capital financing options for local governments - summer 2014 nclgba conference
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Capital Financing Options for Local Governments - Summer 2014 NCLGBA ConferenceTRANSCRIPT
Funding Capital Projects
Kara A. Millonzi, Associate Professor of Public Law and GovernmentJuly 2014
Financing Options for Purchasing / Constructing Capital AssetsCurrent
RevenuesSavings Grants /
Gifts / Partnerships
Special Levies Borrowing Money
General Fund Revenues
Fund Balance Federal Grants Special Tax Districts
General Obligation (G.O.) Bonds
Enterprise Fund Revenues
Capital Reserve Fund
State Grants Special Assessments
Revenue Bonds
Private Grants Impact Fees / Development
Exactions
Special Obligation (S.O.) Bonds
Private Donations
“CrowdFunding”
InstallmentFinancings
(COPs, LOBs,)(Synthetic TIFs)
Public/Private PartnershipsReimbursement
Agreements
Downtown Development Projects
Project Development
Financings (TIFs)
Savings
Fund Balance (FB)
– Can be used for capital or operating expenses
– No legal limit on amount of FB for savings
• LGC prescribes minimum fund balance level for cash flow purposes
– No statutory process needed
Capital Reserve Fund (CRF)
– Dedicated to capital expenses only (forever), but can change type of capital expense at any time
– No legal limit on amount of $ in CRF
– Statutory process must be followed to create and maintain CRF (see G.S. 159-18 through -22)
CRF Ordinance / Resolution1. The purposes for which the fund is being created.
A board may accumulate moneys for multiple capital projects within a single capital reserve fund, but it must list each project separately.
2. The approximate periods of time during which the moneys will be accumulated for each purpose.
A board must provide a rough estimate of when moneys will be expended from the capital reserve fund for each capital project.
3. The approximate amounts to be accumulated for each purpose.
A board must provide a rough estimate of the total amounts it intends to save for each capital project.
4. The sources from which moneys for each purpose will be derived.
A board must indicate the revenue sources it intends to allocate to the capital reserve fund to finance each project (e.g. property tax proceeds, utility fees, local sales and use tax proceeds, grant proceeds, etc.).
CrowdFunding
Special Levies
Special LeviesSpecial Taxing Districts
(Service Districts)Special Assessments Impact Fees
• Unit may establish one or more taxing districts in the unit and levy additional property taxes in order to fund a project or provide services within the district to a greater extent than in the rest of the unit
• Tax rate assessed on same property tax base as general property tax(es)
• Limited to funding certain projects and services
• Special Assessments are levied against property to pay for public infrastructure that benefits the property
• Lien on property; collected in same way as delinquent property taxes
• Two different special assessment methods
• Limited to funding certain projects
• Impact fees are not authorized under general law in NC
• All units can impose fees/charges to cover capital costs of operating public enterprises
Service (Tax) DistrictsCounties
• Beach erosion control• Fire protection• Recreation• Sewage collection and disposal
systems• Solid waste collection and
disposal systems• Water supply and distribution
systems• Ambulance and rescue• Watershed improvement projects• Cemeteries
Municipalities
• Beach erosion control• Downtown revitalization• Urban-area revitalization• Transit oriented development• Drainage projects• Sewage collection and disposal
systems• Off-street parking facilities• Watershed improvement
projects
Service (Tax) District Process
1. Unit prepares report with map of district; statement that services needed to a greater extent in district; and plan for providing services in proposed district
2. Unit provides notice of report
3. Board holds public hearing
4. Governing board adopts resolution adopting district
5. District becomes effective at beginning of fiscal year
6. Board sets district tax rate each year
7. Unit must begin providing services within one year after levying district tax
Special AssessmentsTraditional Special Assessments
• Limited Statutory Purposes
• Generally No Petition Requirement
• Amount of assessment must be based on one or more statutory bases
• Unit must follow detailed statutory procedures before imposing assessments
• Unit must complete public improvement projects before assessments may be imposed
• Assessments often are paid in up to 10 yearly installments
New Special Assessments
• Expansive Statutory Purposes• Petition Requirement• Assessment method within discretion
of governing board, but must relate to benefit to properties assessed
• Unit must follow detailed statutory procedures before imposing assessments
• Unit may borrow money to front the costs of capital projects and may pledge assessment revenue as security for loans
• Unit may impose assessment before the capital projects are complete, based on estimated costs
• Assessments may be paid in up to 30 yearly installments
• Currently Expires July 2013
Traditional Assessment Projects
Newer Special Assessments
• Allows unit to do public infrastructure projects that benefit new development
• Unit is reimbursed for up to 100% of costs over time
• Payment expected to be made primarily by eventual property owners (not developer)
Town of Hillsborough
• $4.63 million at 7.75% for 10 year term
• Funds will be used to establish parks and open space, construct and improve water, wastewater and drainage facilities, construct and improve streets, roads, and rights-of-way in the assessment district
• Assessments totaled $6.2 million on properties with 210 acre area, with payments over 10.5 years
Special Assessment Process
1. (Government receives petition)2. Unit determines scope and cost of project3. Board adopts preliminary assessment resolution4. Unit publishes notice5. Board holds public hearing6. Board adopts final assessment resolution7. Unit completes project8. Unit prepares preliminary assessment roll9. Unit publishes notice of assessment roll10. Board holds public hearing11. Board confirms assessment roll – assessments become lien
on property assessed
Special Assessments: Basis of Assessment
Traditional Special Assessments
1. Frontage abutting project, equal rate per foot
2. Area of land served, equal rate per unit of area
a. Can establish benefit zones
3. Value added to land (difference between appraised values before and after project), equal rate per dollar of value added
b. Can establish benefit zones
4. Number of lots served if involves extension of existing system to residential or commercial subdivision, equal rate per lot
5. Combination of the above bases
New Special Assessments
• Governing board establishes assessment method that most accurately assesses each lot or parcel of land according to the benefits conferred upon it by the project
Borrowing Money (Issuing Debt)
Borrowing Money (Issuing Debt) Can the borrowing method legally be used to fund project
(state law)?
What is the security for the borrowing (state law)?
What funds will be used to repay the loan (state law)?
Is voter approval required (state law)?
Is Local Government Commission approval required (state law)?
Is the borrowing method feasible (market)?
Is the borrowing method tax exempt (federal law)?
Borrowing Money (Issuing Debt)General
Obligation Bonds
Revenue Bonds
Installment Financings
Synthetic TIFs
Special Obligation
Bonds
Project Development Financings
Security Unlimited taxing power
Revenues from revenue-
producing asset or system
Some or all of financed property
Revenues other than unit-levied
taxes
Taxes on increased
valuation in defined area
Authorized Projects
Most capital projects
Revenue-generating
capital projects
Most capital projects
Solid waste, wastewater,
water, municipal
service district projects only
Specified capital projects
Voter Approval
Usually No No No No
LGC Approval
Always Always Sometimes Always Always
Special Limitations
Net Debt Limitation
Feasibility Studies
Covenants
Net Debt Limitation
Feasibility Studies
Covenants
Enhanced Security
Borrowing Money: G.O. Bonds
• Pledge of “full faith and credit”
• Can fund almost all capital projects
• Voter referendum almost always required
• Local Government Commission approval always required
Borrowing Money: Revenue Bonds• Pledge of revenue from
revenue generating asset or system
• Can only fund revenue-generating capital projects
• Voter approval never required
• Local Government Commission approval always required
• Times-coverage requirement
Borrowing Money: S.O. Bonds• Pledge any unrestricted
revenues except unit-levied taxes
• Can only fund landfills, water/sewer projects, BID projects and urban area revitalization projects
• Voter approval never required
• Local Government Commission approval always required
Borrowing Money: Installment Financings
• Pledge of financed asset
• Can fund almost all capital projects
– Essentiality principle
• Voter approval never required
• Local Government Commission approval sometimes required
Borrowing Money: Installment Financings
Simple Installment Financings
• Unit borrows no more than $10 million (tax-exempt) in calendar year (bank qualified)
• Borrow directly from vendor, bank, or lending institution
• Simple borrowing transaction
Certificates of Participation (COPs) Limited Obligation Bonds (LOBs)
• Unit borrows more than $10 million (tax-exempt) in calendar year
• Sell loan off to investors
• Complicated borrowing transaction
Borrowing Money: TIFs• Pledge of increased property
tax revenue from new private development
• Can fund certain capital projects
• Voter approval never required
• Local Government Commission approval always required
• Enhanced security usually required
• 5% limitation
Valu
ation
Proceeds allocated to pay off TIF bonds
Proceeds allocated to unit’s general fund
Enhanced Security
• Additional pledges– Financed asset
– Revenues other than unit-levied taxes
– Taxing power (if voter approval)
– Special assessments
• Minimum assessed value agreements
Valu
ation
Borrowing Money: Synthetic TIFs
• Installment Financing
• Anticipate using increased property tax revenue from new development to actually repay loan