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03/16/2015Monday, March 16, 2015 1:00 PM City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 City Hall Chambers Community Redevelopment Agency Meeting Agenda March 16, 2015Community Redevelopment Agency Meeting Agenda 1. Call To Order 2. Approval of Minutes 2.1 Approve the minutes of the December 1, 2014 CRA meeting as submitted in written summation by the City Clerk. 3. Citizens to be Heard Regarding Items Not on the Agenda 4. New Business Items 4.1 ULI Recommendation 34 - CRA Bond Issuance 5. Adjourn Page 2 City of Clearwater Printed on 3/11/2015 Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#15-1112 Agenda Date: 3/16/2015 Status: Agenda ReadyVersion: 1 File Type: MinutesIn Control: Community Redevelopment Agency Agenda Number: 2.1 SUBJECT/RECOMMENDATION: Approve the minutes of the December 1, 2014 CRA meeting as submitted in written summation by the City Clerk. SUMMARY: APPROPRIATION CODE AND AMOUNT: USE OF RESERVE FUNDS: Page 1 City of Clearwater Printed on 3/11/2015 Community Redevelopment Agency Meeting Minutes December 1, 2014 City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 Meeting Minutes Monday, December 1, 2014 1:00 PM City Hall Chambers Community Redevelopment Agency Page 1 City of Clearwater Draft Community Redevelopment Agency Meeting Minutes December 1, 2014 Roll Call Present 5 - Chair George N. Cretekos, Trustee Doreen Hock-DiPolito, Trustee Jay E. Polglaze, Trustee Bill Jonson, and Trustee Hoyt Hamilton Also Present - William B. Horne II - City Manager, Jill S. Silverboard - Assistant City Manager, Rod Irwin - CRA Executive Director/ Assistant City Manager, Pamela K. Akin - City Attorney, Rosemarie Call - City Clerk, Nicole Sprague - Official Records and Legislative Services Coordinator To provide continuity for research, items are listed in agenda order although not necessarily discussed in that order. Unapproved 1. Call To Order – Chair Cretekos The meeting was called to order at 1:05 p.m. at City Hall. 2. Approval of Minutes 2.1 Approve the minutes of the November 3, 2014 CRA Meeting as submitted in written summation by the City Clerk. Trustee Jonson moved to approve the minutes of the December 1, 2014 CRA Meeting as submitted in written summation by the City Clerk. The motion was duly seconded and carried unanimously. 3. Citizens to be Heard Regarding Items Not on the Agenda – None. 4. New Business Items 4.1 Approve the Second Amendment to the Development Agreement between the Community Redevelopment Agency and Water’s Edge Real Estate Acquisition, LP, to provide for early termination of the Agreement and authorize appropriate officials to execute same. The Community Redevelopment Agency (Agency) and Developer’s predecessor in interest, Opus South Development, L.L.C., entered into a Development Agreement dated December 19, 2006, as evidenced by that certain Memorandum of Development Agreement recorded on December 29, 2006 in Official Records Book 15557, Page 1062 of the Public Records of Pinellas County, Florida, to develop certain Page 2 City of Clearwater Draft Community Redevelopment Agency Meeting Minutes December 1, 2014 parcels located at the southwest corner of the intersection of Cleveland Street and Osceola Avenue, Clearwater, Florida, within the community redevelopment area of the City for a development known as the Water ’s Edge project (the Project). Subsequent thereto, Opus South Development, L.L.C., and its related entities, assigned their rights under the Development Agreement to Water’s Edge Clearwater, LLC, a Delaware limited liability company, which subsequently assigned its rights under the Development Agreement to Water’s Edge Real Estate Acquisition, LP (Developer) pursuant to the Assignment and Assumption Agreement recorded August 5, 2010 in Official Records Book 16993, Page 1845 of the Public Records of Pinellas County, Florida. Section 11.19(a) of the Amended Development Agreement dated December 21, 2011 [Memorandum of First Amendment to Development Agreement was recorded on December 29, 2011 in Official Records Book 17447, Page 1818 of the Public Records of Pinellas County, Florida] provides that the Development Agreement will expire and have no further force and effect (except for those matters, if any, which expressly survive such expiration) on the tenth anniversary of the Effective Date of the Amended Development Agreement, which is December 29, 2016. The purpose of the Second Amendment is to confirm that both the Agency and Developer have satisfactorily completed all obligations as set forth in the Amended Development Agreement, and that both parties desire to terminate the Amended Development Agreement early. Trustee Hock-DiPolito moved to approve the Second Amendment to the Development Agreement between the Community Redevelopment Agency and Water’s Edge Real Estate Acquisition, LP, to provide for early termination of the Agreement and authorize appropriate officials to execute same. The motion was duly seconded and carried unanimously. 4.2 Deny the request to lease a portion of the former Economy Inn site for the creation of a community garden in the East Gateway. On October 10, 2014, Mr. Howard Warshauer, on behalf of the East Gateway Community Garden Steering Committee (Steering Committee), submitted a written request to the Clearwater Community Redevelopment Agency (CRA) asking to lease a portion of the former Economy Inn property (SW corner of Grove Street and N. Betty Lane that includes 20 N. Betty Lane, 1273 Grove Street, and 1277 Grove Street). The requested area is 15,675 square feet. As part of the request, the Steering Committee is asking for a three-year lease for $1 per year. Page 3 City of Clearwater Draft Community Redevelopment Agency Meeting Minutes December 1, 2014 Some members of the Steering Committee and City/CRA staff met on August 21, 2014 to discuss this request. During that meeting, staff explained that they did not support this site for a community garden. Following the recommendations from the ULI report, staff intends to prepare marketing materials for ready-to-develop sites given housing demand and availability of financing. The former Economy Inn site (1274 Cleveland Street and the surrounding parcels) is a key redevelopment site for the East Gateway District and staff wants to make sure there are no actual or perceived impediments, including infrastructure such as additional fencing, plumbing, etc., to attract a redevelopment project and potential developers. In addition, given the size of the entire assemblage (2.2 acres), this site offers the best opportunity to market/attract a catalytic project for the East Gateway neighborhood. Staff supports the creation of a community garden in the East Gateway and agrees that it is a great community building tool. However, staff recommends denying the Steering Committee ’s requested location. From staff personal experience and research, community gardens are typically created in parks, green space and small parcels that are difficult to be developed, and not at key redevelopment sites. At the 2014 Florida Redevelopment Association Conference in Miami, several CRA Directors and staff from other CRAs expressed concern about using a vacant key redevelopment site to host a community garden. As an additional example, NYC Parks GreenThumb “provides programming and material support to over 600 community gardens in New York City… The majority of GreenThumb gardens were derelict vacant lots renovated by volunteers.” Furthermore, after a community garden is established, many times the community becomes so entrenched with the site that it becomes difficult to relocate the garden, even with prior agreement. This happened in New York City, where several vacant lots were converted to community gardens and ended up becoming designated parks due to political and community pressure. After reviewing the written request from the Steering Committee, staff would like to identify additional items of concern: • As of November 11, 2014, the Steering Committee had not identified another spot for the community garden to relocate should a redevelopment opportunity for the former Economy Inn site comes forward. • As of November 11, 2014 there was no official status of the Steering Committee (only verbal agreement with the Clearwater Garden Club to be the umbrella organization). Page 4 City of Clearwater Draft Community Redevelopment Agency Meeting Minutes December 1, 2014 • No East Gateway residents or businesses participate in the Steering Committee planning and meetings (note: Nature’s Food Patch has agreed to be a sponsor of the community garden). • The proposed business plan does not identify a funding source to cover the water and electrical expenses. • The proposed business plan does not identify a funding source to cover the expenses to fence the community garden from the rest of the CRA property (1274 Cleveland Street). • Under Budget Revenue (page 14 of request), the CRA and the City are listed as potential sponsors, both at the beginning of the project and for “ongoing annual revenue.” However, there is no identified request so the City or CRA cannot determine the fiscal impact. As background, on October 27, 2014 staff visited the Dunedin Community Garden and met with its Garden Manager. During the October 23, 2014 East Gateway Stakeholder Advisory Group (SAG) meeting, the community garden efforts were discussed as part of the agenda. Out of the 7 SAG members that were present, 3 members were strongly opposed to the use of the former Economy Inn site as a community garden, 1 member was in favor, and 3 did not express any opinion. At that meeting, the SAG made a motion that was unanimously passed, that, if the City Council denies the request of the Steering Committee to use the former Economy Inn site for the creation of a community garden, the City assign a staff person to assist the Steering Committee with finding a suitable location in the City of Clearwater. Staff has identified the following locations as potential candidates for a community garden in the CRA or in close proximity to the CRA. However, these potential sites require further evaluation. In random order, those sites are: • Crest Lake Park; • Skycrest Elementary School (10 N. Corona Avenue, Clearwater); • City-owned lot in the East Gateway (0 Cleveland Street, parcel ID 15-29- 15-64890-002 -0050, just east of the Stevenson Creek); and • City-owned grass lot in the Downtown District, to the west of the new Fire Station 45 (1125 Brownell Street, parcel ID 15-29-15-58338-002-0070, 4,230 square feet). Staff will continue to evaluate additional sites with the Steering Committee. Community Development Manager Ekaterini Gerakios Siren said she visited the Dunedin Community Garden, which is a small city park site that is not identified as key redevelopment site. On October 23, 2014, the East Gateway Stakeholders Advisory Committee discussed the Economy Inn site for a potential community garden; three members opposed community gardens, one member supported, and three abstained. The Committee did support assigning city staff to assist the Steering Committee with identifying a suitable community garden site if the Economy Inn site was not approved by the CRA. Page 5 City of Clearwater Draft Community Redevelopment Agency Meeting Minutes December 1, 2014 In response to questions, Ms. Gerakios Siren said if the oaks at the Stevenson Creek site were trimmed, there would be enough space for approximately twenty flowerbeds. The Skycrest Elementary School site has vacant land to accommodate a community garden, providing an opportunity to engage students to learn about gardening. The City has owned the Economy Inn site since 2010. CRA Executive Director Rod Irwin said the CRA purchased the site during the recession and land-banked until it was appropriate to be marketed for sale. Economic Development and Housing Director Geri Campos Lopez said the homes along Grove Street are under private ownership and not part of the land assemblage. Community gardens should be located on parcels that are hard to develop. Once established, it is difficult to move the garden from the site if sold for redevelopment purposes. It is recommended that the garden be located in an appropriate location from the beginning. In response to a suggestion, Mr. Irwin said potential developers look at the area and consider how fast it can market and access the site. If a garden is located on the Economy Inn site, developers may pause from proceeding with an opportunity if there is a perceived political challenge with relocating the garden. In response to questions, Ms. Gerakios Siren said the Steering Committee will be responsible to speak with the School Board regarding the school site as it is not a city-led project. Staff has not reviewed all city-owned lots that could potentially host a community garden. The Steering Committee felt the proposed site was the easiest location to have a community garden and start the initiative. The Committee in August proposed a two-year lease with a two-month termination notice requirement, when they submitted a written agreement, it was a three-year lease with a six-month termination clause. Eleven individuals spoke in support. In response to questions, Steering Committee representative Howard Warshauer said the Committee did not take a vote. Nature’s Food Patch is aware of the Committee’s proposed site and supports the project. Trustee Polglaze moved to reject staff’s recommendation. The motion was duly seconded and carried unanimously. Trustee Jonson moved to direct staff to negotiate and propose a lease for CRA approval. The motion was duly seconded. Discussion ensued with support expressed for moving the garden to the school location if the property is bought or leased** and limiting the lease to a three-year renewable lease with a six-month termination clause. Upon the vote being taken, the motion carried unanimously. Page 6 City of Clearwater Draft Community Redevelopment Agency Meeting Minutes December 1, 2014 5. Adjourn The meeting adjourned at 2:21 p.m. Chair Community Redevelopment Agency Attest City Clerk Page 7 City of Clearwater Draft Cover Memo City of Clearwater City Hall 112 S. Osceola Avenue Clearwater, FL 33756 File Number: ID#15-1030 Agenda Date: 3/16/2015 Status: Agenda ReadyVersion: 1 File Type: Action ItemIn Control: Community Redevelopment Agency Agenda Number: 4.1 SUBJECT/RECOMMENDATION: ULI Recommendation 34 - CRA Bond Issuance SUMMARY: The recently completed Urban Land Institute (ULI) Advisory Panel Report indicated the CRA should consider a more aggressive approach to the bonding of TIF (Tax Increment Financing) revenue to “leverage an income stream to generate significant capital to invest in redevelopment projects.” The ULI Panel further concluded that the CRA “could generate $18 million to $20 million if the CRA is willing to accept some risk.” As with a recommendation of this nature, it requires a sensitivity analysis to identify pros, cons, risk and reward to the issuing agency. To that end, CRA staff felt it was timely and appropriate to have the CRA Financial Advisor, with input from Bond Counsel, review the recommendation from a local financial and operational conditions perspective. CRA and Finance staff would offer the following summary comments/considerations: 1.The issuance of TIF bonds is an established and legal technique for the redevelopment toolbox under the appropriate conditions and risk evaluations. The most frequent redevelopment scenario lending itself to TIF bond issuance is large parcel redevelopment where additional, significant ratables are projected to offset and underwrite the added debt service. The argument for issuance of debt is also strengthened by a strong market condition whereby the proposed development has a strong likelihood of financial success, thus assuring the revenue stream to satisfy debt services. Use of TIF bonds for other commercial projects, as part of a redevelopment package of incentives, is entirely appropriate, as long as the CRA recognizes and acknowledges the risk profile of the credit supporting the debt service. ULI acknowledges this risk/reward consideration in their report. Should the project not materialize, or fail to generate sufficient additional funds to support debt service, the CRA must be prepared to carve out the debt service from existing CRA funds. It then also becomes an opportunity cost calculation vis-à-vis other CRA programmatic demands. Nonetheless, it is quite possible that catalyzing a project like The Strand could require a significant CRA financial participation to make the numbers work but with a much higher risk to the CRA than has been the comfort level of the Board to date. This willingness to accept a greater risk tolerance seems to be the thrust of the ULI report on bonding. Examples, in a case like The Strand, could involve traditional equity investment as a mezzanine tranche; balloon loans repayable upon refinance with accrued interest; or property acquisition and discounted re-sale to a third party, etc. All intended to make the numbers work for a private developer to redevelop the parcel. Page 1 City of Clearwater Printed on 3/11/2015 File Number: ID#15-1030 TIF bond issuance could also be useful for a large public capital need which could not be underwritten by the CRA annual revenues. CRA has not faced that situation in the recent past, but projected large-scale investments in Coachman Park, Intermodal Center and/or a Downtown Parking garage could present such a condition. A dedicated debt service from TIF revenues would be required. 2.To date, CRA has been able to underwrite large financial transactions through loans from the City, thus avoiding the interest premium and costs of issuance of a bond issue. The interest rate differential between the borrowing of city funds and an unsecured bond issue would be in the 200-300 basis point range, thus saving the CRA 2%-3% interest payments and freeing up TIF revenues for other CRA programs. For example, the CRA financed the $3.4 million Economy Inn acquisition with a loan from the Central Insurance Fund at the backward-looking interest rate equivalent to the investment return on money market investments by the City. The interest rate spread and avoidance of issuance costs were significant. Use of this internal financing strategy has proven to be preferable where conditions allow. Staff would consider a bond issuance only after internal opportunities have been fully vetted. 3.ULI indicated the CRA could issue $18-20 million in TIF bonds. At the same time, the Financial Advisor’s White Paper concludes that this level of issuance could only be supported by TIF revenues if annual collections reached $2.5 million and the CRA committed 100% to TIF debt service. However, TIF revenues (City + County-DDB) over the past 10 years have averaged only $1.7 million, with annual collections varying between $1 million and $2.3 million. The CRA Financial Plan anticipates only modest TIF growth over the foreseeable future. The take away is that the $20 million ULI issuance opportunity projection is unlikely to be realizable and the wide fluctuation in collection history over the past economic cycle warrants caution. Furthermore, the debt service availability must be reduced by the $500,000-$600,000 needed to underwrite the CRA operating budget and expenses. Without a significant change in the CRA Work Program, it appears that only $300,000-$500,000 would be available for debt service, resulting in a bond issuance of $2 million-$3M million if the full County share is available. Without the certainty of the County share, a much smaller issuance would be feasible. Furthermore, a bond issuance utilizing the County share would require County concurrence as to purpose and use. As recommended in the White Paper, no bond issuance should include County share availability until the length/terms of extension of the County share part 2019 is determined. 4.As highlighted by the Financial Advisor, the CRA likely has the ability to issue bonds at a competitive rate, with a pledge of TIF tax collections but without a backstop or credit guarantee from the City. Nonetheless, the Financial Advisor prudently raises the caution that it is indeterminate what effect a default by the CRA would have on the broader credit position of the City. The City/CRA Financial Advisor will be available to address questions at the March 16 CRA meeting. Page 2 City of Clearwater Printed on 3/11/2015 File Number: ID#15-1030 Page 3 City of Clearwater Printed on 3/11/2015 STIFEL, NICOLAUS & COMPANY, INCORPORATED 111 N. MAGNOLIA AVENUE, SUITE 1175 | ORLANDO, FL 32801 | (407) 956-6804 | MEMBER SPIC & NYSE PAGE 1 To: Rod Irwin, Assistant City Manager, City of Clearwater, Florida Jay Ravins, Finance Director, City of Clearwater, Florida From: Matthew Sansbury, Financial Advisor, Stifel, Nicolaus & Company, Incorporated Alex Bugallo, Financial Advisor, Stifel, Nicolaus & Company, Incorporated Re: Tax Increment Financing “White Paper” Date: February 20, 2015 TIF Overview and History Tax increment financings (“TIFs”) were first introduced in California in 1952 as a way of providing matching funds for federal urban renewal plans. As the federal government lessened its role in funding for urban development, the use of TIFs significantly increased. During the 1970s, federal dollars for urban renewal continued to decline, and TIFs became an alternate way to fund redevelopment projects. This increased interest in TIFs spread in the 1980s and 1990s as the federal role in redevelopment was eliminated. More states began to pass laws governing TIFs, and now there are TIF related laws in 49 states (all except Arizona) and the District of Columbia. There are two fundamental ways TIFs can be used. One is where TIF revenues are used on a “pay as you go” basis where the annual stream of revenue is used to fund relatively small projects. The other is “pay as you use” where TIF revenues are used to pay debt service costs over the life of a project lasting multiple years (usually 10 years or more). In either method, TIFs have been effective at generating large amounts of funding for capital investments for roadway improvements, flood control programs, water and sewer and drainage infrastructure improvements, parking lots and garages, neighborhood parks, sidewalks, streetscape projects, signage, and building construction, among others. Tax increment revenues can be used when they are related to development in the designated redevelopment areas. These include expenditures for administrative and overhead expenses, planning and analysis, acquisition of real property in the redevelopment area, clearance and preparation of sites and relocation costs for site occupants, repayment of debt and expenses incidental to indebtedness, expenses incurred for the issuance, sale, redemption, retirement, or purchase of agency bonds, and development of affordable housing. Tax increment revenues can also be used with other county, state, and federal funding sources (advances, loans, tax increment revenue bonds, incentives, grants, etc.) to carry out a redevelopment plan. Overview of Florida CRAs / TIFs The Florida Community Redevelopment Act of 1969 (the “Act”) provides for the establishment of a community redevelopment agency (“CRA”). The legislature’s goal is to encourage neighborhood revitalization in downtowns and to provide maximum opportunities for private enterprise to participate in the revitalization of the designated areas. This partnership between the public and private sector is crucial to the success of any redevelopment plan. The primary objective of Florida’s redevelopment legislation is based on the state’s interest in protecting the health, safety, welfare, and morals of the community. Florida law defines a “blighted area” as one in which there are deteriorated and deteriorating structures where economic distress or endangerment to life or property exists. Its goals focus on eliminating the physical, social, and economic problems related to slum and blight by improvement of the physical environment (buildings, streets, utilities, parks, etc.) through rehabilitation, conservation, clearance, and redevelopment. Additional goals include acquiring blighted property, enhancing tax bases with private reinvestment, eliminating poor housing conditions, and providing affordable housing to residents of low and moderate income. The original version of the Act did not include mention of TIFs, but rather was primarily used to assemble redevelopment sites and to enter into agreements with developers. But a dedicated source of funding to finance major redevelopment projects was needed. In 1976, a Florida constitutional amendment authorizing TIFs was defeated by voters. That amendment was based on the California law that diverted ad valorem tax revenues from the local government to a redevelopment trust fund. The next year the Florida Legislature adopted an amendment to the Act (Section 163.387, Florida Statutes) to allow CRAs to use TIFs. This statutory approach differed from the constitutional amendment because the property tax revenue goes to the local government first and is then appropriated to the trust fund of the CRA. STIFEL, NICOLAUS & COMPANY, INCORPORATED 111 N. MAGNOLIA AVENUE, SUITE 1175 | ORLANDO, FL 32801 | (407) 956-6804 | MEMBER SPIC & NYSE PAGE 2 As mentioned previously, TIFs represent a traditional “invest and grow” approach that local governments can use to generate growth within blighted areas. The Act allows a CRA to annually capture and spend a portion of the incremental increase in ad valorem tax revenues resulting from redevelopment. The tax increment — the increase in real property taxes from the difference between the taxes generated before and after the investment in real property — is used by TIFs to fund a portion of the costs for improvements. The value of real property in the CRA is determined as of a fixed date with a frozen base year assessed value. The taxing authorities continue to pay tax revenue dollars on these property tax revenues based on the frozen base year assessed value, which is available for general government purposes. For purposes of calculating the tax increment revenues thereafter, 95% of ad valorem taxes are collected from an increase in value of the real property within the redevelopment area over the frozen base year assessed value. The hope is that as the time period of the CRA increases, its property values increase, and the tax increment revenue increase. In Florida, if a CRA has approved a plan before July 1, 2002, the law permits TIFs for 30 years after the plan has been adopted up to a maximum of 60 years. For CRAs established on or after July 1, 2002, the TIF limitation period is 40 years. On or before March 31 of every year, a CRA must file with the governing body a report of its activities for the preceding fiscal year, including a financial statement setting forth its assets, liabilities, income, and operating expenses as of the end of its fiscal year. While there are other financing tools available, TIFs have been a common method used in Florida and elsewhere to increase investment and growth in local government development. The Pros and Cons of TIFs TIFs have been and continue to be a source of infrastructure funding in Florida and throughout the nation. Questions that often arise about TIF’s include: Can TIFs help local governments redevelop their urban downtown neighborhoods in an efficient manner? How valuable of a redevelopment tool are TIFs? Should TIFs be the preferential choice for local government development, or are there better alternatives? Some of the arguments in favor of and in opposition to TIFs are as follow: Arguments in Support of TIFs: 1) Even though TIFs initially benefit a special district, the entire community can be energized and helped in the long run. Economic development can happen steadily and naturally throughout the community. The result can include a more solid economy, an increase in employment, and greater appeal to residents, businesses, and developers. 2) By promoting economic opportunity, TIFs can stimulate private investment in a community by encouraging the private and public sectors to form a solid partnership as they collaborate and work together. 3) TIFs support redevelopment projects without increasing taxes, and TIFs can be used without impacting a municipality’s debt limit or financial stability. 4) TIFs can use loans to finance capital assets and infrastructure in a district. These loans are repaid in installments by using incremental revenue from ad valorem taxes (or other taxes outside of Florida) collected from said district. Without TIFs, new development or redevelopment in blighted areas would be difficult to fund and growth could remain stagnant. 5) TIFs are one method to finance economic development and are not mutually exclusive to other methods. There are other funding sources available that can be used alongside TIFs to help support growth. 6) Once well established, TIFs can provide a consistent funding source for redevelopment activities in the district. This helps local governments implement long range and large scale projects with a steady stream of revenue. Arguments in Opposition to TIFs: 1) Local government officials decide which geographic areas need TIFs for development. TIFs do not require voter approval and therefore the public often does not have as strong of a “voice” in this form of development. 2) Projected dollar returns of TIF over long periods — 10, 20, 30 years or more — are speculative and can often be too optimistic. There are numerous market forces that cannot be predicted with reasonable certainty and that can drive values up or down during the duration of a CRA. 3) When the tax increment of a CRA increases, the growth is not shared among all government units. Other overlapping taxing entities may have to raise taxes to meet their rising operating costs since they do not benefit from the property appreciation STIFEL, NICOLAUS & COMPANY, INCORPORATED 111 N. MAGNOLIA AVENUE, SUITE 1175 | ORLANDO, FL 32801 | (407) 956-6804 | MEMBER SPIC & NYSE PAGE 3 values within a CRA. TIFs can boost economic growth, but at a cost of higher taxes by other overlapping local governments trying to meet their rising costs. 4) TIFs benefit private sector development with the use of public revenue. Some believe that private development should not be supported from investments of public funds. Historic Issuance of TIF Bonds Since 2000, there have been 2,708 TIF bond financings completed throughout the country, valued at a total par amount in excess of $42.2 billion. A large percentage of these financings (43% when looking at total number of issuances) were completed by California municipalities. In Florida, there have been 28 TIF bond financings completed since 2000, valued at a total par amount of just over $715 million. From 2003-2007, an average of 255 TIF bond financings were completed each year; however, since the economic recession hit in 2008/2009 and property values decreased nationwide, average annual issuance of TIF bond financings has decreased over 50% to an average of 126 issuances per year. The graphic below highlights the annual issuance of TIF bond financings since 2000: TIFs and the Rating Agencies Of the 2,708 TIF bond financings completed since 2000, half were issued without underlying ratings while the other half were issued with investment grade ratings (“BBB” or higher) from at least one of the three major rating agencies (Moody’s, S&P and Fitch). Prior to the economic downturn and the downgrading of all major credit enhancement (bond insurance) providers, it was commonplace to issue TIF bonds without underlying ratings and simply rely only on the ratings of the credit enhancement provider. Since the economic downturn, more TIF bonds have been issued with ratings that reflect the true credit characteristics of the district and the tax increment revenue source. As shown in the graphics below, the percentage of TIF bonds issued without an underlying credit rating has fallen significantly over the past few years, while those with a strong “A” or “AA” rating has greatly increased. As the rating agencies begin the process of assigning a rating for TIF bonds, there are several general credit considerations and risks that they analyze and evaluate, as discussed on the following page. 0 50 100 150 200 250 300 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 200020012002200320042005200620072008200920102011201220132014 National TIF Issuance Since 2000 Par Amount ($B) - Left Axis Number of Deals - Right Axis "AAA"1% "AA"10% "A"28% "BBB"11% Not Rated50% Underlying Ratings of TIF Issuances Since 2000 "AA"20% "A" 43% "BBB" 8% Not Rated29% Underlying Ratings of TIF Issuances Since 2010 STIFEL, NICOLAUS & COMPANY, INCORPORATED 111 N. MAGNOLIA AVENUE, SUITE 1175 | ORLANDO, FL 32801 | (407) 956-6804 | MEMBER SPIC & NYSE PAGE 4 Credit Considerations: 1) Economy – The economic depth/diversity and trends of the area generating the pledged revenue stream. Factors like employment and income levels, development status and trends, local real estate and assessment trends, acquisition of property by tax-exempt entities, pending and historical tax appeals, tax collection trends, property composition, etc. 2) Debt Service Coverage – This is calculated based on currently pledged ad-valorem incremental revenues divided by maximum annual debt service. Debt service coverage needs to demonstrate that is has the ability to cover potential stress from broad based assessed valuation (AV) decline of the CRA and loss of top taxpayers. 3) Taxpayer Diversity – Rating agencies evaluate taxpayer concentration by looking at leading taxpayers AV as a percent of project area incremental AV. Included in this evaluation is the concentration in economically-dependent taxpayers, the concentration in just a few taxpayers, and the concentration in transportable property. The more diversity and the less concentrated that a CRA’s top ad valorem tax payers are, the more favorable the treatment from the rating agencies. 4) Tax Base Volatility – This metric is calculated by comparing the base year AV divided by the total or current AV. A volatility ratio of 0.50 (where total/current AV is double that of the base year AV) means that a 1% change in AV produces a 2% change in tax increment revenue. 5) Bond Provisions – These legal parameters are embedded within the authorizing bond documents and includes security pledge (and possible back-up security pledge), flow of funds, bond covenant and additional bonds test (ranging from a low of 125% to 150% of maximum annual debt service), debt service reserve fund (fully funded at three-prong test with cash or highly-rated surety), etc. 6) Legal/Statutory Environment – Other legal parameters include expiration date of the CRA, tax initiatives, pending lawsuits, agency tax-sharing agreements, etc. Credit Concerns: 1) Lack of Tax Raising Flexibility – The primary concern of rating agencies with regards to TIFs is that the millage rate set on properties within the district and the tax revenue collection practices are outside of the CRA’s control. 2) Other Concerns – Declining property values, significant taxpayer concentration, tax appeals, change in property tax status, state tax law changes, etc. TIFs Pre or Post Development For newly established TIF districts with no incremental tax revenues, there are only two main options for securing a standalone financing. The district could either wait until its existing tax base appreciates in value due simply to market appreciation, possibly spending the tax increment revenues on a “pay as you go” basis to speed up this process, or it could seek a developer and execute a development agreement for vertical construction of a project consistent with the goals of the district with the hopes of significantly increasing the district’s taxable value once construction is complete. Considering how long it can take for a district’s taxable values to appreciate in an amount sufficient to secure financing when utilizing the first approach, many new districts are created with a project already in mind. Once a development agreement is signed and all of the required studies and authorizing documents have been completed, the district may be able to issue TIF bonds. Proceeds from such bonds are typically used for eligible infrastructure projects within the district and the principal and interest on the bonds is repaid from tax increment revenues derived from the project. Depending on the size of the district, the original project can lead to further surrounding development and therefore increase tax increment revenues captured to pay the bonds and/or to help fund other eligible projects. Generally, start-up TIF financings of this sort carry more risk and often lower credit ratings, if any at all, than districts that finance with existing tax increment revenues as the security. When structured appropriately, however, some of these risks can be mitigated and therefore lead to a successful project and efficient financing. Older and more established districts that have a history of generating meaningful tax increment revenues may have the flexibility to issue TIF bonds to fund infrastructure improvements without any predisposed new development/redevelopment project. The intent of this strategy is to improve the overall infrastructure and enhance the appeal of the district in order to lure new development (the so-called “build it and they will come” philosophy). Since the size of such financing would be limited to the district’s historical tax increment revenues with little-to-no appreciation and/or new construction assumptions, this type of financing is often viewed to be less risky than start-up projects. However, as with any “build it and they will come” strategy, there is a risk that new development and/or redevelopment will not follow. In this case, while the infrastructure projects may add visual appeal, there is always the hindsight thought that proceeds could have been spent in alternative projects that would have resulted in a better return on investment. STIFEL, NICOLAUS & COMPANY, INCORPORATED 111 N. MAGNOLIA AVENUE, SUITE 1175 | ORLANDO, FL 32801 | (407) 956-6804 | MEMBER SPIC & NYSE PAGE 5 Overview of the Clearwater CRA Pinellas County’s Board of County Commissioners delegated community redevelopment powers to the City of Clearwater for a redevelopment district on June 30, 1981. In 1981, the Clearwater City Council initially created a CRA in the downtown area (referred to as the “old” CRA herein). This redevelopment district encompassed approximately 247 acres and was bordered by Drew Street to the north, Fredrica Avenue to the east, Chestnut Street to the south, and Clearwater Harbor to the west. A redevelopment trust fund and the appropriation of ad-valorem tax increment revenues from both City’s and the County’s ad valorem tax rate (millage) to the trust fund were established in 1982. On August 8, 2002, the Clearwater City Council declared an East Expansion Area of the Downtown District as a slum or blighted area and sought County delegation to carry out community redevelopment powers in this expansion area. The expanded area (now generally known as the East Gateway and referred to herein as the “new” CRA), extends eastward to Highland Avenue, northward to Drew Street and southward to Court Street and is approximately 202 acres. In October 2002, the County approved the expansion as a Community Redevelopment District and authorized the Clearwater City Council to create a CRA and prepare a redevelopment plan for the expanded area. On September 18, 2003, the Clearwater City Council adopted the Clearwater Downtown Redevelopment Plan and amended it on December 4, 2003. After the County’s approval of this plan on December 16, 2003, the City created a redevelopment trust fund with adoption of Ordinance No. 7214-03 on January 15, 2004. The County subsequently adopted Ordinance No. 04-10 on February 9, 2004 that created the new redevelopment trust fund and the County’s appropriation of their tax increment to the redevelopment trust. As part of the County’s approval, Ordinance 04-10 placed two restrictive conditions on the CRA: 1) the County’s portion of the tax increment could only be used for capital improvements, land acquisition, and environmental remediation, and 2) the County established a 15-year review period to determine if it wants to dedicate the County’s portion of tax increment, at the existing level, beyond 15 years. As part of the County’s approval in 2004, the CRA was authorized the use of TIFs for both the original and expanded CRA for a 30-year period expiring in 2034. It should be noted that prior to any TIF backed bond issuances being completed, it is imperative that the City work through the review process with the County and “lock-in” the County’s tax increment commitment until the CRA’s expiration in 2034; otherwise, any financing would be limited to the ad valorem tax increment derived from the City’s millage, which would greatly reduce the amount that can be borrowed to fund projects. Clearwater CRA Historical Taxable Values and Tax Increment Revenues Provided in the table below are the historical taxable values of Clearwater’s “old” CRA and the “new” CRA since FY 2005, based on base years of 1982 and 2004, respectively. Provided in the table below are the historical tax increment revenues generated from the Clearwater CRA. The CRA has generated on average approximately $1.8 million in annual revenues over the past ten fiscal years; however, these revenues have fluctuated drastically from a high of $2.5 million in FY 2010 to $1.5 million as recently as FY 2013. The fluctuation in tax increment revenues is due to the significant decline in taxable values and, to a lesser extent, changes to the City and County millage rates. SourceFY 2005FY 2006FY 2007FY 2008FY 2009FY 2010FY 2011FY 2012FY 2013FY 2014 "Old" CRA Base Year (1982)$84,658,490$84,658,490$84,658,490$84,658,490$84,658,490$84,658,490$84,658,490$84,658,490$84,658,490$84,658,490 "Old" CRA Taxable Value$178,586,200$205,127,400$257,673,512$257,778,624$246,088,543$299,220,932$256,776,159$239,182,002$228,780,393$239,100,109 "Old" CRA Incremental Value$93,927,710$120,468,910$173,015,022$173,120,134$161,430,053$214,562,442$172,117,669$154,523,512$144,121,903$154,441,619 "New" CRA Base Year (2004)$88,234,600$88,234,600$88,234,600$88,234,600$88,234,600$88,234,600$88,234,600$88,234,600$88,234,600$88,234,600 "New" CRA Taxable Value$88,234,600$102,228,700$129,860,940$143,146,902$134,103,909$116,499,344$94,021,659$80,920,649$72,680,563 $74,277,942 "New" CRA Incremental Value$0$13,994,100$41,626,340$54,912,302$45,869,309$28,264,744$5,787,059($7,313,951)($15,554,037)($13,956,658) Combined CRA Incremental Value$93,927,710$134,463,010$214,641,362$228,032,436$207,299,362$242,827,186$177,904,728$147,209,561$128,567,866$140,484,961 Clearwater CRA Historical CRA Taxable Values SourceFY 2005FY 2006FY 2007FY 2008FY 2009FY 2010FY 2011FY 2012FY 2013FY 2014 Tax Increment - County$547,969.56$784,450.48$1,115,383.84$1,057,169.97$961,161.07$1,125,891.29$825,028.28$715,574.89$694,773.77 $783,525.19 Tax Increment - City$513,347.81$734,887.41$1,062,122.73$1,013,333.96$930,593.78$1,189,185.43$871,243.92$756,740.27$705,800.99$756,339.22 Tax Increment - DDB$89,231.32$114,445.46$164,364.27$158,747.25$148,029.26$196,789.27$157,851.07$141,719.95$132,183.29$141,667.79 Total Tax Increments$1,150,548.69$1,633,783.35$2,341,870.84$2,229,251.18$2,039,784.11$2,511,865.99$1,854,123.27$1,614,035.11$1,532,758.05$1,681,532.20 Clearwater CRA Historical Tax Increment Revenues STIFEL, NICOLAUS & COMPANY, INCORPORATED 111 N. MAGNOLIA AVENUE, SUITE 1175 | ORLANDO, FL 32801 | (407) 956-6804 | MEMBER SPIC & NYSE PAGE 6 Clearwater CRA Bonding Capacity The table below highlights the Clearwater CRA’s estimated bonding capacity taking into account differing amounts of annual tax increment revenues available to pay debt service. On the highest end, if the CRA were able to produce annual tax increment revenues of $2.5 million (equal to the amount generated in FY 2010) and bonded against 100% of these revenues (with a 1.5 times coverage factor), it could generate approximately $19.3 million which could be used for various capital projects within the CRA. It should be noted that a City-backed financing would more than likely result in a lower interest cost due to presumably a more stable credit and higher credit ratings. A City-backed financing also may not need a debt service reserve fund (DSRF) deposit as assumed in the TIF financing presented herein. In addition, a lower debt service coverage level (1.25%) may be justifiable for a City- backed credit. Finally, a City-backed financing would likely require a referendum with the associated costs and risk of outcome. Clearwater CRA Ratings The actual credit rating(s) of a CRA offering will depend on a number of the factors discussed previously, including debt service coverage (bond covenants), additional bonds test, size and diversity of the CRA’s tax base and payers, debt service reserve fund, general economic conditions within the CRA and throughout the City/County, and projected taxable values, to name a few. Assuming that legal and financial parameters set forth in the authorizing documents are structured in a conservative manner, we believe that the Clearwater CRA could achieve investment grade ratings (“BBB” or higher) without any additional security or pledge from the City. The bonding capacity numbers provided above are based on this assumption. The City’s Role and Obligations As previously stated, the CRA has the legal authority to issue debt (loans/bonds) secured solely by its ad valorem tax increment revenues to help fund eligible projects. We would anticipate that the City will be required to assist the CRA in the preparation and/or review of legal, disclosure, rating agency, and marketing documents required for a public offering of TIF bonds. From a financial perspective, a standalone CRA bond issuance can be structured without any legally binding financial obligation of the City. It should be noted, however, that while the City may not have any binding financial obligation to pay the debt service on CRA bonds in case of a shortfall in tax increment revenues, it is difficult to predict and/or assess the repercussions (if any) from the investment community and the rating agencies alike for allowing the CRA bonds to go into default. Disclosure Stifel, Nicolaus & Company, Incorporated (“Stifel”) is providing the information for discussion purposes and is declaring that it has done so within the regulatory framework of MSRB Rule G-23 as a financial advisor, as defined therein, and not an underwriter to the issuer for this proposed issuance of municipal securities. A “financial advisory relationship” shall be deemed to exist when a firm enters into an agreement to render financial advisory or consultant services to or on behalf of an issuer with respect to the issuance of municipal securities, including advice with respect to the structure, timing, terms and other similar matters. Accordingly, any services provided by Stifel as they relate to our role as financial advisor should not be construed as those of an underwriter or placement agent. 25%50%75%100% $1,600,000 $2,848,750$5,982,750$9,140,000$12,263,500 $1,800,000 $3,250,000$6,775,000$10,310,000$13,840,000 $2,000,000 $3,637,250$7,558,750$11,485,500$15,402,000 $2,500,000 $4,618,500$9,521,750$14,425,000$19,323,500 Assumptions: 1) Dated and delivery date of 5/1/15; annual principal maturities 11/1/15-11/1/34 2) Interest rate of 5.00% (compared to estimated interest rate of 3.00%-3.50% for City-backed debt) 3) 1.50 times debt service coverage used in all scenarios 4) Fully funded DSRF equal to maximum annual debt service (approx. 8% of issuance amount) 5) Total costs of issuance of $250,000 An n u a l T a x In c r e m e n t Re v e n u e s % of Revenues Utilized Clearwater CRA Bonding Capacity Analysis