FINANCING ALTERNATIVES FOR PORT ECONOMIC DEVELOPMENT

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1 FINANCING ALTERNATIVES FOR PORT ECONOMIC DEVELOPMENT Washington Public Ports Association Finance and Administration Seminar June 24-26, 2015 William G. Tonkin

2 INDUSTRIAL AND ECONOMIC DEVELOPMENT Fundamental purpose of ports is industrial and economic development. The use of public funds by port districts in such manner as may be prescribed by the legislature for industrial development shall be deemed a public use for a public purpose. Washington Constitution Article VIII, Section 8. 1

3 INDUSTRIAL AND ECONOMIC DEVELOPMENT It shall be in the public purpose for all port districts to engage in economic development programs. RCW It shall be in the public purpose for all cities to engage in economic development programs. RCW

4 SPECIFIC STATUTORY POWERS Many specific statutory powers of port districts to carry out capital projects for economic development. Develop marine terminals, airports and other facilities to handle cargo and passengers. Acquire and improve property to lease, and sometimes sell, to private industry for industrial and commercial purposes. Build and operate marinas and boat ramps. 3

5 Provide environmental enhancement, protection and public access. Make expenditures as necessary for port properties, facilities and utilities. Establish industrial development districts to acquire and develop marginal lands with buildings and structures for industrial and commercial purposes and sewer and water utilities. 4

6 FINANCING ALTERNATIVES Non-Voted General Obligation Bonds (LTGO) Authorized by chapters and RCW. Voter approval not required. Total outstanding principal not exceed 1/4 th of 1% of value of taxable property within the port. Pledge the full faith, credit and resources of the port for payment. 5

7 Pledge to levy taxes permitted by law without a vote of the voters in amounts sufficient, together with any other funds available and to be used for that purpose, to pay debt service on the bonds. Use proceeds of annual general tax levy of up to $0.45 per $1,000 of assessed value of taxable property within the port. Annual tax collections generally cannot increase by more than 1%, plus tax on new construction. 6

8 Voter-Approved General Obligation Bonds (UTGO Bonds) Authorized by chapters and RCW. Voter approval required: 60% of voters voting on the proposition at an election at which voters voting equal 40% of voters who voted in last general state election. Total outstanding indebtedness not exceed 3/4 th of 1% of value of taxable property within the port. 7

9 Pledge the full faith, credit and resources of the port for payment. Pledge to levy taxes without limitation as to rate or amount sufficient to pay debt service on the bonds. This authority rarely used by ports. 8

10 Industrial Development District Tax Levy Authorized by chapter RCW. Port may create an industrial development district (IDD) within the port for establishing and developing a system of industrial development. May impose a separate property tax on all taxable property within the port at a rate not to exceed $0.45 per $1,000 of assessed value of that property. 9

11 Used to finance capital improvements within the IDD. Voter approval not required for the first six years of the levy. Voter approval required for the second six years of the levy if voter petition signed by at least 8% of the voters is filed with county assessor. May levy in second six years if approved by majority of voters. 10

12 Port Revenue Bonds Authorized by chapters 53.40, and RCW. Bonds payable from net operating revenues of the port paid into a special fund for revenue bond debt service. May pledge port s general revenues, revenues from an enterprise, such as a marina or an airport, or special revenues from a specific facility. 11

13 Revenue bonds are not indebtedness subject to the debt limit that applies to general obligation bonds payable from taxes. Bond authorizing resolution creates special funds, pledges revenues for bond payment, and establishes covenants for the benefit of bond owners, such as reserves and net revenue coverage requirement. Taxes may not be used for debt service, but could be used for operating expenses if operating revenues not sufficient. 12

14 Local Improvement Districts Ports authorized by RCW to use the basic local improvement district (LID) processes that cities use under chapters through RCW to finance public infrastructure improvements. LID bonds payable from assessments against properties within the LID treated as benefiting from the public improvements, which may include the port s own property as well as privately and governmentally owned property within the LID. 13

15 LID bonds are not indebtedness subject to the debt limit that applies to general obligation bonds payable from taxes. May be of limited usefulness as assessment period allowed under port statute not exceed 10 years. 14

16 Various Forms of Tax Increment Financing Legislature has periodically authorized several forms of tax increment financing Community Revitalization Financing (CRF), Local Infrastructure Financing Tool LIFT), and Local Revitalization Financing (LRF). (ch , and RCW, respectively) Basic idea that public infrastructure improvements will spur increases in assessed value of taxable private property and/or increases in sales and use tax revenues derived from a defined area. This incremental increase 15

17 is captured and used to repay debt issued to finance those public improvements. Ports may initiate or participate in the creation of an increment area, a revenue development area, or a revitalization area, respectively. CRF No State contribution; ability to capture property taxes levied by overlapping taxing districts; requires approval of those taxing districts. 16

18 LIFT/LRF Would require State appropriation to fund State contribution; LIFT closed to applications; LRF may be used with DOR approval and agreement with overlapping taxing districts to capture their property and/or sales taxes. Limited (or no) usefulness: o No State appropriation since the initial rounds. o Requires contributions by overlapping taxing districts. 17

19 o If no State contribution and no agreement from overlapping local taxing districts, there is no new revenue created because of levy limitations. For summary, see: greport113-printing.pdf 18

20 Industrial Revenue Bonds Many ports have formed economic development corporations or public corporations under chapter RCW. Corporation is an instrumentality of the port that created it. Corporation may issue conduit revenue bonds that are payable solely from revenues received under a loan or lease agreement with the private business user of industrial development facilities financed with proceeds of the bonds. 19

21 No port funds may be used to pay the bonds. Bonds do not constitute an indebtedness of the port. Bonds are typically used to finance facilities owned by the private business user, such as manufacturing facilities or solid waste disposal facilities. Bonds may be issued as tax-exempt private activity bonds if complex federal tax rules satisfied. 20

22 Washington Economic Development Finance Authority also may issue taxable or tax-exempt conduit revenue bonds to finance economic development facilities on a state-wide basis. 21

23 New Market Tax Credits Under RCW , a port district may participate in the federal new markets tax credit program (NMTC program). E.g., may establish a limited liability company as a qualified community development entity or CDE that makes loans to qualified active low-income community businesses or QALICBs, or establish a QALICB. 22

24 Purpose to spur investment in operating businesses and real estate projects in low-income communities. An individual or corporate investor that makes an equity investment in a CDE receives a federal tax credit equal to 39% of the original investment amount over a 7-year period (5% for each of the first three years and 6% for the remaining four years). The CDE must first receive an allocation from the Community Development Financial Institutions Fund and designate the equity investment for that purpose. 23

25 The qualified low-income community investment includes any capital or equity investment in or loan to any CDE or QALICB. Very complicated. Most structures require borrower to refinance amount borrowed after year 7, when higher interest rates would likely offset the initial subsidy delivered by the NMTC deal. 24

26 Public Offering or Private Placement? 25

27 Tax-Exempt or Taxable? 26