February 26, 2013 Navigating a Tough Market Financial Incentives and PublicPrivate Partnerships to Get Across the Goal Line Presented by: Peter J. Wolfson, Esq., Porzio Katharine A. Muscalino, Esq., Porzio Public-Private Partnership Funding Options • Long-Term Tax Exemptions (PILOT) • RAB bonding • Short-Term Tax Exemptions • ERG • Brownfield Reimbursement • Grow New Jersey Assistance Program © Porzio Bromberg & Newman P.C. Long-Term Tax Exemptions a/k/a PILOTs Who’s eligible? • Projects in designated redevelopment areas • Projects located in Urban Enterprise Zones • Projects for relocation of residents displaced by redevelopment • Projects adjacent to redevelopment areas if project is related to implementation of redevelopment plan • Low and moderate income housing projects © Porzio Bromberg & Newman P.C. Long-Term Tax Exemptions Term of exemption • Up to 30 years from completion of project • 35 years from execution of financial agreement between municipality and urban renewal entity • Extensions available for certain nonprofit housing corporation © Porzio Bromberg & Newman P.C. Long-Term Tax Exemptions What does the exemption mean? • Instead of paying local property taxes, applicants make an annual service charge payment commonly referred to payment in lieu of taxes or PILOT payment • Applies only to value of new improvements constructed as part of redevelopment project • Does not apply to value of land or pre-existing improvements • Can be for all or just a portion of the redevelopment © Porzio Bromberg & Newman P.C. Long-Term Tax Exemptions How do I get a PILOT? • Governed by the Long Term Tax Exemption Law, N.J.S.A. 40A:20-1, et seq. • Must be an Urban Renewal Entity (“URE”) • Apply to the municipality BEFORE commencing any improvements • Must have a Financial Agreement © Porzio Bromberg & Newman P.C. Long-Term Tax Exemptions If it is a “payment in lieu”, what does the property owner end up paying? • Negotiable between municipality and URE within statutory limits • PILOT can be calculated two ways - Total Project Cost - Annual Gross Revenue - Annual Service charge must equal at least the total taxes levied before the redevelopment project - 5% of the Annual Service Charge will be remitted by the Municipality to the County - The Municipality is not required to remit any portion to the School District © Porzio Bromberg & Newman P.C. Long-Term Tax Exemptions Who should apply? • Appropriate for projects where property acquisition, remediation, or infrastructure upgrade costs are significant, such that project is not otherwise financially feasible or competitive © Porzio Bromberg & Newman P.C. Redevelopment Area Bonds • Long-term, low-interest bonds • Secured by PILOT payments and a lien on the developer’s land and improvements • Issued by the Economic Development Authority or a municipality • Benefit to municipality - Public project increases the value of surrounding real estate, generating additional tax revenue - Sales-tax revenue may also increase and jobs may be added © Porzio Bromberg & Newman P.C. Redevelopment Area Bonds What kinds of expenses qualify? • Infrastructure improvements and predevelopment costs © Porzio Bromberg & Newman P.C. Redevelopment Area Bonds How do you get them? • Must - Be in designated redevelopment area - Enter into a PILOT agreement - Be approved by the local finance board © Porzio Bromberg & Newman P.C. Short Term Tax Exemptions and Abatements Who is eligible? • Improvements to existing dwellings, construction of new dwellings, conversion of nonresidential buildings (including hotels and motels) to multiple dwellings (apartments), improvement or expansion of commercial or industrial structures • Municipality must have adopted 5 year tax abatement ordinance • Projects must be located: - In an area in need of rehabilitation - In an area in need of redevelopment or - in Urban Enterprise Zone © Porzio Bromberg & Newman P.C. Short Term Tax Exemptions and Abatements What is the term? • 5 years © Porzio Bromberg & Newman P.C. Short Term Tax Exemptions and Abatements How does the exemption or abatement work? • Exemption is from all or a portion of the property taxes on the added assessed value of the improvement, conversion, alteration, or new construction • Abatement is a reduction in taxes on the value of the pre-existing property - Residential projects: can be up to 30% of the amount of the exemption - Multi-family residential: cannot exceed more than 30% of the cost of the improvement - Not available for commercial and industrial uses © Porzio Bromberg & Newman P.C. Short Term Tax Exemptions and Abatements How do you apply? • Governed by the Five Year Exemption and Abatement Law, N.J.S.A. 40A:21-1 • Municipality must adopt an ordinance permitting 5 year abatements and exemptions • Municipality often has required application form • Do not need to be an Urban Renewal Entity • Financial agreement required for multifamily, commercial, or industrial projects © Porzio Bromberg & Newman P.C. Short Term Tax Exemptions and Abatements Who should apply? • Appropriate for projects where anticipated assessed value of improved project is significant and project would be too expensive to sell or lease in comparison to similar projects if subject to the full tax rate © Porzio Bromberg & Newman P.C. Long Term v. Short Term Tax Exemptions Long Term Tax Exemption (PILOT) Short Term Tax Exemption Usually used for vacant land or demolition and redevelopment; larger scale projects Usually used for rehabilitation of existing structure or building; smaller scale projects Variable Term of up to 30 years from project completion or 35 years from execution of Financial Agreement Fixed Term of 5 years Municipal control is exercised by deciding which applications to approve and negotiating terms of Financial Agreement Municipal control is exercised by adoption of ordinance establishing eligibility and application requirements 5% of annual service charge payment to county; none to school district Municipality, county, and school district share proportionately in tax loss © Porzio Bromberg & Newman P.C. Long Term v. Short Term: How to decide? • Factors to consider: - Scale of project - Timeline for project development and ownership • Will you be transferring ownership of the project? • Who will next control the property? How soon? • Does the exemption need to be transferrable? - Extent of Financing Gap - Duration of predictability/certainty demanded by lenders/purchasers/tenants - Politics - Need for Redevelopment Area Bonding © Porzio Bromberg & Newman P.C. Negotiating with Municipalities • Bargaining chips in PILOT and Short Term Tax Exemption Agreements: - Affordable Housing - Cutting out the school districts - Tax appeals • (and outstanding taxes) - Infrastructure improvements and ratables © Porzio Bromberg & Newman P.C. Economic Redevelopment and Growth (ERG) Grant Program How does it work? • Established by New Jersey Economic Stimulus • • • • Act of 2009 Provides funding for “project financing gaps” through reimbursement of certain incremental state taxes (sales, corporate business tax, hotel, business income tax) generated from the project Total amount received is the lesser of 75% of the incremental tax revenue generated by the project and 20% of the total project costs Applicant must have 20% equity participation Must comply with prevailing wage and affirmative action requirements © Porzio Bromberg & Newman P.C. ERG Who can apply? • Developers, businesses, and owners in Planning Area 1 (Metropolitan) or Planning Area 2 (Suburban), centers, transit villages, and federally owned land approved for closure by the federal Base Realignment Closing Commission • Cannot commence construction at the site prior to submitting an application • Exceptions © Porzio Bromberg & Newman P.C. ERG What is the term? • The grant term can be up to 20 years • If tax revenues are generated more quickly, the developer gets reimbursed more quickly © Porzio Bromberg & Newman P.C. ERG How do you apply? • Application form: on EDA website • Must confer with EDA first • Must submit a Financial Gap Analysis demonstrating a shortage of funding • Must satisfy the Net Benefits Test - Demonstrate that the new employment and future taxes generated by the project will be equal to at least 110% of the ERG grant reimbursement proceeds © Porzio Bromberg & Newman P.C. ERG Who is providing the grant? • The EDA can enter into a grant agreement for reimbursement through State revenues • A municipality can enter into a grant agreement for reimbursement through local revenues • Can apply for a grant from either or both © Porzio Bromberg & Newman P.C. Brownfield Reimbursement Program Who can apply? • Owner or developer undertaking environmental remediation • Not eligible if developer is liable for remediation under N.J.S.A. 58:10-23:11g for the contamination of the property • Must be able to certify that the applicant has not caused the environmental contamination © Porzio Bromberg & Newman P.C. Brownfield Reimbursement How does it work? • Reimburses developers for up to 75% of their remediation costs through redevelopment agreements with the NJ EDA and the State Treasurer • Reimbursement money is derived from State tax revenue realized from the redevelopment project • Must attend a pre-application meeting with the NJEDA, the NJDEP, the Department of Treasury, and the Division of Taxation © Porzio Bromberg & Newman P.C. Brownfield Reimbursement (Con’t) • Applicant files application with NJEDA and executes Redevelopment Agreement with State Treasurer and NJ EDA outlining requirements to merit reimbursement • Must comply with prevailing wage and affirmative action requirements © Porzio Bromberg & Newman P.C. Brownfield Reimbursement • Must satisfy statutory criteria on: - Economic feasibility of the redevelopment project - Extent of economic and related social distress in the - - - municipality Degree to which the project will advance State, Regional, and Local development and planning strategies Likelihood that project will be capable of generating tax revenue in an amount necessary to reimburse the developer for remediation costs Relationship of project to comprehensive local development strategy Degree to which project enhances and promotes job creation and economic development © Porzio Bromberg & Newman P.C. Brownfield Reimbursement Deadlines • Must not commence remediation until after application is filed with NJEDA © Porzio Bromberg & Newman P.C. Brownfield Reimbursement What do you get? • Reimburses developers for up to 75% of their remediation • • • • costs through redevelopment agreement with the NJ EDA, NJDEP and the State Treasurer Reimbursement money is derived from State tax revenue realized from the redevelopment project Must apply to Director of Division of Taxation for reimbursement with certification of total remediation costs, statement that businesses or residences have generated new tax revenues, information regarding occupancy rate 25% of reimbursement is withheld until the refund period for the tax revenues has expired No reimbursements will be paid until an equal amount of tax revenues have been realized by the State © Porzio Bromberg & Newman P.C. Grow New Jersey Assistance Program – Who can apply? • Businesses creating or retaining jobs in a Qualified Incentive Area • Capital investment must be at least $20 million • Business facility must employ at least 100 full-time employees in retained full-time jobs or be in an industry deemed by EDA to have a significant impact on the State Economy © Porzio Bromberg & Newman P.C. Grow New Jersey – What do you get? • Corporate business tax credits for job creation/retention • Up to $8,000 per new or retained full-time job per year for 10 years - $5,000 per year for a period of 10 years for each new or retained full-time job - Bonus award: $3,000 per job per year for a period of 10 years for each job that meets additional criteria © Porzio Bromberg & Newman P.C. Grow New Jersey – How to apply? Must demonstrate: • Award is a “material factor” in the company’s decision to create or retain the minimum number of full-time jobs - Must not have signed a lease, purchase contract, or otherwise committed to a site in NJ • Capital investment and new jobs must yield will yield a net positive benefit of at least 110% of the requested tax credit amount © Porzio Bromberg & Newman P.C. Grow New Jersey – Other Requirements • Within 6 months of application: - Must obtain site plan approval - Must obtain committed financing - Must obtain site control • Must use prevailing wage labor rates • Must observe affirmative action requirements • Must remain in NJ and retain jobs for at least 5 years after credit term expires © Porzio Bromberg & Newman P.C. Grow New Jersey – Deadlines to Watch • Applications must be submitted by July 1, 2014 • Must satisfy capital investment requirement by July 28, 2017 • Capped at $200 Million © Porzio Bromberg & Newman P.C. Grow New Jersey - Limitations • Total amount of credits limited to $40 million - Cannot exceed the applicant’s capital investment • Cannot receive more than $4 million in tax credits each year © Porzio Bromberg & Newman P.C. Questions? • Peter J. Wolfson, Esq., Porzio [email protected] 973.889.4366 • Katharine A. Muscalino, Esq., Porzio [email protected] 973.889.4051 © Porzio Bromberg & Newman P.C.