bonds issued by authorities under the city revitalization and improvement zone law

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  1. 1. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com Beyond the Plain Vanilla Bond Issue: Bonds Issued by Authorities Under the City Revitalization and Improvement Zone (CRIZ) Law Timothy J. Horstmann 717.237.5462 thorstmann@mcneeslaw.com
  2. 2. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Origins Originally created by Act 52 of 2013; substantially amended by passage of Act 84 of 2016. Program is administered jointly by the Department of Community and Economic Development (DCED), Department of Revenue, and the Governors Office of the Budget. 72 P.S. 8801-C 2
  3. 3. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Origins Program Focus provide opportunity to spur new growth in cities that have struggled to attract development, helping to revive downtowns and create jobs for the residents in the regions.... DCED Program Guidelines, November 2014 (DCED has not yet revised its Guidelines to reflect the substantial changes made by 2016 Amendment). 3
  4. 4. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Origins Program is similar in purpose to other Commonwealth-run economic development programs but is meant to be an alternative CRIZ zone cannot overlap with numerous state- administered keystone zone and similar programs (e.g., KOZs, KOEZs, KOIZs, KIZs) But no mention in statute of Local Economic Revitalization Tax Assistance Act (LERTA) 4
  5. 5. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Forming a CRIZ Authority CRIZ Authority may be formed by a city, municipality or home rule county. Certain entities are excluded E.g. - A city that is enrolled in Act 47 and located in a home rule county may not form a CRIZ Authority. The home rule county may instead form a CRIZ Authority on the distressed citys behalf. 5
  6. 6. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Forming a CRIZ Authority CRIZ Authority may be a new entity, or municipality may designate an existing entity as the CRIZ Authority Must be formed under Municipality Authorities Act, Third Class County Convention Center Authority Act or the County Code. CRIZ Authority effectively has a life of thirty years, measured from the creation of the CRIZ Zone. 6
  7. 7. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Power and Projects of a CRIZ Authority CRIZ Authority may: o Designate the CRIZ zone o Engage in acquisition, development, construction, including infrastructure and site preparation, reconstruction or renovation of facilities o Engage in public or private financing o Utilize tax revenues for purposes permitted by CRIZ Law 7
  8. 8. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Power and Projects of a CRIZ Authority Facility a structure ... in a zone to be used for commercial, industrial, sports, exhibition, hospitality, conference, retail, community, office, recreational or mixed-use purposes Infrastructure any improvements in or out of the zone primarily related to the development of and required by a facility in the zone o Specifically includes: utilities, water, sewer, storm water, parking, road improvements or telecommunications 8
  9. 9. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Power and Projects of a CRIZ Authority Permitted uses of tax revenues: o Acquisition, development, construction, including related infrastructure and site preparation, reconstruction, renovation or refinancing of all or a part of a facility o Improvement or development of all or part of a zone o Payment of debt service on bonds issued to finance or refinance above o Replenishment of amounts in debt service reserve funds established to pay debt service on bonds 9
  10. 10. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Power and Projects of a CRIZ Authority Permitted uses of tax revenues: o Employment of an independent auditing firm to audit the CRIZ Authoritys list of businesses in the zone o Improvement projects, including fixtures and equipment for a facility owned, in whole or in part, by a public authority o Payment or reimbursement of reasonable administrative, auditing and compliance services (but not professional services); costs may not exceed 5% of tax revenues 10
  11. 11. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Power and Projects of a CRIZ Authority CRIZ Authority also possesses powers granted to it by the law under which it was incorporated. Similarly, its exercise of those powers and the powers granted by the CRIZ Act are limited by that law. Consult incorporating statute before proceeding 11
  12. 12. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Establishment and Approval of the CRIZ Zone CRIZ Zone may not exceed 130 acres, and may include an area in one or more contiguous municipalities. CRIZ Authority must hold at least one public hearing on the plan for designation of the zone, and post name and address of business and property owners in the zone 12
  13. 13. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Establishment and Approval of the CRIZ Zone CRIZ Authority must submit an application to DCED for plan approval, which must include the following: o Map of the proposed zone including parcel numbers o Economic development plan identify facilities, bonds to be issued, etc. o Be specific include infrastructure and site preparation, reconstruction/renovation o DCED may request additional information or outline other requirements 13
  14. 14. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Establishment and Approval of the CRIZ Zone Application must be approved by DCED, Revenue, and Budget While CRIZ Law outlines factors to consider in approving a plan, agencies have discretion in choosing whether to approve. 14
  15. 15. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Establishment and Approval of the CRIZ Zone How Many CRIZ Zones will be approved? o CRIZ Law originally provided only for approval of three CRIZ Zones, which were awarded to Cities of Lancaster and Bethlehem, and Borough of Tamaqua. o 2016 Amendment permits the creation of up to two additional CRIZ Zones in each calendar year, beginning in 2016. 15
  16. 16. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Establishment and Approval of the CRIZ Zone To date, no new zones have been approved May not see new zones until next administration o Wolf Administration recently rejected all applications received under KOZ program on basis of unaffordability and lack of equity in states tax system generally, and similarly announced no new CRIZ Zones as well. o Can Administration refuse to implement new provisions of CRIZ Law using this justification? 16
  17. 17. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Funding a CRIZ Authority CRIZ Law sends tax revenues generated within the zone above baseline to the CRIZ Authority, instead of Harrisburg. Each business within zone must file reports with Department of Revenue and local taxing authority to assist in identifying the amount of revenue to be transferred to CRIZ Authority 17
  18. 18. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Funding a CRIZ Authority What taxes are included? o Corporate net income tax, capital stock and franchise tax, bank shares tax, business privilege tax and personal income tax attributable from pass-through business ownership o Amusement tax o Sales and use tax o Hotel occupancy tax o Personal income tax o Local services tax o Earned income tax o Liquor, wine or malt or brewed beverage taxes 18
  19. 19. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com The CRIZ Law Funding a CRIZ Authority Calculation and Transfer of Revenues o June 15 deadline for businesses to file reports o Department of Revenue and taxing authority calculate the amount of eligible taxes generated by each business within the zone o Calculation is done business-to-business, with no netting 19
  20. 20. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com Why Issue Bonds? Three Possible Scenarios Fund Grants for Economic Development in CRIZ Zone CRIZ Authority borrows money and uses proceeds to fund grants for economic development within the CRIZ Zone. May be paired with a plan to directly return a portion of the zone business share of eligible tax revenues that were received by the CRIZ Authority. 20
  21. 21. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com Why Issue Bonds? Three Possible Scenarios Fund Infrastructure Improvements in CRIZ Zone CRIZ Authority borrows money and uses proceeds to fund needed infrastructure improvements in or out of the zone that are related to zone facilities CRIZ Authority works with local businesses and developers to identify the needed improvements and ensure that improvements complement plans for economic development 21
  22. 22. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com Why Issue Bonds? Three Possible Scenarios Acquire Derelict Properties for Rehab and Reuse CRIZ Authority borrows money and uses proceeds for site acquisition, cleanup, etc. to remove blight and enhance property values CRIZ Authority partners with developers and local businesses to identify problem properties and assist in redevelopment 22
  23. 23. 2017 McNees Wallace & Nurick LLC www.mcneeslaw.com How Does This Work? Structuring a CRIZ Financing Key Considerations in Structuring Transaction Indenture Framework Flow of Funds o Close attention should be paid to flow of funds under the Indenture, to ensure that it matches up with the flow of funds outlined in the CRIZ Law o Debt service payment

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