Navigating a Tough Market Financial Incentives and Public

Report
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.

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