HomeMy WebLinkAboutItem A: Downtown Development Financial Tools
ECC
UGENE ITY OUNCIL
AIS
GENDA TEM UMMARY
Work Session: Downtown Development Financial Tools
Meeting Date: April 25, 2007 Agenda Item Number: A
Department: Central Services Staff Contact: Sue Cutsogeorge
www.eugene-or.gov Contact Telephone Number: 682-5589
ISSUE STATEMENT
This is an informational work session addressing the potential use of financial tools to encourage
downtown development efforts. The Agenda Item Summary (AIS) provides information on the types of
tools available and offers two hypothetical case studies to illustrate their use. No action is required of
the council at this work session.
BACKGROUND
Downtown provides the primary identity and one of the main economic drivers for the city. A diverse,
densely developed, economically healthy downtown benefits the entire community. The council has
repeatedly expressed its commitment to making downtown Eugene more attractive and vibrant for
business, cultural activities, residents and visitors. The Downtown Plan, adopted by the council in April
2004, includes the following policy: Use downtown development tools and incentives to encourage
development that provides character and density downtown. Other policies in the Downtown Plan
encourage public-private partnerships, the creation of active places, increased employment, greater density
of development, and housing opportunities. Implementation of the policies reinforce downtown’s role as
the community’s center for culture, commerce, and urban life.
Typically, downtown development is more costly and carries greater risk than development in other
areas of the city. Several factors contribute to the increased cost of developing downtown, including
cost of land and land consolidation, multi-story development requirements, parking, environmental
conditions, and construction staging. Currently, the lease rates possible in the downtown market are not
high enough to overcome the increased costs.
The use of public funds can help address the higher cost of downtown development. The need for
public assistance is determined through the analysis of project financial pro forma. Not every project
requires the use of public funds or development assistance. For downtown development, however, the
use of public tools is often the critical determining factor of project realization.
Financial Tools for Downtown Development
There are several financial tools that may be used to create a downtown development financing plan.
The attached memo from Community Development Division Manager Mike Sullivan describes these
tools in detail. Briefly, the tools are:
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Urban renewal/tax increment financing
?
Brownfields Economic Development Initiative Grant (with HUD Section 108 Loan)
?
Tax exemptions
?
Multi-Unit Property Tax Exemption
o
Downtown Eugene Vertical Housing Development Zone
o
Downtown Revitalization Loan Program
?
Affordable housing assistance
?
Low-income housing tax credits (State administered)
o
Other potential tools for downtown: systems development charge waivers, property tax
o
exemption, and Homeownership Assistance Program
City’s General Fund/Full Faith and Credit Pledge
?
Assessments/local improvement districts/business improvement districts
?
Business Development Fund
?
Development Tools for Downtown Development
These financial tools may be used in different ways to create a development financing package. The
typical methods that these financial resources are used to create a development financing package are
referred to in this discussion as development tools. Briefly, they are:
Land assembly (direct purchase or purchase of options, preparation of the land for development,
?
and/or sale of the land to developers at a reduced price)
Public parking
?
Public infrastructure - such as utility relocations and upgrades or transportation improvements
?
Direct investment – provide a payment to the developer to reduce the overall cost of the project
?
Financial Risk Mitigation Measures
Development activities can carry a degree of financial risk that is higher than other types of governmental
activities. When creating a development finance package, the City may build in various kinds of financial
risk mitigation measures. These measures can provide assurances that the development activities meet
certain goals, such as the size and nature of development, job creation levels, property value increases, and
amount of affordable housing with specific income level targets. They can also provide assurance that any
debt obligations have protections against defaults. These mitigation measures may include items such as:
Withholding key resources until the project is complete, such as turnkey purchase
?
Providing City funds last into a project (after the developer equity is contributed)
?
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Developer guarantees of tax revenue to the government
?
“Clawback” provisions in the development agreement to allow for the repayment of funds from
?
the private developer if certain conditions are not met
Debt protection measures, such as holding a debt service reserve fund and including a debt
?
coverage ratio to ensure there is a cushion against revenue shortfalls
Hypothetical Examples for a West Broadway Development Project
Attachment B includes a description of two hypothetical examples for a West Broadway development
These are hypothetical examples only and do not
project: a large-scale and a small-scale development.
represent actual figures for or agreements made with any particular developer or proposal.
The
information below is only a summary. For more details, please refer to Attachment B.
Large-Scale Development:
A hypothetical large-scale development is a project of about $185 million,
with a City investment of about $22 million (12% of the total project) and a private investment of about
$163 million (88% of the total project). The development would generate about $400,000 in
incremental taxes in the first year. Upon expiration of a Multi-Unit Property Tax Exemption, the project
would generate an additional $800,000 per year.
The Downtown District has the resources to provide all of the funding for the City’s investment with
existing tax increment revenues and cash balances. This is one way that the financial risk is mitigated,
because the financing plan does not rely on borrowing against incremental tax revenues that have not yet
been realized. Other financial risk mitigation measures would be built into the borrowing plans, such as
maintenance of a debt service reserve account and a sufficient debt coverage ratio.
Future tax revenues from this project could be used for future development projects in the district. Even
after the $22 million expenditure, the district could continue to provide assistance to other projects
during its remaining life through the loan program and through the incremental tax revenues provided by
the large-scale development and any other new development that occurs within the district.
In order to engage in the large-scale development, the City would have to amend the Downtown District
urban renewal plan to increase the spending limit (“maximum indebtedness”, as described in Attachment
A). It is also assumed that the district’s termination date is extended to June 2030.
Attachment C includes a yearly forecast of the Downtown District’s finances under the hypothetical
large-scale development.
Small-Scale Development:
A hypothetical small-scale development is a project of about $20 million,
with a City investment of about $2 million (10% of the total project) and a private investment of about
$18 million (90% of the total project). The development would generate about $150,000 in incremental
taxes per year.
The Downtown District has the resources to provide the funding for the City’s investment using existing
cash balances. There would be no borrowing required for this development. The Urban Renewal
Agency (URA) could accommodate this project within the existing urban renewal plan, without
undertaking an amendment.
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RELATED CITY POLICIES
There are a number of financial policies that would guide creation of an economic development finance
plan, including the City’s debt policies.
COUNCIL OPTIONS
None. No action is required for this informational work session.
CITY MANAGER’S RECOMMENDATION
None.
SUGGESTED MOTION
None.
ATTACHMENTS
A.Memorandum from Mike Sullivan on downtown development tools
B.Hypothetical examples of a West Broadway development project
C.Downtown Urban Renewal District forecast, assuming large-scale development, FY08 through
FY30
FOR MORE INFORMATION
Finance Contact: Sue Cutsogeorge, Financial Analysis Manager
Telephone: 682-5589
Staff E-Mail: Sue.L.Cutsogeorge@ci.eugene.or.us
Development Contact: Denny Braud, Senior Development Analyst
Telephone: 682-5536
Staff E-Mail: Denny.Braud@ci.eugene.or.us
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Planning & Development
Community Development
City of Eugene
th
99 W. 10 Avenue
Eugene, Oregon 97401
(541) 682-5443
(541) 682-5572 FAX
www.eugene-or.gov
M
EMORANDUM
Date:
April 12, 2007
To:
Mayor Piercy and City Council
From:
Mike Sullivan, Community Development Division Manager
Subject:DOWNTOWN DEVELOPMENT TOOLS
At recent work sessions, City Councilors have asked for additional information regarding available
resources and how those resources might be used to support downtown development. The memo
includes the following sections:
1.Financing Tools
2.Development Tools
3.Examples from other communities
Each of the City’s specific tools is described below with a summation box, detailed narrative
explanation, and an example of a downtown Eugene project. Financing tools are sources of funds.
The most significant source of funds available is urban renewal.Other financial tools include the
Brownfield Economic Development Initiative (BEDI) and Section 108 Loan Guarantee, property
tax exemptions (Multi-Unit Property Tax Exemption, Vertical Housing Development Zone), the
Downtown Revitalization Loan Program, affordable housing assistance, the City’s general fund,
improvement districts, and the Business Development Fund. In comparison, development tools are
uses of funds that support public/private partnerships, but generally not sources of funds on their
own. Land assembly, public parking, public infrastructure, and direct investment are examples of
development tools.
The structure and type of downtown development tools vary by community.Detailed case studies
on projects in other communities are included in Attachment D. A summary of individual projects,
overall cost and results, and the ratio of public to private dollars are included for each example.
Please contact me by phone (682-5448) or via email (mike.c.sullivan@ci.eugene.or.us) if you have
questions or need further information.
Page 1 of 13
1. FINANCING TOOLS
A. Urban Renewal
Urban Renewal Summary
Currently, $4.6 million is left under the spending limit (“maximum indebtedness”)
$13 million debt capacity at current level of revenue (given remaining life of district,
required debt coverage ratio, & project interest rate)
Debt capacity is greater than what is permitted to be spent under the current maximum
indebtedness cap
Substantial plan amendment needed to increase spending limit (enter into obligation
> $4.6 million) or expand boundary (>1%)
100 + day process
o
Review by ERAC, URA, & CC;
Public notice & public hearing;
URA approval & CC ordinance
$19.5 million available as potential development resources, assuming a plan
amendment (increase maximum indebtedness, same district term, same boundary)
Funds must be spent within the boundaries for projects listed in the plan
Any expenditure over $250,000 (other than loans) must be explicitly approved by the
URA Board
Annual tax increment revenue is currently about $3.8 million. However, the district
will lose the “special levy” in the next couple of years, resulting in about a 50%
decrease in annual revenues
16 more years in life of district (FY24)
No current outstanding bonded debt
Lenders require:
debt coverage ratio of 1.5; and
o
debt service reserve = annual debt service OR 10% of borrowing
o
If additional funds are required, projected incremental tax revenue from a new
development could potentially be used in the calculation of debt capacity. This is
more risky from a financial standpoint and would:
increase the debt coverage ratio or interest rate; OR
o
require the City’s general resources as guarantee (full faith and credit)
o
Urban Renewal is a means to support economic development and civic improvement by encouraging private
development and financing needed public improvements such as infrastructure, open spaces, public plazas,
parking garages or environmental improvements, within designated districts. The City of Eugene Urban
Renewal Agency (URA) is a separate budgetary entity authorized by state statutes. City Council acts as the
Renewal Agency Board and delegates budget review to the City’s Budget Committee. The URA oversees
two urban renewal districts – the Central Eugene Project (also known as the Downtown District) and the
Riverfront District. Each district has its own URA adopted plan. Below is an explanation of available funds,
spending limit (maximum indebtedness), the plan amendment process, current and future obligations, access
to future revenue, and an example of a previous Urban Renewal project. (See Attachment A “Downtown
Urban Renewal District and Tax Increment Financing” for more information.)
Available Amounts for Development Projects: The Downtown District currently has an expenditure limit of
approximately $4.6 million under the “maximum indebtedness” cap. The District Plan could be amended to
increase the spending limit; based on current District revenues, the District would have approximately $13
Page 2 of 13
million in borrowing capacity. Taken together with available cash, the total available resources is
approximately $19.5 million (see charts below for potential and current capacity). (A further explanation of
assumptions follows the chart and an explanation of the Downtown Loan Funds is on Page 7.)
Summary: Current Capacity of the Downtown Urban Renewal District
Approximate for FY08
Balance Available (unrestricted cash) $ 4.3 million
Additional Spending Capacity 0.2 million
Downtown Loan Funds 2.2 million
Total Amount Available $ 6.7 million
Summary: Potential Capacity of the Downtown Urban Renewal District
Approximate for FY08
Balance Available (uncommitted cash) $ 4.3 million
Borrowing Capacity – assuming plan amendment & repayment over 16 years 13.0 million
Downtown Loan Funds 2.2 million
Total Amount Available $19.5 million
Downtown District “Maximum Indebtedness”: Oregon Statutes require each district that receives property
taxes to include a “maximum indebtedness” limit in their urban renewal plans. The Downtown District
amended its plan in 1998 to include a maximum indebtedness limit of $33 million. “Maximum
indebtedness” is not a legal debt limit, but more accurately described as a spending limit. Certain
expenditures of the district are included in the “maximum indebtedness” calculation and certain expenditures
are excluded. For instance, interest on debt and downtown loan funds are excluded from the calculation, but
administrative expenses or direct cash payments for projects are included in the calculation.
There is about $4.6 million remaining under the $33 million limit in the Downtown District. It is currently
projected that the district will have collected sufficient tax revenues to fund the $33 million spending limit in
FY09. For the district to enter into obligations that exceed the current limit (~ $4.6 million), a “substantial
amendment” to the district’s plan would be needed. The process is determined by Oregon Statute and the
district’s plan. City-wide notice is required for:
Changes in the maximum indebtedness; and
Expansion of the district boundaries by more than 1%
The time necessary to complete the process for this type of special amendment is approximately 100 days.
The major steps are:
Eugene Redevelopment Advisory Committee (ERAC) may meet to discuss the proposed plan
amendments and make a recommendation to the City Council
City Council meets to initiate plan amendments
URA submits plan amendments and report on the plan to taxing bodies affected by the district for
review and comment
City sends out special City-wide notice
URA meets to receive the revised plan and report on the plan
City Council holds a public hearing on the plan amendment ordinance
City Council meets to approve ordinance amending the plan
Page 3 of 13
Current Debt Obligations: The URA does not currently have bonds outstanding. The Downtown District has
an obligation through an Intergovernmental Agreement to pay the City an amount equal to the principal and
interest payments on the debt issued to fund the new library construction project.
Future Debt Obligations: Once the Downtown District plan is amended, it would be possible for the district
to enter into obligations of greater than the $4.6 million allowed under the current “maximum indebtedness”
figure. As tax increment revenues are less predictable than the City’s general property tax revenues, urban
renewal borrowings are considered more risky than general City borrowings. Because of this, lenders
typically require a “debt coverage” ratio of about 1.5 times and a debt service reserve to protect against
fluctuations in tax increment revenues. A debt service reserve fund is generally required in an amount that is
equal to either the maximum annual debt service amount or 10% of the borrowing amount.
Adebt coverage ratio is the ratio of revenues to debt payments. For instance, the Downtown District has
division of tax revenues of about $1.8 million per year. Using the current “division of tax” revenues of $1.8
million and a 1.5 times debt coverage ratio, lenders would limit the amount of any debt repayment to about
$1.2 million annually, which would leave a 50% margin for property tax revenue fluctuations. This 50%
margin could be used for district administrative activities and/or for other district projects paid on a cash
basis.
The Downtown District is scheduled to terminate in FY24. If the district entered into a new debt obligation
(after substantially amending the plan) in FY08, that would leave 16 years for a debt obligation to be repaid.
Assuming a 16 year repayment schedule, a 1.5 times debt coverage ratio, and a projected interest rate for
next fiscal year, the Downtown District would have a debt capacity of approximately $13 million.
Future Revenue – When development occurs in an urban renewal district, additional debt capacity is created
for future projects. Lenders are typically less willing to lend money based on incremental tax revenues that
have not yet been received by a district. For instance, if a district enters into a development agreement for a
large new project that is expected to take several years to generate incremental property taxes, lenders would
want to base the borrowing capacity on the existing tax revenues only. The lenders do not include a factor
for the new incremental revenues until the district begins to receive those revenues. It might be possible to
negotiate with lenders to include a small factor for future incremental property taxes in the debt capacity
calculations. The future revenues are considered more risky and would lead to more conservative terms.
Lenders might, for instance, require a higher debt coverage ratio, lend at a higher interest rate, or require
additional security such as a full faith and credit guarantee of the City.
Example: Eugene Public Library
The Urban Renewal Agency and the City entered into an Intergovernmental Agreement that committed the
Agency to make the debt service payments on $18.5 million of City debt obligations for the library and to
provide additional cash contributions to the project, if excess urban renewal revenues are available in future
years. The resolution authorizing the City Manager to sign the Intergovernmental Agreement was approved
by the Council and the Agency on February 28, 2000, along with the resolution authorizing issuance of the
debt obligations. On April 27, 2000, the City issued $18.5 million of debt that was to be repaid from Agency
resources. The debt was to be repaid in annual amounts of about $2.5 million and the final maturity is on
December 1, 2009. The City pledged its full faith and credit to repay these bonds, but that pledge has not
been used because tax increment revenues have been sufficient to make the debt payments.
Page 4 of 13
B. Brownfields Economic Development Initiative Grant (with HUD Section 108 Loan)
BEDI / Section 108 Summary
$2 million BEDI grant awarded to the City in 2006
$7.95 million Section 108 loan received initial approval from HUD
Council approved ordinance authorizing Section 108 borrowing program in February
Individual project approval process:
Public hearing at City Council
o
Council approval (resolution)
o
HUD approval
o
Project must meet HUD national objective
Benefit low/mod income through job creation
o
Eliminate conditions of slums and blight
o
Projects must be in Downtown or Riverfront urban renewal districts
Section 108 funds must be repaid to HUD
Primary collateral and debt service for Section 108 borrowing would be urban
renewal. Secondary collateral must also include the City’s pledge of future CDBG
funds
City general fund may not be used as collateral
The City was awarded a $2 million BEDI grant to assist redevelopment projects within the City's Downtown
Urban Renewal and Riverfront Urban Renewal Districts. BEDI funds must be used in conjunction with a
Section 108 guaranteed loan. The US Department of Housing and Urban Development (HUD) administers
the BEDI as a key competitive grant program to stimulate and promote economic and community
development. BEDI is designed to assist cities with the redevelopment of abandoned, idle, and underused
industrial and commercial facilities where expansion and redevelopment is burdened by real or potential
environmental contamination. BEDI grant funds are targeted for use in the redevelopment of brownfield sites
in economic development projects to increase economic opportunities for low- and moderate-income persons
as part of the creation or retention of jobs and to eliminate conditions of slums and blight.
Section 108 is the loan guarantee provision of the federal Community Development Block Grant (CDBG)
program. Section 108 allows cities to borrow up to five times their annual CDBG allocation; thereby,
providing communities with a source of financing to support large-scale economic development, housing
rehabilitation, and public facility projects. In March 2006, the City submitted a $7,895,000 Section 108
application that HUD later approved. Section 108 funds will be combined with BEDI funds to create a loan
fund for redevelopment projects within the two urban renewal districts that will make positive economic and
community development benefits.
Council authorized the use of the Section 108 loan program in an ordinance in February. To draw down
Section 108/BEDI funds, the specific project funding request is subject to a HUD public comment process,
and a public hearing is required, followed by City Council and HUD approval.
Projects that receive Section 108/BEDI funds must 1) meet a CDBG national objective of benefiting low or
moderate income persons or eliminating conditions of slums or blight, 2) lead to economic revitalization in
connection with brownfields, 3) be financially feasible, 4) be within reasonable risk, 5) be likely to be repaid,
and 6) provide permanent, full-time employment for low and moderate income individuals.
Example: No previous use in Eugene.
Page 5 of 13
C. Tax Exemptions
Tax exemptions differ from other types of financial tools because they do not represent a direct expenditure
by the City to another party for a development purpose. Instead, they represent foregone tax revenue. The
theory behind the tax exemption is that the development would not have occurred “but for” the granting of
the exemption. If the project would not have occurred without the exemption, then the tax revenue would
not have ever been received.
Multi-Unit Property Tax Exemption (MUPTE):
MUPTE Summary
10 year property tax exemption on core-area housing investment in 5 or more units
Council approves each exemption
MUPTE is enabled under state law for the purposes of stimulating the construction of multi-unit housing in
the core area, and to ensure use of the core area as a place where citizens have the opportunity to live as well
as work. The MUPTE program offers tax exemptions for the construction, addition, or conversion of rental
or ownership multi-unit housing within the MUPTE boundary (see Attachment B “MUPTE Boundary”).
The exemption is granted on the new investment for a maximum of 10 years. (Land and non-housing value
of the project is not included in the exemption). Projects must include a minimum of five new housing units.
Tax exemption requests are reviewed and approved by council.
Example: The Tate Condominiums
The Tate Condominiums received a MUPTE in 2004 for new construction of 47 units. The annual tax
exemption (to be granted to condo owners) in 2006 is estimated at $285,000, and is estimated to total $3.2
million over the ten year period.
Downtown Eugene Vertical Housing Development Zone:
Vertical Housing Development Zone Summary
Mixed-Use (ground level commercial and 1 or more levels of housing)
20% tax exemption per housing floor; 80% maximum
10 year property tax exemption
Established under state law in 2001, vertical housing development zones encourage dense "mixed-use"
development and redevelopment in urban cores. Specifically, an eligible project consists of ground-level
commercial with one or more upper floors of residential housing that has been newly constructed,
reconstructed or rehabilitated. The Downtown Eugene Vertical Housing Development Zone was established
in 2003 and matches the Downtown Plan boundary (see Attachment C “Vertical Housing Development Zone
Boundary”).
The program offers a 10-year property tax exemption on the new structure, or incremental change in the
property value of the building that comprises the project. The program grants a tax exemption of 20% for
each floor of housing that is incorporated above ground floor commercial, with a maximum tax exemption of
80% for any single project. Tax exemption requests are reviewed and approved by the State of Oregon. To
date, there have been no projects approved in Eugene’s zone. The exemption is effective upon initial
occupancy or re-occupancy and does not require council approval.
Example:A $25 million 3-story building, with 2-levels of housing would receive a 40% property tax
exemption (20% for each floor of housing). Overall, the total annual property tax exemption would be
approximately $100,000 and be $1 million over the 10 year period
Page 6 of 13
D. Downtown Revitalization Loan Program (DRLP)
Downtown Revitalization Loan Program Summary
Available funds FY08: $2.2 million
Building improvements within Downtown Urban Renewal District
Below market interest rate
Matched with private financing
The DRLP is a revolving loan program funded through Urban Renewal District program revenue. The FY08
budget will include approximately $2.2 million available for DRLP loans, with approximately $72,000 in
principal and interest repayments forecasted in FY08. Available to businesses and property owners located
within the Downtown Urban Renewal District, the DRLP is a flexible financing program designed to
encourage investments within the Downtown District that contribute to the economic vibrancy and density
goals for downtown. The primary goal of the DRLP is to provide funding assistance to projects that meet the
goals and objectives of the Urban Renewal Plan for Central Eugene Project and the Eugene Downtown Plan.
The program is also designed to be responsive to unique redevelopment opportunities, specific downtown
redevelopment challenges, and specific individual project financing needs.
The DRLP aims to encourage private, non-profit, and mixed-use development and public/private
partnerships in overcoming issues with a low loan to value ratio, insufficient cash flow, and extraordinary
project specific costs. The DRLP provides project financing typically between 25% and 50% of total eligible
project costs. Eligible projects include building rehabilitation, façade improvements, tenant improvements,
awnings, historic preservation, and accessibility improvements. Remaining project financing is provided by
private sources. Loan amounts are generally between $10,000 and $500,000.
The URA currently has $573,000 of outstanding loans under the DRLP. The revolving nature of the program
means that it is self-financing. As new loans are made, the payments on the loans are then returned to the
loan pool and loaned out for new projects. Loans are approved by the City Manager.
Example:One East Broadway
In 2004, One East Broadway (northeast corner of Willamette and Broadway with Ovessi Rugs at street level)
received a $288,000 DRLP loan for the rehabilitation of the commercial building. DRLP funds were
matched with $832,000 in private financing and $112,000 in owners’ equity. The ground floor at One East
Broadway had been vacant or underutilized for many years prior to the redevelopment. In 2006, Kazem
Oveissi & Rowell Brokaw Architects received Downtown Excellence Award for Leadership and Vision for
their new investment in the building.
Examples of other downtown projects that have been assisted by DRLP funds include Adam’s Place,
Downtown English, Harlequin Beads & Jewelry, The Shedd, Bradford’s Hi-Fidelity, Fenton & Lee, Rouge
River Brewing Company, The Strand, Downtown Athletic Club, Full City Coffee Roasters, Saturday Market,
and Tiffany Building.
E. Affordable Housing Tools
Affordable Housing Summary
Low-Income Housing Tax Credits
State administered
o
Equity for mixed-income or entirely affordable projects
o
Other potential tools for downtown: SDC Waivers, Property Tax Exemption, and
Homeownership Assistance Program
Page 7 of 13
The City has developed a set of tools to invest in the development of affordable rental and ownership
housing that is affordable to low-income households. The tools are typically used in combination with one
another and with other subsidies allocated at the state level to make up the difference between development
costs and the rents paid by low-income residents. The typical affordable rental housing development uses
between 10 and 15 sources of funding to cover all necessary costs. The majority of the affordable housing
resources may not be applicable to the development along West Broadway with the largest exception being
the use of Low-Income Housing Tax Credits. Low Income Housing Tax Credits support the investment in
affordable housing by providing equity for mixed-income or entirely affordable projects. The Federal
program is administered by the State of Oregon.
Several other City affordable housing tools and incentives that could potentially benefit a downtown
development would include Systems Development Charge (SDC) Waivers, the Low-Income Rental Housing
Property Tax Exemption Program, and the Homeownership Assistance Program.
Example: WestTown on 8th
th
WestTown on 8, currently under construction by Metropolitan Affordable Housing Corporation, will offer
102 housing units affordable to persons at 60% of AMI or below and nine market rate live-work units. Tools
used for the project include:
Low-Income Housing Tax Credits
CDBG funds through City’s Landbanking program for the site – (valued at $570,000 in 2004)
$1,025,000 federal HOME Housing Development grant
$222,000 Eugene System Development Charge Waivers
20 year Low-Income Rental Housing Property Tax Exemption
$300,000 short-term low interest loan from the City – Housing Capital Project Fund and the Low-
Income Housing Fund (generated through MUTPE fee payments).
Other project subsidies for WestTown are provided by the Eugene Water and Electric Board and Lane
County.
F. City’s General Fund / Full Faith & Credit Pledge
General Fund / Full Faith & Credit Pledge Summary
Contribution to project from City’s general resources
Provide security to bondholders for borrowings, with debt payments made from a
particular revenue source, and ultimate back-stop by the City’s general resources
Guarantee urban renewal financing on an interim period prior to receipt of incremental
revenues
The City’s General Fund resources and its full faith & credit pledge may also be used to assist with
downtown development projects. General Fund resources are unrestricted and may be used for any public
purpose. General Fund resources, however, are subject to significant competition from the City’s other
services and programs. The City’s full faith and credit pledge may be used to provide security for
borrowings that are repaid from other sources, such as building rental revenues, parking revenues or urban
renewal tax increment revenues. The City’s pledge for such borrowings results in access to the public capital
markets and a lower interest rate for those borrowings that might not otherwise be available.
Examples: Broadway Place Garages, Atrium Building, Eugene Public Library
The City has used its full faith & credit pledge to secure downtown development project financing in the
past. The Broadway Place Garages were financed with the City’s full faith and credit obligations that are
repaid from parking system revenues. The Atrium building was purchased with City full faith and credit
Page 8 of 13
obligations that are paid from Atrium building rentals. The Eugene Public Library was partially financed
with City full faith and credit obligations that are paid from tax increment revenues.
G. Assessments / Local Improvement Districts / Business Improvement Districts
Assessments / Improvement / Business Districts Summary
For transportation / utility projects
Property owners may elect to finance over 10 years through City
Assessments and improvement districts can be used for infrastructure improvements, such as transportation
or utility projects. Assessments and improvement districts spread the cost of the project among those that
benefit. Property owners contribute to the cost of the project through assessments. For local improvement
districts, property owners may finance their obligations through the City over a 10-year period.
Example: No recent downtown example.
H. Business Development Fund (BDF)
Business Development Fund Summary
Available funds FY08: dependent on ongoing loan activity
Below market interest rate
Matched with private financing
Eligible projects must create new jobs
The BDF provides assistance to new and existing businesses through the federal Community Development
Block Grant program. Established to create jobs and stimulate private sector investment, the BDF could
assist local tenants start up or relocation to a downtown project. The BDF is a self-sustaining revolving loan
fund that was started 21 years ago. Funds are available to new and existing businesses within Eugene.
While businesses that receive BDF loans must create or retain one full time permanent job for every $35,000
in loan funds, companies have typically exceeded this minimum. Loan amounts can range from $10,000 to
$500,000 and are generally between $75,000 and $150,000. The BDF can provide up to 50% of project
financing. Remaining project financing is provided by private sources. Projects with greater needs may be
eligible for the Emerging Business Loan Pool (EBLP), a program within the BDF, for businesses that face
extraordinary credit barriers such as low-income status and female or minority owned business.
Over 200 businesses have utilized the program and created more than 1,100 new jobs. The BDF program
has loaned over $12 million and leveraged an additional $33 million in private investment.
Examples:Historically, the BDF program has supported the start-up and expansion of several downtown
businesses, including Lord Leebrick Theatre, Opus Six, Harlequin Beads and Jewelry, Due Donne, The Juice
Boutique, and Hartwick’s.
Page 9 of 13
2. DEVELOPMENT TOOLS
A. Land Assembly
Land Assembly Summary
Development footprint of adequate size is fundamental to project
Areas of decline have many owners of small parcels
City/URA can:
Purchase property, buy purchase options;
o
Prepare site for development (demolition / predevelopment); and
o
Sell land at reduced price.
o
The expensive, long, and uncertain process of assembling property is a major barrier to private
redevelopment. Cities and urban renewal agencies often take an active role in property assembly as a method
of creating redevelopment opportunities and providing incentives for private reinvestment in a given area.
Specific actions typically include securing purchase options, direct purchase for resale or contribution to
development, demolition and predevelopment, and purchase price reductions.
Example: The City of Eugene and the URA have previously assembled land for the benefit of the following
projects: Broadway Place, Hilton Convention Center, Eugene Public Library, Wayne Morse Federal
Courthouse, US Bank Building, and affordable housing development via the Landbanking Program.
Parking
Parking Summary
Downtown core is a parking exempt area
Important for developers and lenders for new housing construction
Parking requirements for new development vary based on density and uses
Structured parking revenues can support on-going operations and maintenance, but not
the capital cost for building the garage
City has historically provided structured parking to support private development and
activity downtown
The City owns and operates five public structured parking facilities in the downtown core, including the
Broadway Place structures at Broadway and Charnelton Street (366 north spaces and 363 south spaces), the
Overpark at 10th Avenue and Oak Street (598 spaces), the Parcade at 8th Avenue and Willamette Street (438
spaces), the Pearl Street Garage (262 spaces), and the Eugene Performing Arts Center garage by the Hult
Center (520 spaces). The City offers monthly bulk parking permit discounts of up to 30% for businesses that
purchase bulk permits (25 or more permits) and have an active alternative modes plan.
Although the downtown core area is parking exempt (meaning there are no requirements to provide parking
under City code), developers and lenders will typically require that the development provide parking in
support of certain types of uses. For example, housing uses may require a 1:1 housing unit/parking space
ratio. Retail uses may also demand specific parking supply per square foot. Within the C3 zone, the existing
Land Use Code requires parking in excess of 20 spaces to be structured. Because there are cost constraints
and income limitations associated with privately constructed structured parking, the provision of publicly
provided parking can be a development tool.
Example:Broadway Place
Page 10 of 13
The Broadway Place development required parking spaces for the retail and housing components of this
public/private partnership. The City assembled the land, built the two public garages, and sold the “air
rights” to the developer at a reduced rate for the construction of commercial and residential portions. (The
purchase of “air rights” allows the developer to develop on top of the garage.) Broadway Place also received
a MUPTE (10 year property tax exemption on the housing portion of the project). The City used its full faith
and credit pledge to issue bonds to pay for the garage. The bonds are repaid from parking revenues. The
City has not had to use its general resources to make debt service payments.
C. Public Infrastructure
Public Infrastructure Summary
Utility relocation/upgrades, transportation improvements
Investment in current and future developments in given area
Funds from a wide variety of sources
Public infrastructure includes streets, sidewalks, lighting, landscaping, open space, pedestrian improvements,
utility relocations and upgrades, or transportation improvements. Cities and urban renewal agencies can
provide infrastructure as a means of investing in a development with the intended purpose of the
development being a trigger for further development in the area that will also benefit from the infrastructure
improvements. A variety of funds may be used to pay for the improvements, depending on the nature of the
project, such as SDCs, assessments, road funds, general funds, tax increment funds, and other resources.
Examples:Reopening of West Broadway, Courthouse District
A public infrastructure investment was made with the reopening West Broadway in 2002. The project
included the reopening of the street, pedestrian improvements, landscaping, and public art. The total
expenditure was $2 million. Public funds were matched with $200,000 in private contributions.
Additionally, the Riverfront Urban Renewal District provided funds to underground the utilities in the
courthouse district.
D. Direct Investment
Direct Investment
URA participation through a grant program
Funds from tax increment revenues
The City/URA could also directly invest in a development as a way to reduce overall cost. Funds could
come from various sources, but would most like come from tax increment financing. The City has not
chosen to use direct investment in the past. The City’s preference has been to provide loans, which revolve
and provide funding for additional future projects.
Example:No previous example.
3. EXAMPLES FROM EUGENE AND OTHER COMMUNITIES
Many communities have successfully supported downtown development through the use of public financial
tools. Development division staff has researched a number of downtown projects and public private
partnerships in Eugene and other cities. Although the goal of a vibrant, place-specific downtown was similar
among the communities, the amount and impact of public dollars and the overall size of the projects varied
widely. Brief summaries of eight examples, including 3 projects in Portland, are summarized below. (See
Attachment D “Case Studies” for detailed information on each project.)
Page 11 of 13
1
Development Example Summaries
1.Eugene, Oregon
Population: 140,000
Project: Broadway Place (West Broadway between Lincoln and Charnelton streets)
Total Project Cost: $26 Million
Public Investment: $12 Million (garage construction and contribution of land) (46% of total project)
Private Investment: $14 Million (54% of total project)
Overall Result: 14,000 sq. ft. retail, 170 residential units, 729 space garage
2.Portland, Oregon
Population: 560,000 (~ 2 million in the metro area)
Project A: RiverPlace (area bordered by River Parkway, Harbor Drive and Waterfront Park)
Total Project Cost: $84.3 Million ($8 M land, $33.8 M commercial, $42.5 M residential)
Public Investment: $23.5 Million (28% of total project)
Private Investment: $60.8 Million (72% of total project)
Overall Result: 480 residential units, 6,000 sq. ft. retail, 42,000 sq. ft. office (1995)
562,690
Project B: Pioneer Place Phase I (Pioneer Place, Pioneer Tower and Garage), Yamhill and SW 4th
Total Project Cost: $147 Million
Public Investment: $32 Million (22% of total project)
Private Investment: $115 Million (78% of total project)
Overall Result: 316,884 sq. ft. office (16 stories), 215,196 sq. ft. retail, 830 space garage (1990)
Project C: Brewery Blocks (Pearl District)
Total Project Cost: $300 Million
Initial Public Investment: $8 Million ($6 M loan for construction of parking structure and $2 M grant for
infrastructure improvements) (3% of total project - not including related investments, such as streetcar)
Private Investment: $292 Million (97% of total project)
Overall Result: Rehabilitation of two historic structures, 500,000 sq. ft. office, 300,000 sq. ft. retail, 368
residential units (2005)
3.Silver Spring, Maryland
Population: 36,000 (Washington DC suburb)
Project: Town Center (target area of four blocks)
Total Project Cost: $367 Million
Public Investment: $187 Million (land assembly, land ownership, infrastructure improvements, and parking
garage) (51% of total project)
Initial Private Investment: $180 Million (49% of total project); estimated total private investment by 2010:
$1.37 Billion (projected private to public ratio of 7:1)
Overall Result: Initial job creation of 1,554, retail stores, theatre/cultural center renovation, renovation of
over 1 Million building sq. ft., creation of 2,700 housing units since 1998.
4.Lakewood, Colorado
Population: 146,000 (Denver suburb)
Project: Belmar Development (redevelopment of indoor mall into city center)
Total Project Cost: $243 Million
1
Sources:Community Planning Workshop, University of Oregon; Portland Development Commission; Livable Places Profiles,
Southern California Association of Governments; Economic Development and Smart Growth Case Studies, International
Economic Development Council
Page 12 of 13
Initial Public Investment: $58 Million public revenue bonds, $2 Million Brownfield Economic Development
Grant (25% of total project)
Initial Private Investment: $183 Million (75% of total project)
Overall Result: Three to four story mixed use development with 210,000 sq. ft. office, 650,000 sq. ft. retail,
253 residential units, 2,000 parking spaces (2004)
5.
Cathedral City, California
Population: 36,000
Project: New Downtown Center
Total Project Cost:Not available
Public Investment: $53 Million (infrastructure improvements, including utilities and transportation)
Initial Private Investment: $40 Million
Overall Result: 900 jobs created, 202,000 sq. ft. hotel, office and retail uses, up to 900 residential units,
including senior and affordable units, 68,000 sq. ft. civic center, 16 screen theater
6.Pasadena, California
Population: 146,000
Project: Old Pasadena Downtown District
Total Project Cost: Not available
Initial Public Investment: $27 Million for garage, subsequent investment of $7 M for streetscape
improvements (1996)
Private Investment: Estimated at $400 Million in 1996
Overall Result: Renovation of buildings within 14 block area, mixed use project, retail center, senior center,
two parks
* Cathedral City, CA and Pasadena, CA not included due to unavailability of total project cost.
Please contact me at 682-6077 or via e-mail at susan.l.muir@ci.eugene.or.us, if you have questions or need
additional information.
Attachments
A: Downtown Urban Renewal District and Tax Increment Financing
B: MUPTE Boundary
C: Vertical Housing Development Zone Boundary
D: Case Studies
Page 13 of 13
Attachment A
Downtown Urban Renewal District and Tax Increment Financing
Urban Renewal Agency Background
The purpose of urban renewal is to stimulate economic development through private investment
in a specific area of the community in compliance with ORS Chapter 457. It is a means to
support economic development and civic improvement by financing needed public
improvements such as infrastructure, open spaces, public plazas, parking garages or
environmental improvements, within designated districts. The City manages two urban renewal
districts: the Central Eugene Project (also known as the Downtown District) and the Riverfront
District.
The City of Eugene Urban Renewal Agency (URA) is a separate budgetary entity authorized by
state statutes. The URA was established in 1958 as a separate corporate body. In 1982, the City
Council assumed the role of the Renewal Agency Board and delegated budget review to the
City?s Budget Committee. The URA oversees two urban renewal districts and each district has
its own adopted plan.
The Eugene Redevelopment Advisory Committee (ERAC) was formed in 2004 to implement
recommendations from the updated urban renewal plans approved by City Council. ERAC?s
mission is:
to advise the Planning and Development Department on the redevelopment of
downtown Eugene and activities related to Eugene?s Urban Renewal Districts,
including amendments to the existing urban renewal plans, consideration of any
new districts and projects associated with the use of urban renewal funds.
The committee is comprised of seven members, including one member who lives, works or owns
property in the district, one who owns property in the district, one who represents a business
association in the district, one who is from the neighborhood association, one from the Planning
Commission, one from the voter pool, and one at-large member. Members serve for three-year
terms.
Central Eugene Project (?Downtown?) District Background
The Central Eugene Project District, also known as the Downtown District, was established in
1968 to redevelop 17 blocks in the downtown area. The boundaries of the district are shown in
the map on the following page. The original project goals involved land acquisition, building
rehabilitation and construction of public improvements.
An update of the 1968 plan was approved by voters in 1990 and was set to expire in FY10. In
June 1998, the City Council chose one of the options provided by Measure 50 legislation that
allowed for a City-wide special levy
as well as dividing the taxes collected
within the district. The Council
limited expenditures of new funds to
completing existing projects and
construction of a new main library.
They also approved a plan to reduce
district administration over the
following three years.
In FY05, with the construction of the
library complete, the City Council
amended the plan to allow funding for
other activities including economic
revitalization strategies and to extend
the termination date to June 30, 2024.
Reviews of the plan are required in
2009 and 2019.
Expenditures from the Downtown
District may only be made for
activities within the district boundaries and projects that are included in the Urban Renewal Plan.
The Downtown District Plan includes the following goals, objectives and project activity
categories:
GOALS: improve the function, condition, and appearance of the area; eliminate blight
and blighting influences; and strengthen the economic conditions of the plan area.
OBJECTIVES: land use, access and circulation, public facilities and improvements, and
rehabilitation.
PROJECT ACTIVITIES: public improvements, off-site facilities, acquisition and
redevelopment, relocation activities, development and redevelopment, and administrative
activities.
Major goals for FY08 in the Downtown District are:
Capitalize on the opportunity represented by the West Broadway redevelopment project
to facilitate high density, high quality development consistent with the Downtown Plan.
Promote downtown Eugene as the cultural, economic and governmental center of the
region.
Use financial incentives to support the redevelopment of properties in the downtown
area.
Encourage the development of high density downtown housing.
Identify and fund new public space and infrastructure projects as recommended by the
Eugene Redevelopment Advisory Committee (ERAC) and City Council.
Downtown District Budget
The chart on the following page sets out the Downtown District budget for the current fiscal
year. The largest revenue for the district is property taxes. These taxes are described in detail
following this section. The largest expenditure for the district is the annual payment on the
library obligations.
Downtown District Budget for FY07
RESOURCES
Beginning Working Capital $8,601,989
Property Taxes 3,680,000
Loan Repayments 50,000
Miscellaneous 345,500
Total Resources $12,677,489
REQUIREMENTS
Operating Expenses $299,832
Capital Projects 860,937
Loans Granted* 2,214,421
Intergovernmental Expenditures** 2,441,565
Balance Available 4,360,734
Debt Service Reserve 2,500,000
Total Requirements $12,677,489
*The budget shows the entire amount of the potential loan fund as potentially expended in FY07, but it is likely that
only about $0.4 million will be loaned out in the current year.
**Intergovernmental Expenditures are payments to the City to meet the library obligations debt service.
Downtown District Property Tax Information
The primary funding for urban renewal is tax increment revenue. Tax increment revenue comes
from increases in property values since the district was created. These increased property values
generate ?tax increment? which is directed to the district.
Incremental Property Values and Tax Increment
When an urban renewal district is first created, the assessed value within the district boundaries is
established as the ?frozen base?. In theory, if urban renewal efforts are successful, the value of the
district will grow above the base amount. That increase is called the ?incremental? or ?excess?
value. Overlapping jurisdictions (schools, general governments, bonds) continue to receive
property taxes on the frozen base while the urban renewal agency receives property taxes related to
the incremental value. This is called the ?division of tax? method of raising revenue in an urban
renewal district.
The ?division of tax? method for funding projects results in the Urban Renewal Agency receiving
significantly more tax revenue than what the City would receive in its general fund from district
property. This method enables the agency to complete more projects than the City would have been
able to complete during the same time period.
Districts in place at the time that Measure 50 became effective were allowed to ?grandfather? the
existing level of tax increment revenue and collect a City-wide levy. The Central Eugene Project
District was grandfathered by City Council in June 1998. For this district, the maximum amount of
tax increment revenue that may be collected depends on the level of tax increment revenue in the
district in FY98 and the percentage growth in assessed value on properties in the district above the
base valuation. Because this district was ?grandfathered?, the tax increment revenue for the
Downtown District is collected in two ways: (1) by dividing the taxes collected within the district;
and (2) through a City-wide special levy. Once the grandfather provisions are no longer in effect,
the Downtown District will no longer be allowed to collect the special levy. It is currently projected
that the special levy will be discontinued by FY10.
The Downtown District collects incremental taxes from only a portion of the property tax bill,
according to Oregon Statutes. The Downtown District may collect incremental taxes from: the
permanent tax rates of the city, county and school districts plus any local option levies or bond
measures that were approved by voters prior to October 6, 2001. This means that the Downtown
District may not collect incremental taxes from School District 4J?s local option levy, the City?s
library levy, or the most recently-passed City parks bond measure, for instance. Over time, the
amount collected by the Downtown District from bonded debt taxes will decrease, as bond
measures approved by voters prior to October 6, 2001 are paid off.
Assessed Value History
The five-year history of assessed value in the Downtown District is shown in the chart below, along
with an estimate for the upcoming budget year.
Downtown District Assessed Values
$200,000,000
$100,000,000
$0
FY03FY04FY05FY06FY07FY08 est.
$139,512,539 $122,798,693 $141,211,890 $121,964,759 $121,237,692 $124,290,000
Increment
$31,386,991 $31,386,991 $31,386,991 $31,386,991 $31,386,991 $31,386,991
Frozen Base
The assessed value in the district changes significantly from year to year, and can sometimes be
reduced from the prior year. Because the land area involved in an urban renewal district is
relatively small, changes made by a single property owner can have a large impact on the district
assessed value. For FY08, assessed value is projected to increase slightly.
Property Tax History
The five-year history of property tax revenues in the Downtown District is included in the chart
below. The amount of property tax collections is affected by three factors: changes in assessed
value in the district, changes in the overlapping tax rates for all jurisdictions, and the percentage of
property taxpayers that pay their tax bills on time. For FY08, property tax revenues are estimated to
increase.
Downtown District Property Taxes
$6,000,000
$4,000,000
$2,000,000
$0
FY03FY04FY05FY06FY07FY08 est.
$1,921,247 $1,796,899 $2,098,339 $1,973,183 $1,936,781 $1,995,999
Special Levy
$2,433,836 $2,032,741 $2,307,598 $1,833,638 $1,842,543 $1,885,000
Division of Tax
Note: The chart shows gross property taxes, prior to taking into account discounts, delinquencies and adjustments.
Actual revenue received by the Downtown District is net of these factors.
Urban Renewal Tax Rates
The tax bills for Eugene taxpayersinclude three line items for urban renewal. All taxpayers in the
City pay these taxes. There is no difference between the taxes paid by taxpayers inside the district
and outside the district.The three tax lines are:
City of Eugene Special Levy
is the special levy for the library project in the Downtown District
(this special levy will be discontinued by FY10)
Eugene Urban Renewal Downtown
is the division of tax funding for the Downtown District
Eugene Urban Renewal Riverfront
is the division of tax funding for the Riverfront District
Beginning in FY03, urban renewal tax rates are shown as line items on tax bills. When tax rates
and tax bills for years prior to FY03 are compared to current urban renewal tax rates and tax bills, it
appears as though a large increase occurred in urban renewal taxes in FY03, but that is not, in fact,
what happened. In FY03, although urban renewal tax rates shown on the tax bill increased
significantly, the tax rates for the other overlapping taxing jurisdictions were decreased by a like
amount.
A five-year history of the urban renewal tax rates and the tax bill for the median home in Eugene is
shown in the following chart. The chart also sets out estimates for the FY08 tax rates and tax bill.
Urban Renewal Tax Rates
Per $1000 of Assessed Value
Eugene Urban Eugene Urban Total Urban Bill for
Fiscal Year City of Eugene
Renewal Renewal Renewal Tax Median
Downtown Riverfront Rate Taxpayer
EndingSpecial Levy
6/30/03 $0.2246 $0.3086 $0.0624 $0.5956 N/A
6/30/04 0.2014 0.2471 0.0585 0.5070 $65
6/30/05 0.2229 0.2655 0.0664 0.5548 74
6/30/06 0.2013 0.2001 0.0619 0.4633 64
6/30/07 0.1888 0.1936 0.0645 0.4469 64
6/30/08 estimate 0.1800 0.1900 0.0600 0.4300 63
Source: Lane County Assessment and Taxation for historic tax rates and assessed value of median home. Median
home assessed value not available prior to 6/30/04.
Impact on Other Taxing Jurisdictions
The overlapping jurisdictions (schools, city, county) are kept whole when a district is created
through the division of taxes calculation explained above. The overlapping districts retain the taxes
on the value of property within the district at its creation.
Urban renewal generally does not affect an individual school system?s operating budget because
schools are funded by the state on a per-pupil basis. On a state-wide basis, if there are less property
tax revenues going to schools because of urban renewal districts, then the state has to provide more
general fund dollars to make up the per-pupil funding requirement for all the schools. If a district
has a local option levy, however, that local option levy revenue could be reduced as a result of
urban renewal incremental value.
For other taxing jurisdictions, the share of property taxes from the ?excess value? or ?incremental
value? is not collected by the overlapping jurisdictions during the period of an active district. Urban
renewal nominally affects certain voter-approved local option levies and bonds because the affected
district has less property value to levy taxes against, resulting in slightly higher tax rates.
The incentive for the overlapping districts to support urban renewal is higher property tax revenues
in the long run. Ultimately when the district is ended, the overlapping taxing districts are able to tax
the entire value within the district. Under the theory of urban renewal, this value is higher than it
would have been if there had been no district in effect.
The gross amount of urban renewal taxes to be divided for both districts in FY07 is shown on the
following chart. As can be seen in the chart, the Downtown District can only collect division of tax
revenues from permanent tax rates, and bonded debt and local option levies that were passed by
voters prior to October 2001. Therefore, the Downtown District lists zero for the library local
option levy, the youth/schools local option levy and the School District 4J local option levy.
Division of Tax Impact on Overlapping Taxing Jurisdictions in FY07
Downtown District
School District 4J ? permanent tax rate $575,160
School District 4J ? local option levy 0
School District 4J ? bonded debt 81,685
Lane Community College ? permanent tax rate 74,786
Lane Community College ? bonded debt 27,661
Lane Education Service District ? permanent tax rate 26,636
Lane County ? permanent tax rate 154,902
Lane County ? bonded debt 15,388
City of Eugene ? permanent tax rate 848,369
City of Eugene ? library local option levy 0
City of Eugene ? youth/schools services levy 0
City of Eugene ? Downtown UR special levy 0
City of Eugene ? bonded debt
37,956
Totals $1,842,543
Downtown District ?Maximum Indebtedness?
Oregon Statutes require each district that receives property taxes to include a ?maximum indebt-
edness? limit in their urban renewal plans. The Downtown District amended its plan in 1998 to
include a maximum indebtedness limit of $33 million.
?Maximum indebtedness? is not a legal debt limit. It is, instead, more like a spending limit.
Certain expenditures of the district are included in the ?maximum indebtedness? calculation and
certain expenditures are excluded.For instance, interest on debt is excluded from the calculation,
but administrative expenses or direct cash payments for projects are included in the calculation.
There is about $4.6 million left under the $33 million limit in the Downtown District. It is currently
projected that the district will have collected sufficient tax revenues to meet the $33 million limit in
FY09.
In order for the district to enter into any obligations that exceed about $4.6 million, there will have
to be a ?substantial amendment? to the district?s plan. This process is determined by Oregon Statute
and the district?s plan. Certain types of substantial amendments require a special City-wide notice.
These substantial amendments include:
Changes in the maximum indebtedness; and
Expansion of the district boundaries by more than 1%
The shortest possible time to complete the process for this type of special amendment is
approximately 100 days. The major steps involved in this type of amendment are:
Eugene Redevelopment Advisory Committee may meet to discuss the proposed plan
amendments and make a recommendation to the City Council to proceed
City Council meets to initiate plan amendments
Urban Renewal Agency submits plan amendments and report on the plan to taxing bodies
affected by the district for review and comment
Urban Renewal Agency may also decide to send the plan amendments and report to the
Planning Commission, but this is not required
City sends out special City-wide notice
Urban Renewal Agency meets to receive the revised plan and report on the plan
City Council holds a public hearing on the plan amendment ordinance
City Council meets to approve ordinance amending the plan
Current Debt Obligations of the Downtown District
The Urban Renewal Agency does not currently have any bonded debt outstanding. The Downtown
District has an obligation through an Intergovernmental Agreement to pay the City an amount equal
to the principal and interest payments on the debt issued to fund the new library construction pro-
ject.
On June 1, 1998, the City Council amended the Downtown District urban renewal plan to state that
*
a new library was to be the only new project in the district. The Urban Renewal Agency and the
City entered into an Intergovernmental Agreement that committed the Agency to make the debt
service payments on $18.5 million of City debt obligations for the library and to provide additional
cash contributions to the project, if excess urban renewal revenues are available in future years.
The resolution authorizing the City Manager to sign the Intergovernmental Agreement was
approved by the Council and the Agency on February 28, 2000, along with the resolution author-
izing issuance of the debt obligations. On April 27, 2000, the City issued $18.5 million of debt that
was to be repaid from Agency resources. The debt was to be repaid in annual amounts of about
$2.5 million and the final maturity is on December 1, 2009.
In the event that urban renewal revenues are insufficient to pay the bonds, the City has pledged to
ã
make the debt service payments out of the Citys General Fund. There are two ways in which the
City designed the library financing to protect the General Fund from having to make payments on
the bonds. First, the Agency carries a reserve (currently equal to one year of principal and interest
payments) that may be used to make debt service payments in the event there is a shortfall in urban
renewal revenues. Second, the financing plan was developed so that the urban renewal fund would
ßà
maintain a debt coverage factor in the expected level of revenue collections. Urban renewal
revenues have exceeded the amount needed to pay principal and interest on the debt obligation in
each year since the debt was issued, and it is anticipated that urban renewal revenues will continue
to be sufficient to make the principal and interest payments, pay for administrative costs of the
district, and fund additional projects in the downtown area.
Future Debt Obligations of the Downtown District
As explained above, the Downtown District currently has the ability under its ?maximum indebt-
edness? figure to enter into a maximum of approximately $4.6 million of additional debt or spend-
ing. In order to increase that amount, the City Council must substantially amend the Downtown
District plan. Once the Downtown District plan is amended, it would be possible for the district to
enter into obligations of greater than $4.6 million. Urban renewal borrowings are considered more
risky than general City type of borrowings because the nature of tax increment revenues is less
predictable than the City?s property tax revenues. Lenders typically require a ?debt coverage? ratio
*
As mentioned previously, the City Council subsequently amended the urban renewal plan in 2004 to allow for
additional projects to be undertaken in the Downtown District.
of about 1.5 times and a debt service reserve to protect against fluctuations in tax increment
revenues.
A debt service reserve amount is limited by certain IRS requirements, if a tax-exempt borrowing is
undertaken. The debt service reserve limits are generally either the maximum annual debt service
amount or 10% of the borrowing amount.
A debt coverage ratio is a ratio of revenues to the debt payments. For instance, the Downtown
District has division of tax revenues of about $1.8 million per year. Using the current ?division of
tax? revenues of $1.8 million and a 1.5 times debt coverage ratio, lenders would limit the amount of
any debt repayment to about $1.2 million annually, which would leave a 50% margin for property
tax revenue fluctuations. This 50% margin could be used for district administrative activities and/or
for other district projects paid on a cash basis.
The Downtown District is scheduled to terminate in FY24. If the district entered into a new debt
obligation (after substantially amending the plan) in FY08, that would leave 16 years remaining for
a debt obligation to be repaid. Assuming a 16 year repayment schedule, a 1.5 times debt coverage
ratio, and a projected interest rate for next fiscal year, the Downtown District would have a debt
capacity of approximately $13 million.
When development occurs in an urban renewal district, additional debt capacity is created for future
projects. Lenders are typically less willing to lend money based on incremental tax revenues that
have not yet been received by a district. For instance, if a district enters into a development agree-
ment for a large new project that is expected to take a couple of years to generated incremental
property taxes, lenders would want to base borrowing capacity on the existing tax revenues only
and not include a factor for the new incremental revenues until the district begins to receive those
revenues. It might be possible to negotiate with lenders to include a small factor for future incre-
mental property taxes in the debt capacity calculations, but because those revenues are considered
more risky, the terms could be more conservative. They might, for instance, require a higher debt
coverage ratio and/or a higher interest rate.
Another approach to accessing those yet-to-be-received revenues is to have the City provide its full
faith and credit guarantee to the borrowing. This approach places the City?s general resources at
risk in the event that the new incremental property tax revenues are less than expected. The City
provided its full faith and credit guarantee to the borrowing that was done for the new library, as
described above. In that case, policy makers determined that the project had sufficient public
benefit to warrant placing the City?s general resources at risk.The City has not had to use its
general resources to make payments on the library debt, however, because urban renewal tax
revenues have been sufficient to make the annual payments.
Amounts Available for Development Projects in the Downtown District
The creation of a development financing plan depends on a variety of factors, such as the timing,
amount and nature of the specific development. In general, however, the Downtown District has
the following resources available for development at the current time:
Potential Development Resources in the Downtown District in FY07
Approximate
FY07 Amount
Available
Balance Available (unrestricted cash) $ 4.3 million
Borrowing capacity assuming plan amendment and repayment over 16 years 13.0 million
Downtown Loan Funds1.8 million
Total Amount Available $19.1 million
Downtown Loan Funds: Downtown Revitalization Loan Program (DRLP)
The DRLP is a revolving loan program funded through Urban Renewal District program revenue.
The FY08 budget will include approximately $1.7 million available for DRLP loans, with
approximately $72,000 in principal and interest repayments forecasted in FY08. Available to
businesses and property owners located within the Downtown Urban Renewal District, the DRLP is
a flexible financing program designed to encourage investments within the Downtown District that
contribute to the economic vibrancy and density goals for downtown. The primary goal of the
DRLP is to provide funding assistance to projects that meet the goals and objectives of the
following planning documents: Urban Renewal Plan for Central Eugene Project, A Vision for
Greater Downtown Eugene, and the Eugene Downtown Plan. The program is also designed to be
responsive to unique redevelopment opportunities, specific downtown redevelopment challenges,
and specific individual project financing needs.
The DRLP aims to encourage private, non-profit, and mixed-use development and public/private
partnerships in overcoming issues with a low loan to value ratio, insufficient cash flow, and
extraordinary project specific costs. The DRLP provides project financing typically between 25%
and 50% of total eligible project costs. Eligible projects include building rehabilitation, façade
improvements, tenant improvements, pedestrian cover, historic preservation, and accessibility
improvements. Remaining project financing is provided by private sources. Loan amounts are
generally between $10,000 and $500,000.
The URA currently has $573,000 of outstanding loans under the DRLP. The revolving nature of
the program means that it is self-financing. As new loans are made, the payments on the loans are
then returned to the loan pool and loaned out for new projects.
ATTACHMENT B
Hypothetical Examples of a West Broadway Development Project
To demonstrate how a development financing plan might work for the West Broadway
These are hypothetical examples and are not
project, staff has created two examples.
based on actual figures from either of the developers.
The purpose of these examples is
to show council how the City might accommodate a request for public participation in the
redevelopment of West Broadway. The actual development financing plan for the West
Broadway project will depend on a number of items that are not yet known, such as
which developer is chosen, the nature of the footprint and project characteristics, the ex-
pected values of each part of the development, the timing of the development, and so on.
The developer and the City will negotiate these items as part of the development agree-
ment. Once the terms are finalized, a development financing plan can be created that
matches appropriate financing and development tools with the development agreement
these are hypothetical examples only
terms. Again, .
Large-Scale Development Example
In the Large-Scale Development example, it is assumed that a development project con-
sists of about $185 million of total investment, including retail, housing, cinema, hotel,
private parking and public parking. The housing is eligible for the Multi-Unit Property
Tax Exemption (MUPTE, see Attachment A) for ten years. The project takes about two
years to construct, and incremental property taxes from the development are received
starting in FY11.
The Large-Scale Development example assumes that the Downtown District is amended
to increase the “maximum indebtedness” to accommodate this and future projects, as
described in Attachment A. The termination date of the district is also extended from
June 2024 to June 2030.
remembering again that
The agreement between the City and the private developer (
this is a hypothetical example only and no agreements have been made between the
City and any developer for the West Broadway Redevelopment Area
) states that the
City’s financial role in the development is to assist with the land assembly and to provide
public parking. The land assembly financial assistance consists of a City contribution of
$10 million towards the cost of the property in FY08. The public parking will be built by
the developer and purchased by the City on a turnkey basis for $12.5 million in FY10.
Total investment from the City is $22.5 million, or about 12% of the total development
cost.
The initial incremental assessed value for this project is about $28 million, after taking
into account property values already in existence on the development site, the housing
exemption, and the public parking,. The new value generates about $400,000 of annual
property taxes initially and an additional $800,000 when the MUPTE expires in FY21.
The Large-Scale Development example generates about $18 million of property taxes to
the District through the termination date in 2030, which is about $4 million less than the
City’s investment in the project.
These projections use conservative assumptions about property value growth over the
period. The model assumes that all property in the district, including this new develop-
ment, experiences assessed value increases of 2% per year. No additional development
activity is assumed to occur in the district during the remaining life of the district. A
potential upside to this scenario is that this development spurs additional investment in
the downtown core, and as a result, additional property taxes are generated for future
projects.
The split between the public and private investment in the Large-Scale Development ex-
ample is set out in the following chart. The chart shows the split both with and without
taking into account the MUPTE. The MUPTE is estimated to be worth about $9.3 mil-
lion, depending on the assessed value for the housing in the project, the tax rates in effect
during the exemption period, and the changes in the assessed value of this property over
the exemption period. The exemption is shown separately from the other types of public
contribution because it is not a method of making a direct payment for a development
project. Rather, a tax exemption is foregone revenue. The theory behind the tax exemp-
tion is that the development would not have occurred “but for” the granting of the
exemption. If the project would not have occurred without the exemption, then the tax
revenue would not have ever been received. Some people may believe the public invest-
ment should be calculated including this exemption and some people may believe it
should be calculated excluding the exemption, so both calculations are shown here.
Hypothetical Large Scale Development
Public and Private Shares of Investment in the Development Project
Without Tax Exemption With Tax Exemption
Amount Percent Amount Percent
PUBLIC INVESTMENT
HUD Section 108 Loan* $7,895,000 $7,895,000
BEDI Grant 2,000,000 2,000,000
UR Revenue Bonds* 5,500,000 5,500,000
UR Cash 7,055,000 7,055,000
Other Sources 0 0
MUPTE 0 9,300,000
Total Public $22,450,000 12% $31,750,000 16%
PRIVATE INVESTMENT*
Total Development Cost $185,450,000 $194,750,000
Less: Public Investment -22,450,000 -31,750,000
Net Private Investment $163,000,000 88% $163,000,000 84%
TOTAL INVESTMENT $185,450,000 100% $194,750,000 100%
*Public and private financing contributions are shown excluding interest payments.
A potential financing plan for the Large-Scale Development example is included in the
chart below. Given the assumptions made in the example, the Downtown District has the
resources to pay for the costs of this development through the use of urban renewal funds
and BEDI grant funds only, without any additional support or contribution from the City.
Hypothetical Large-Scale Development
Development Financing Plan
FY08 FY10 Total
SOURCES OF FUNDS
HUD Section 108 Loan* $7,895,000 $0 $7,895,000
BEDI Grant* 2,000,000 0 2,000,000
Urban Renewal Revenue 0 5,500,000 5,500,000
Bonds
Urban Renewal Cash 330,000 6,725,000 7,055,000
Other Funds 0 0 0
Total Sources $10,225,000 $12,225,000 $22,450,000
USES OF FUNDS
Land Assembly $10,000,000 $0 $10,000,000
Public Parking (turnkey 0 12,000,000 12,000,000
purchase)
Borrowing Costs 225,000 225,000 450,000
Total Uses $10,225,000 $12,225,000 $22,450,000
*HUD Section 108 loan would be repaid from urban renewal resources. The BEDI Grant must be used in
connection with a HUD Section 108 loan.
The Large-Scale Development financing plan relies on two different borrowings, a HUD
Section 108 loan and an urban renewal revenue bond financing. In this hypothetical
scenario, the borrowings are paid entirely from existing urban renewal revenues, and do
not rely at all on the incremental property taxes generated from the Large-Scale Develop-
ment. In this way, the risk to the City/URA and the lenders is mitigated because the
revenues are already existing and known amounts.
In the worst possible case where this development did not perform as expected over the
financing period, the City and the lenders would not be relying on revenue from the
Large-Scale Development project. Risk is also mitigated by using a 1.5 times debt cover-
age ratio and a debt service reserve fund, as explained in Attachment A. The financings,
however, are not risk free, even with these protections in place. Tax increment revenue is
less predictable than the City’s property tax revenues, and therefore, urban renewal bor-
rowings are considered more risky than general City borrowings. The protections built
into the Large-Scale Development example provide a cushion in the event that one of the
major taxpayers in the district relocates outside of the district, other property values signi-
ficantly decrease, or in the case of a recession and the subsequent failure of businesses in
the district.
Small-Scale Development Example
In the Small-Scale Development example, it is assumed that a development project con-
sists of about $20 million of total investment, consisting of renovation of existing build-
ings into office space. The project takes about two years to construct, and incremental
property taxes from the development are received starting in FY11.
The Downtown District can accommodate the City’s investment in the Small-Scale
Development project without amending the urban renewal plan to increase the “maxi-
mum indebtedness”.
remembering, again, that
The agreement between the City and the private developer (
this is a hypothetical example only and no agreements have been made between the
City and any developer for the West Broadway development
) states that the City’s
financial role in the development is to assist with the land assembly. The land assembly
financial assistance consists of a contribution of $2 million City payment towards the cost
of the property in FY08. Thus, the City’s share of the Small-Scale Development hypo-
thetical project is 10%, while the developer’s investment is 90%.
The initial incremental assessed value for the Small-Scale Development is about $10 mil-
lion, after taking into account property values already in existence on the development
site. The new value generates about $150,000 of annual property taxes for the District.
The development project generates about $3.3 million of property taxes through the dis-
trict’s termination date in 2024, which is about $1.3 million more than the City’s invest-
ment in the project. These projections use conservative assumptions about property value
growth over the period. The model assumes that all property in the district, including this
new development, experiences assessed value increases of 2% per year. No additional
development activity is assumed to occur in the district during the remaining life of the
district.
Because the scale of this investment is small, the City/URA’s contribution could be made
with cash held by the Downtown District. As a result, the City/URA would not have to
borrow money. From a financial perspective, this is a less risky scenario. On the other
hand, the potential for future property tax revenues is significantly less than under the
Large-Scale Development example.