010 $3,594,340 Alpla of Iowa (agreement #2)2007 2014 $15,664,760 $12,070,420 United Natural Foods Inc.2003 2011 $4,653,740 $10,542,570 $5,888,830 Hwy 6 Commercial URA 2003 2023 ED Southgate Development (Pepperwood)2003 2013 $8,677,520 $13,323,470 $4,645,950 Towncrest URA 2010 n/a*S&B MDK Medical Office Building 2012 $885,880 $2,838,170 $1,952,290 $26,868,150 $191,299,210 $164,431,060 New Value created by TIF projects = $164 Million 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 : $6 million+ (est.) Alpla of Iowa, Inc. Base value:$ 4,653,740 2015 value: $ 11,715,050 New value: $ 7,061,310 Number of Jobs: 249 Payroll : $ 8 million (est.) United Natural Foods, Inc. …and others Tax Increment Financing in Johnson County 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 3%5%15%16%20%21%21%23% 37%39% Percent of Each Town’s Valuation Captured in TIF PORTION NOT capturing TIF PORTION CAPTURING INCREMENT for TIF Jan. 1, 2018 valuation year; FY 2019/2020 $0 $2 $4 Oxford Lone Tree Shueyville Swisher 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, 2018 valuation year; FY 2019/2020 $0 $2 $4 Iowa City Swisher Oxford North Liberty Solon Lone Tree Tiffin University Hts Coralville Shueyville Total Value of Community in Billions Total Town Value, TIF Increment, NOT CAPTURING TIF INCREMENT CAPTURING TIF Jan. 1, 2018 valuation year; FY 2019/2020 Johnson County’s TIF Pie –who has how much? Swisher, 0.3% Oxford , 0.5% Lone Tree, 2.1% Shueyville, 2.3% University Hts, 2.5% Solon, 3.4% Tiffin , 5.2% Iowa City, 13.5% North Liberty, 21.1% Coralville, 49.2% Jan. 1, 2018 valuation year; FY 2019/2020 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 20 1 8 Coralville Iowa City Lone Tree North Liberty Oxford Shueyville Solon Swisher Tiffin U Heights Other, $1.48 Other, $1.23 Other, $1.23 $143,461 Iowa City, 15.83 Iowa City, 12.85 Iowa City, 12.85 $1,494,475 County, $6.49 County, $4.23 County, $4.23 $492,161 Schools, $14.79 Schools, $11.61 Schools, $6.21 $721,924 State backfill to schools, $5.40 $627,804 consolidated levy $38.60/$1000 TIF levy $29.93/$1000 tif levy after state backfill dollar amount totals $3,479,827 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 This difference is the protected debt levy and continues to flow to the City, County and ICCSD FY 2020 $115,175,596 Increment value/1000 x TIF levy of $29.62 = $3,479,827 diverted* Taxes on TIF projects in Iowa City Developers Pay all property taxes Which are then used for projects * approximation for simplicity, includes extra $2/$1000 in SSMID district Other, $1.57 Other, $1.34 Other, $1.34 $563,777 Coralville, 13.53 Coralville, 11.41 Coralville, 11.41 $4,801,760 County, $6.49 County, $4.29 County, $4.29 $1,807,465 Schools, $14.79 Schools, $11.15 Schools, $5.75 $2,419,577 State backfill to schools, $5.40 $2,273,022 consolidated levy $36.37/$1000 TIF levy $28.20/$1000 tif levy after state backfill dollar amount totals $11,865,603 $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 This difference is the protected debt levy FY 2020 $419.672,964 Increment value/1000 x TIF levy of $28.20 = $11,865,603 diverted* Taxes on TIF projects in Coralville Developers Pay all property taxes Which are then used for projects * approximation for simplicity, uses only ICCSD levy rate on increment value $4,801,760 $1,494,475 $1,807,465 $492,161 $2,419,577 $721,924 $2,273,022 $627,804 $- $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 $12,000,000 $14,000,000 Coralville $11,865,603 Iowa City $3,479,827 State backfill to schools Schools County City Other TIF dollars diverted FY 2020 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.