2018 Annual Redevelopment Law Institute: Financing Parking Garages Using Tax-Exempt Bond Proceeds BY: LILLIAN A. PLATA

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1 2018 Annual Redevelopment Law Institute: Financing Parking Garages Using Tax-Exempt Bond Proceeds BY: LILLIAN A. PLATA

2 Tax-Exempt Bonds Overview What are tax-exempt bonds? Section103 of the Internal Revenue Code of 1986, as amended (the Code ). Benefits Disadvantages What can you finance? Home Rule If there is statutory authority at local level you can finance within limits Can finance a wide range of projects including mixed use commercial projects, housing, parking, schools and infrastructure

3 Tax-Exempt Bonds Examples of Who Can Issue Municipalities Townships, Cities and Boroughs N.J.S.A. 40A:2-1 et seq. Improvement Authorities N.J.S.A. 40:37A-44. et. Seq. Various State Agencies NJ Economic Development Authority NJ Redevelopment Authority NJ Educational Facilities Authority

4 Governmental Bonds vs. PABs Governmental Bonds finance facilities to be owned and used by state or local governments Tax-exempt unless issuer violates other rules (e.g., arbitrage) Private Activity Bonds finance facilities to be used by private parties Taxable except for permitted categories known as Qualified Private Activity Bonds Examples of Qualified Private Activity Bonds Exempt Facility Bonds 26 U.S. Code 142 Qualified 501(c)(3) Bonds 26 U.S. Code 145 Any bond issued by a state or local government is a Governmental Bond unless it is a Private Activity Bond

5 Tax-Exempt Bond Limitations See 26 U.S. Code 141 A Private Activity Bond is a bond that is part of an issue of which: A private business user uses more than 10% of the proceeds and pays more than 10% of the debt service (or $15 million, if less) OR A private loan is made of more than 5% of the proceeds (or $5,000,000, if less) Focus will be on private business use analysis. With revenue deals, once private business use is met, generally private payment/private security is met.

6 Private Business Users Private business users include all of the following: Corporations, partnerships or any other entity engaged in business Exempt organizations (but 26 U.S. Code 145 permits Private Activity Bonds for 501(c)(3) orgs for facilities used in their exempt purposes) Federal government and federal government agencies Natural persons engaged in a trade or business Special rule for partnerships between governments and nongovernmental persons

7 Types of Private Business Use Defined in Treas. Reg (b): Private ownership of the financed facility Lease of the facility to a private business user Nonqualified management contract (Rev Proc ) Nonqualified output contract Nonqualified research contract (Rev Proc ) Joint Ventures Any other comparable special legal entitlement Special economic benefit (in some cases) Focus on Use & Ownership

8 Exception: General Public Use Use as a member of the general public is not Private Business Use Use must be on the same basis as general public Use can be based on rates that are generally applicable and uniformly applied No arrangements for more than 200 days of use (e.g., parking permits)

9 New Allocation & Accounting Rules Treas. Reg published in the Federal Register on October 27, Reasonable, consistently applied accounting method to track private business use and private payments Allocate to project Mixed-use project and qualified equity Project financed with bonds and another source Timing rules for qualified equity Allocate private business use first to qualified equity annually

10 Financing Mixed Use Parking Garage Projects Stockton Atlantic City Campus Redevelopment Project September 2016 Total Tax-Exempt Issue = $78,980,000 Series 2016A Bonds & $48,025,000 Series 2016B Bonds Owned, developed and financed by Devco Financed with Qualified 501(c)(3) Bonds 26 U.S. Code 145 Issuer: Atlantic County Improvement Authority Ownership Requirement 95% Test Capital Expenditures No 26 U.S. Code 146 volume cap allocation needed TEFRA Hearing 2% COI Limit Land acquisition limit 25%

11 Financing Mixed Use Parking Garages Cont.. 5% Private Business Use Limit reduced from 10%. 866 Space Multi-Level Parking Garage 666 to Stockton University & open to the public 200 to South Jersey Gas. Analysis based on total square footage. Retail expected to be less then 5% of the Total Square Footage of the Project: 2.77% and no allocated spaces in garage not provided for with private funds Total Project Square Footage (Garage & Residential) 562,930 Square Feet Total Square Footage of Retail $15,580 Square Feet

12 Other Examples of Mixed Use Parking Projects Financed Tax-Exempt American Dream Project Generally Applicable Taxes Mixed Use Parking Project $2.9 Billion Project financing entertainment, retail, restaurant and indoor amusement park and water park. $1.1 Billion of tax-exempt bonds issued. 100% Privately Used. Initially approximately 32,000 parking spaces. NJCC Open to the Public Approximately 623 space parking garage with recreational facility constructed and financed using a PPP structure. Developer constructing retail, parking garage and recreational facility. Garage & Recreational Facility open to the public. Harrison Commons Hourly Analysis Approximately 1440 space parking garage open 24 hours. Total garage spaces 1440 spaces * 24 hours * 365 days=12,614,400 hours available Hotel: 48 spaces x 24 hours x 365 days= 420,480 hours Retail: 60 spaces x 16 hours x 365 days = 350,400 hours Events at arena: 24 events x 4 hours x 600 cars = 57,600 hours PBU: 828,480 hours PBU calculation: 828,480 hours/12,614,400 available hours=6.56%

13 Working within the Limits of Private Business Use Rules Governmental & Private Use Note: Private Business Use is measured over the life of a Bond Issue. For example: 30 Year Bonds can have no more then 3 years of Private Business Use. Management Contracts Rev Proc Hours of Operations vs Square Footage or Parking Spaces Discrete Portions Separate entrances Private Equity Allocation & Accounting Rules Non exclusive parking space permits Short term contracts Open to the public

14 What to consider when financing a Mixed Use Parking Project with Tax-Exempt Bonds 1. What are the anticipated uses Governmental, Nonprofit or Private? 2. Who will own the various components of the Project? 2. What are the sources of financing? 3. How many parking spaces or what is the square footage? 4. How, if any, will parking permits be administered? 5. Will the parking garage be open for 24 hours? 6. Will there be exclusive space designation? If so, will it be limited to certain hours of the day? 7. Will a management contract work?

15 Tax Reform & Tax-Exempt Bonds Receipt of tax-exempt interest no longer subject to AMT for corporations. No Advance Refundings permitted.

16 For More Information Contact: Lillian A. Plata, Esq., Member 101 Eisenhower Parkway, Suite 101 Roseland, NJ Phone: Fax:

Borough of Roseland PILOT Forum. September 19, 2017

Borough of Roseland PILOT Forum. September 19, 2017 Borough of Roseland 2017 PILOT Forum September 19, 2017 2 PILOT Overview What is a PILOT? A PILOT = payment in lieu of tax Payment property owner makes to the Borough rather than paying conventional real