TIF is not a new, or additional tax imposed by a government entity. Therefore, citizens and property owners are not required to pay any new or additional tax. If the city is the primary public partner, city officials and their consultant will need to determine the annual tax revenue generated by the redevelopment project for each government entity. Using the results of this analysis, city officials should approach each entity receiving tax revenue from the project to negotiate using their respective portion of the property and/or sales tax increment. City officials should then leverage their portion, or all of the annual tax increment to support a TIF-backed revenue bond. Like the non-tax income, the tax increment generated by the TOD can be leveraged to fully support a sizeable revenue bond, which covers all, or a major portion of a TOD and transit-related facilities and improvements. In other words, for many TODs the income realized by the public partner can cover 100 percent of the transit facilities, amenities and improvements, so there is little, or no capital outlay required of the transit agency.
Part 5: Federal Funding Programs
There are a multitude of Federal funding programs available from several agencies. The limitations of this single chapter does not allow a comprehensive listing of funding programs, so the focus will be on programs directly related to TODs. The Federal agencies focused primarily on real estate development include:
- U.S. Department of Housing and Urban Development (HUD)
- U.S. Department of the Treasury
- Federal Housing Administration (FHA)
- Fannie Mae
- Freddie Mac
- Federal Home Loan Bank
- Federal Transit Administration (FTA)
- Direct investment
- Below-market rate subordinate loans
- Grants (direct investment or as additional security for a loan)
- Interest rate buy-downs on third-party loans
- Loan guarantees
- Soft second mortgages
- Credit enhancement
- Tax credit programs
- Program to increase a homebuyer’s purchasing power
Part 6: State and Local Funding Programs
Like Federal funding programs, there are a multitude of state, county and local government funding programs and an enormous number of finance instruments. State and local governments have the power to tax and the ability to issue tax-exempt debt. Under the U.S. Internal Revenue code, the interest payments on most debt issued by state and local governments are exempt from Federal income taxes. Based on this policy, investors accept a lower interest rate on tax-exempt municipal debt than on taxable debt. Debt issued by state and local government entities is categorized by the source of revenue pledged to cover the debt service. General obligation (GO) bonds are backed by the full faith and credit of the issuing government entity, while revenue bonds are backed by the pledge of specific income stream(s) generated by the project. GO bonds are used to finance facilities which are considered essential to a functioning government.
In addition to traditional municipal bonds, state and local governments provide a wide range of financial assistance to finance redevelopment projects or solve the required “gap financing”. At last count there are nearly 30 public/private finance instruments available to state and local partners to finance redevelopment projects. Instruments such as:
- Tax increment financing (TIF)-backed revenue bond
- Certificates of participation (COP)
- Assessment district bonds
- Special tax bonds (supported by the levy of special taxes)
- Lease revenue bonds
- Tax lien bonds
- State infrastructure bank (SIB)
- State revolving loan funds
- Economic development programs
Tax credit programs are increasingly important to private developers, and while the limitations of space in this chapter does not allow a detailed description of the tax credit industry, public and private partners of redevelopment projects should be aware of the four primary federal tax credit programs: 1) historic preservation tax credits, 2) federal brownfield expensing tax credits, 3) new market tax credits (NMTC), and 4) low-income housing tax credits (LIHTC).
Part 8: Transit Station Operating Income
There are at least five types of non-farebox income that transit agencies should attempt to capture in order to enhance cash flow, or solve a financing shortfall. These sources of income other than the farebox include:
- Tenant lease income from support retail space for commuters.
- Income from advertising placed on the exterior and interior of transit stations and commuter parking facilities.
- Income from the shared use of commuter parking facilities.
- Income from naming rights and possibly pouring rights for the entire transit system.
- Interest income from Land Lease Payouts ( a payment based on the Present Value of the land lease payment for land under condominium housing developments).