Incentives and Tools for Downtown Development Bob Murphrey NC Department of Commerce Urban Development Division
Public Private Partnerships and Downtown Development Public Private Partnerships can provide a vehicle for leveraging economic development tools.associated with National Main Street Program The ability to leverage the tools has become much more sophisticated over the past 30 years.
Leveraging Tools The purpose of leveraging public and private resources is: To fill the gap between the cost of renovation and the cash available. To renovate more complex properties. To create economic impact in communities.
The Tools: Private Sector Resources Cash Equity Donations of Property Price Negotiations Family/friends Loans Ownership Interest
Private Sector Resources Local Bank Special Loan Program or pool Usually lower down payment Lower interest rate Longer term amortization (20-40 years) 5 Year Balloon
Private Sector Resources Historic Tax Credits Certified Historic Buildings and/or Buildings Contributing to a National Register Historic District
Private Sector Resources Income Producing Properties Federal 20% of qualified rehab expenses State 20% of qualified rehab expenses
Private Sector Resources Income Producing Properties Substantial Rehabilitation - (income-producing projects) Must spend an amount equal to the adjusted basis of the property, or $5,000.00, whichever is greater Must meet this expenditure within 24 months for a single-phase project or 60 months for a multi-phased project Must retain ownership of the building for five years 20% of the credits are lost for each year short of the five years that you do not own the building
Private Resources Income Producing Properties Credits may be sold/syndicated up front/equity Net 60%+- Taken over period of years/cash flow Subject to taxpayer s tax liability
Example: Income Producing and Non- Income Producing Tax Credit Project Salisbury, 101 S. Main - Before Salisbury, 101 S. Main - After
Private Sector Resources Non-Income Producing Properties 30% North Carolina Non Income-Producing Tax Credit Private Residences Must spend a minimum of $25,000.00 Not All Expenses are Eligible State credits are taken over five years, can be spread out an additional 5 years.
Example: Non-Income Producing Historic Tax Credit Projects
Private Resources Mills Tax Credits/Historic Properties 40% State tax credit - tier 1 and 2 counties Income or Non-income producing 30% State Tax Credit - tier 3 counties Income producing only $3 million minimum investment 80% Vacant for at least 2 years In place of the 20% State Historic Tax Credit Used in conjunction with Federal Historic Tax Credit for income producing properties Up to 60% tax credits
Example: Mills Tax Credit Project Albemarle Lillian Mill Albemarle Lillian Mill - Before Renovation
Lillian Mill After Rehab
Example: Mills Tax Credit Project North Wilkesboro Wilkes Hosiery Mill Renovated as Key City Condos
Example: Mills Tax Credit Project Durham American Tobacco
Example: Mills Tax Credit Project Durham American Tobacco
Example: Mills Tax Credit Project Durham American Tobacco
Example: Mills Tax Credit Project Durham American Tobacco
Example: Mills Tax Credits Project Durham American Tobacco
Example: Mills Tax Credit Project Durham American Tobacco
Example: Mills Tax Credit Project Durham American Tobacco
Example: Mill Project = School Roxboro Roxboro Community School
Example: Mill Project = School Roxboro Roxboro Community School
Resources Housing Tax Credits State and Federal Up to 90% of cost Low-moderate income residential May be used with mixed use development Apply through NC Housing Finance Agency
Example: Housing Tax Credits Project Eden - Rhode Island Mill
Example: Housing Tax Credits Project Eden - Rhode Island Mill
Example: Weldon Housing Tax Credit Project plus Historic Tax Credits, Local Incentives Mixed Use Commercial - Residential in typical downtown buildings
Private Sector Resources Bargain Sales or Gift Sales A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution Like-Kind Exchange Properties are of like-kind, if they are of the same nature or character, even if they differ in grade or quality.
Example Bargain Sale Salisbury Empire Hotel S. Main Street
Example Bargain Sale Salisbury Empire Hotel S. Main Street
Example: Bargain Sale Salisbury Empire Hotel Appraised at $2M $1M charitable donation $1M purchase through a loan pool with 7 banks in Salisbury Rehab is expected to be $14M Mixed use Development Expected Tools: Public/Private Investment Façade Grants Historic Tax Credits New Markets Tax Credits Grants
Example: Leveraging Tools for Redevelopment Lexington Vestal/Belk Building Removing False Facade, Main Street
Example: Leveraging Tools for Redevelopment Lexington Vestal/Belk Building Just Before Renovation, Main Street
Example: Leveraging Tools for Redevelopment Lexington Vestal/Belk Building After, Main Street
Example: Leveraging Tools for Redevelopment Lexington Vestal/Belk Building, Main Street - $500,000 Like-Kind Exchange prior to donation to flip property from corporation to individual donation Donation of Property to ULI Endangered Properties Program Preservation Services Fund Environmental Assessment Donation of Appraisal Sold with Preservation Covenants to retain exterior facade Façade Grants (2) 1 to remove false façade, 1 to restore facade CDBG Economic Development Grant Much of the construction done by owner
Example: Leveraging Tools for Redevelopment Shelby LaFayette Place Mixed-Use Development
Example: Donated Property Kinston - Grainger School, - A Donated Property
Private Sector Resources Preservation Easements Historic preservation easements are intended to protect the architectural and historical integrity of a structure by imposing limitations on the types of alterations that may be made. http://www.presnc.org/property/preservation- Easements
Example Preservation Easements
Public Resources Brownfields Monies The Brownfields Property Reuse Act of 1997 allows the Department of Environment and Natural Resources (DENR) to work with prospective developers to put brownfield sites back into reuse. A prospective developer is any person who desires to buy or sell a brownfield property for the purpose of redeveloping it and who did not cause or contribute to the contamination at the property. Provisions of the Act limit the liability of the prospective developer, while ensuring the site is cleaned to the satisfaction of the DENR. http://www.ncbrownfields.org
NC Brownfields Incentive Five Year Tax Property Tax Exclusion on New Value after Improvements Year 1: 90% Year 2: 75% Year 3: 50% Year 4: 30% Year 5: 10%
Example Brownfield Site Rocky Mount Imperial Centre of the Arts & Science
Example Brownfield Site Rocky Mount Imperial Centre of the Arts & Science
Public Sector Resources Donation of Surplus Property to PNC Local municipalities my consider donating surplus property to PNC or other endangered properties program in an effort to reduce maintenance costs of property to local government and to get property in the hands of a qualified developer.
Example: Surplus Government Property Sanford - City Hall Before Sanford - City Hall After
Example: Endangered Property Albemarle High School Sanford - City Hall After
Example: Endangered Property Albemarle School
Example: Endangered Property Albemarle School
Example: Endangered Property Albemarle School
Public Resources Municipal General Fund Your basic pot of money, appropriated annually through the budgeting process In NC, largely funded through property and sales tax revenues Fund Balance is very important Money left over at year s end i.e. surplus Use it strategically
Example: Public Sector Investment Goldsboro Renovated City Hall Renovated Clock Tower Above right before / Below right after
Example: Public Sector Investment Hendersonville Henderson County Courthouse - Before
Example: Public Sector Investment Hendersonville Henderson County Courthouse - After Hendersonville Henderson County Renovated Courtroom
Example: Public Sector Investment Hendersonville Henderson County Courthouse - After
Example: Public /Private Sector Investment Goldsboro Paramount Theatre - Before
Example: Public/Private Sector Investment Goldsboro Paramount Theatre - Before
Example: Public /Private Sector Investment Goldsboro Paramount Theatre - After
Example: Public /Private Sector Investment Goldsboro Paramount Theatre - After
Public Resources Municipal Service District MSD G.S. 160A-535 through 544 A specifically-defined geographical boundary that levies additional tax upon properties that benefit from certain improvements G.S. defines downtown revitalization among other allowable purposes
Public Sector Resources Façade Incentive Grants Pot established by through public or private funds Typically $1,000 - $10,000 grants 1:1 match minimum Effective tool used throughout NC
Example: Façade Improvement Salisbury, 110 S. Main - Before Salisbury, 110 S. Main - After
Example: Façade Improvement Statesville, 110 W. Broad Street- Before Statesville, 110 W. Broad Street- After
Example: Façade Improvement Sanford East Depot District - Before
Example: Façade Improvement Sanford East Depot District - After
Example: Façade Improvement Sanford East Depot District - After
Example: Façade Improvement Salisbury - Hedrick Building, 125 S. Main St.
Example: Façade Improvement Salisbury - Hedrick Building, 125 S. Main St.
Public Resources Project Development Financing or Tax Increment Financing Allows bond debt from public investments in infrastructure to be secured by the increase in tax revenue anticipated from private development spurred by those public investments (Amendment One 2004). Requires Local Gov t. Commission approval G.S. 159- s.101; www.nctreasurer.com search project development financing
Public Resources Synthetic TIF s Offers incentive directly to the developer. Established as a development grant from the local government(s), it a value typically less than the difference of anticipated property taxes based on redevelopment minus the original property taxes. Typically established for 3-5 year period.
Example Synthetic TIF Example Downtown Smithfield Empty 1/2 acre of land - $50,000 tax value $0.78 = $390 Annual County Tax $0.57 = $285 Annual Town of Smithfield Tax $0.19 = $95 Annual DSDC MSD Tax $770 Total Annual Tax (Before Development) Proposed development - Construction/Development - $750,000 tax value $0.78 = $5,850 Annual County Tax $0.57 = $4,275 Annual Town of Smithfield Tax $0.19 = $1,425 Annual DSDC MSD Tax $11,550 Total Annual Tax (After Development) Downtown Smithfield Development Corporation Example
Example Synthetic TIF Under example from previous slide, owner Pays $11,550 annually in both County and Town Taxes Owner is then granted back annually $10,780 $11,550 New Tax - $770 Previous Tax $10,780 Annual Tax Grant 5 years = $53,900 Total Grant Downtown Smithfield Development Corporation Example
Public Resources Local Incentives Purpose to entice private-sector investment into downtown Funding provided by the local government Examples: Free or reduced water & sewer tap fees Free or reduced water/sewer and garbage fees Property tax incentives Note: cash incentives are legal (e.g. rebate) but you cannot directly exempt a customer from paying the uniform rate)
Public Incentives Local Incentives Continued Designated Local Historic Landmarks Owners eligible for 50% property tax deferral, as long as important historical features are maintained Recapture penalties for violation Does NOT apply to non-landmark properties within Local Historic Districts
Example: Local Landmark + Tax Credits + Local Incentives Lexington Grimes Brothers Mill Historic Sketch of Property
Example: Local Landmark + Tax Credits + Local Incentives Lexington Grimes Brothers Roller Mill - Renovation in Progress
Example: Local Landmark + Tax Credits + Local Incentives Lexington Grimes Brothers Roller Mill State Street Estimated Cost $1M Leveraging Tools for Redevelopment: Property donated Donation of Appraisal Uptown Lexington, Inc. had it individually listed on National Register Initial Stabilization ULI - through Endangered Properties Program Marketed Property through ULI and PNC Now PNC has an option on property Plans to use Historic Credits Listed as Local Landmark for tax benefit Façade Grant
Example: Local Landmark + Tax Credits Mount Airy - Renfro Mill Market Rate Housing
State Incentives Community Development Block Grant Funneled to the states via HUD Economic Development, Infrastructure, Housing Economic Development funds: job creation and retention www.nccommerce.com
State Incentives NC Rural Center www.ncruralcenter.org Many grant programs; $138.5 million this year About half dedicated to water & sewer needs Remainder for various economic development initiatives:
State Incentives Building Reuse & Restoration Program Development Grant: (Forgivable Loan) Tier One and Tier Two Counties Must generate 1 new job per $8,000 in grant funds Up to $12,000 per job in certain NAICS Business Categories $480,000 max award w/3% local match Tier Three Counties Up to $8,000 per job created $240,000 max Award
State Incentives Must meet job creation commitments within 24 months of grant award Jobs retained for 6 months Buildings must be completely vacant for 3 month
State Incentives Main Street Solutions Fund Applications Due February 10, 2011 $1.5 million pot Grants up to $200,000 Designed to spur economic development and job creation in NC Main Street Communities, and Micropolitans (designated as communities 10,000 50,000 in population). Two non-state dollars ($2.00) for every one dollar ($1.00) provided by the Main Street Solutions Fund.
Questions
Presentation Credits NC Main Street Basic Training October 2000 Presentations: Diane Young, President, Downtown Graphics Network Robert Murphrey, Small Town Main Street Coordinator, East Photo s: Main Street Programs across the state. PNC & Myrick Howard