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Appendix 5: Financing: White Flint Sector Plan Appendix Appendix 5

The document discusses financing options for redevelopment projects, specifically tax increment financing (TIF). It provides background on TIF, noting that TIF allows new property tax revenues generated by development/redevelopment in a designated district to pay off bonds issued to fund improvements in that district. The document discusses the purpose of TIF and how it can help fund redevelopment, particularly of brownfield and grayfield sites. It also outlines some key terms regarding TIF financing, including that TIF bonds are backed by projected tax revenues but not a jurisdiction's full faith and credit. Smaller TIF districts may require higher debt coverage ratios due to greater risk.

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84 views100 pages

Appendix 5: Financing: White Flint Sector Plan Appendix Appendix 5

The document discusses financing options for redevelopment projects, specifically tax increment financing (TIF). It provides background on TIF, noting that TIF allows new property tax revenues generated by development/redevelopment in a designated district to pay off bonds issued to fund improvements in that district. The document discusses the purpose of TIF and how it can help fund redevelopment, particularly of brownfield and grayfield sites. It also outlines some key terms regarding TIF financing, including that TIF bonds are backed by projected tax revenues but not a jurisdiction's full faith and credit. Smaller TIF districts may require higher debt coverage ratios due to greater risk.

Uploaded by

Planning Docs
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Appendix 5: Financing

For more information, contact Jacob.Sesker at [email protected]

Staff presented the following four documents to the Planning Board as part of their worksessions following the
public hearing:

• February 19, 2009 Memorandum


• February 19, 2009 Staff Report
• May 7, 2009 Memorandum
• June 4, 2009 Amendment to May 7, 2009 Memorandum, per Planning Board (Attachment D)

White Flint Sector Plan Appendix Appendix 5 25


February 19, 2009 Memorandum

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February 19, 2009 Staff Report

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May 7, 2009 Memorandum

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June 4 Amendment to May 7, 2009 Memorandum, per Planning Board

ATTACHMENT D: TAX INCREMENT FINANCING (TIF)


Introduction
In a TIF, property tax revenues derived from the increase in assessed val¬ues due to appreciation and/or new
development are used to pay off bonds issued for improvements in the TIF District. At the time the TIF District
is created, a baseline of revenues is established. Some or all of the revenue above that baseline accrues to the
TIF District and is applied to the debt payments.

Purpose of TIF
In the absence of government participation in the development or redevelopment of urban areas, real
estate developers and investors are more willing to invest in simpler, “Green field” sites. In “Green field”
sites land costs are generally lower, redevelopment requires less land assemblage, public facility capacity is
less encumbered by existing development, and infrastructure investments are less likely to involve expensive
retrofits.

Under certain circumstances, TIF can serve as an effective tool for jurisdic¬tions seeking to fund
redevelopment of targeted geographic areas, espe¬cially those that contain “Brownfield” or “Grayfield” sites.
As such, state and local officials in jurisdictions around the nation recognize that TIF can be a valuable tool in
suburban transit-oriented development (TOD) projects as a way of meeting the high costs of retrofitting aging
or obsolete suburban infrastructure.

TIF in Maryland
The Maryland Tax Increment Financing Act authorizes most Maryland coun¬ties and municipalities to use TIF
for the purposes of financing certain develop¬ment/redevelopment projects. See Title 12, Subtitle 2 of the
Economic Development Article of the Maryland Code, Sections 12-201 through 12-213.

In Maryland, authorized local governments may issue TIF bonds for the purpose of financing development
or infrastructure to support development. The first step in that process requires the government to create a
TIF District and a special fund. The TIF bonds issued are then payable from the special fund which holds the
incre¬mental tax payments associated with the TIF District.

TIF Financing Terms


TIF bonds are unsecured, revenue bonds. In their purest form, they are backed by a projection of the District’s
tax revenues. The full faith and credit of a jurisdiction is not necessarily at risk when a TIF bond is issued. As
such, TIF bonds are riskier than general obligation bonds. When underwriters feel that the risk associated with
using TIF is too high, then any of a number of conceptually similar financing tools may be more appropriate.

Recent TIF Districts in Maryland have been “backed” by Special Assessment districts. In these cases, a
Special Assessment District is created that has the same boundaries as the TIF District. In the event that the TIF
District does not meet projected revenues, property owners within the TIF District are assessed a share of the
shortfall.

In order to reduce risk, bond placement agencies often prefer to see TIF Districts that are large and diverse,
thereby reducing the risk of default. Larger districts raise questions as to why the TIF District is so large as to
include areas that receive little benefit from the new development.

Smaller and more narrowly drawn TIF Districts usually require higher debt coverage ratios (i.e. a lower
percentage of net operating income can be used for debt payment because the small TIF district is perceived
to be riskier). For example, a project that will generate an annual tax increment of $1 million might have a
large TIF District boundary and a debt coverage ratio of 1.25 (i.e. $800,000 available each year for principal
and interest); the same project with a more narrowly drawn TIF District boundary might have a debt coverage
ratio of 1.67 (i.e. $600,000 available each year for principal and interest).
124 White Flint Sector Plan Appendix Appendix 5

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