Transcript City of Phoenix Downtown Development Initiatives

The ABC’s of Municipal Financing
GFOAz
May 11, 2007
The ABCs of Municipal
Financing in Arizona
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Overview of Capital Project Needs
Sources of Revenue
Debt vs. Pay-As-You-Go
Types of Debt
Case Studies
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Public Infrastructure
Needs for City of Phoenix
New Streets and Improvements
Fire and Police (Public Safety)
Parks and Open Spaces
Water, Sewer, Flood, Solid Waste
Neighborhoods and Housing
Libraries
Education and Cultural Facilities
Airport Improvements
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Revenue Sources to Pay
for Infrastructure
Secondary Property Taxes
Local Sales (Excise) Taxes
Special Designated Sales Taxes (Transit)
State Shared Revenues
Water, Sewer, Solid Waste Fees
Airport Fees and Charges
Impact or Development Fees
Other User Charges
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Historical Secondary AV
City of Phoenix
$ Billions
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12
10
8
6
4
2
0
1981 1985 1989 1993 1997 2001 2005
Fiscal Year
Based on Full Cash Value from County Assessors Office
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Historical Water Development
Occupational Fees
$ Millions
City of Phoenix
12
10
8
6
4
2
0
1989
1992
1995
1998
Fiscal Year
Fees constant throughout period at $600 per equivalent 5/8 inch meter.
2001
2004
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How Can Revenue Sources
be used to Fund
Infrastructure Needs?
Pay-As-You-Go (Cash)?
Debt Finance (Short or Long Term
Borrowing)?
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Reasons to Use Pay-As-You-Go or
Cash for Capital Project Funding
• Capital needs can be met through current
revenues and the annual budget process
• Revenue sources uncertain from year to
year for debt service payments
• Issuing additional debt will jeopardize
current credit rating
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Reasons to Use Pay-As-You-Go or
Cash for Capital Project Funding
(continued)
• Municipal market is not favorable (high
interest rates) or projects difficult to market
• Projects can be phased or deferred while
revenues are collected
• The assets being funded have short lives
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Advantages of
Pay-As-You-Go Funding
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No interest costs
No issuance costs
No restrictive debt covenants
No over-issuance of debt
Projects not pursued until funds available
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Reasons to Consider
Debt Financing
• Capital facilities are needed today
(regulatory or growth pressures) and
current revenues are insufficient
• Reliable future revenues are available to
service the debt
• Issuance of debt will not jeopardize
credit rating
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Reasons to Consider
Debt Financing
(continued)
• Favorable municipal bond market
• Assets financed are longer lived
• Assets needed for growth are paid by
current and future residents
(intergenerational equity)
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TYPES OF DEBT
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CASE STUDIES
CITY OF PHOENIX
Public Process for G.O. Bond Program
Public-Private-Partnership for Downtown
Development (CITYSCAPE)
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City of Phoenix
General Obligation Bond Program
Primary mechanism used historically to
fund non-enterprise fund capital needs
Debt secured by secondary property
taxes of City
Require voter approval
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History of Voter Approved
G.O. Bond Programs
City of Phoenix
$ Millions
1200
$1057.4
1000
$878.5
$753.9
800
600
$525.7
$436
400
200
0
1981
1984
1988
Year
2001
2006
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Programs Funded by
2006 G.O. Bond Program
($ Millions)
Police, Fire, Homeland Security $ 177.0
20.2%
Education Facilities
198.7
22.6%
Library, Youth, Senior and
Cultural Facilities
133.8
15.2%
Parks, Open Space &
Recreational Facilities
120.5
13.7%
Streets, Storm Sewers, and
Flood Protection
147.4
16.8%
Affordable Housing and
Neighborhood Revitalization
85.0
9.7%
Computer Technology
16.1
1.8%
$ 878.5
100.0%
TOTAL
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Public Review Process for
General Obligation Bond Program
City of Phoenix
 Departments develop requested capital projects
($3.2 billion in requests)
 Operations and maintenance costs for projects
developed
 Citizen Bond Committee and subcommittees
appointed (700 citizens, 17 subcommittees)
 Fiscal Capacity Subcommittee reviews Assessed
Valuation forecast and debt capacity analysis
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Public Review Process for
General Obligation Bond Program
City of Phoenix
 Subcommittees hold public hearings
 Subcommittees recommend projects to
Executive Committee
 Executive Committee develops
recommendation within fiscal capacity
 Council approves Bond Program
 Citywide vote on Bond Program
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Financing Downtown
Public/Private Partnership Project
(CITYSCAPE)
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CityScape Project Location
N
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Cityscape Project
 Project to develop 3 blocks between in core of
Downtown between Jefferson and Washington 1st
Street and 2nd Ave.
 Lead by Red Development in partnership with
Baron Collier
 Planned 2.5 million sq. ft. of four mixed use
residential and commercial towers, including 150
room hotel and 220,000 sq. ft of retail space in
core of downtown
 Total project cost approximately $900 million
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Challenges of City
Participation
 Non-general fund City Excise Tax capacity
leveraged for Convention Center Expansion and
for backing of new Downtown Hotel
 No reserves or pay-as-you-go funding available
due to other City commitments
 Speculative nature of the project and large
financing required by the Developer (more than
$800 million)
 Uncertainty of revenue and sales tax generation
from the project
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City Participation
TERMS OF DEVELOPMENT AGREEMENT
 City purchases parking facilities upon completion of the
following minimum improvements.
 220,000 sq. ft of retail
 500,000 sq. ft of commercial
 500 unit residential tower and 150 room hotel
 2,500 below ground parking spaces
 Upgrades and repairs to Patriots Park Garage
 Developer guarantees projected level of City sales tax
revenues from project for first five years through a letter of
credit (LOC) from a bank approved by the City. LOC burns
off each year as sale tax targets are met.
 City provides Government Property Lease Excise Tax
(GPLET) to the Project.
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City Participation
TERMS OF DEVELOPMENT AGREEMENT
 Developer prepays Phase II construction sales taxes that
will be refunded in the event Phase II is constructed
within five years.
 City purchases parking facilities through the sale of $70
million in excise tax bonds and allots $2.5 million of
Street G.O. Bonds and $4.0 million in 2006 G.O. Bonds
approved for Patriots Garage rehabilitation.
 City sells Jefferson Street garage near U.S. Airways
Center to provide for $20 million to purchase additional
underground parking from the Project.
 Developer operates the garage and makes lease
payments to the City.
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Questions?
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