Enhanced Tools and New Rules:

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Presentation to the

Imperial Valley Economic Summit

Enhanced Tools and New Rules:

Economic Development in a Post-RDA Era

by:

Dan Massiello, Senior Vice President of Public Finance, Kosmont Companies

865 S. Figueroa Street, Suite 3500, Los Angeles, CA 90017 213-417-3300

www.kosmont.com

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How do the Pieces Fit Together?

The Problems:

• Greenhouse Gas Emissions (GHGs)

• Drought

• Climate Change

• Insufficient regional transportation

• Aging Infrastructure

 Water transportation infrastructure  Sewer infrastructure

 Electric & utility plants

• New Infrastructure Needed

 For shift to multifamily housing

 Transit-Oriented Development in designated high-quality transit areas

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Economic Development and Sustainable Public Policy

How does the new Legislation provide Opportunity?

Sustainable Policy

Compliance

Economic Development

New Revenues and Jobs

SB 628 (Beall)

Enhanced Infrastructure Financing Districts

SB 614 (Wolk)

Jurisdictional Changes for Special District/Annexed area for Infrastructure Financing

AB 229 (Perez)

Infrastructure and Revitalization Financing Districts on Former Military Bases

SB 743 (Steinberg)

CEQA: Environmental Quality Streamlining for TOD / Infill Dev.

AB 850 (Nazarian)

Financing Public Capital Facilities: Water Quality

AB 1471 (Proposition 1; Rendon)

Financing Water Quality, Supply and Infrastructure Improvement: Bond Issuance

AB 2660 (Aguiar)

Infrastructure Financing Act: User Fees and P3s

Local & Regional Infrastructure

AB 32 (Perez)

Cap and Trade: Community Development Investment Tax Credits

SB 375 (Steinberg)

GHG Emissions Reductions: Sustainable Communities Strategy

AB 1739 (Dickinson)

Groundwater Management: Sustainability Plan & Extraction Reporting

SB 1168 (Pavley)

Groundwater Sustainability Agency & Plan: High- and Medium-Priority Basins

SB 1319 (Pavley)

Sustainable Groundwater Management Act

SB 535 (De Leon)

Greenhouse Gas Reduction Fund: Benefits to Disadvantaged Communities

Regional Sustainability

Successful

Post-RDA Projects

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Economic

Development

Real Estate

Project

Pledge of Taxes / _Revenues

Land Use / Zoning

(Higher Density; Parking) P3 / Project Delivery Methods Enhanced Infr. Financing Districts (EIFDs) Joint Powers Authorities (JPAs)

Post-RDA Economic Development

Cities have 7 BASIC TOOLS for Public/Private Projects

These tools often work best when used together

Special Districts (Tourism, BIDs, etc.)

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Economic

Development

Real Estate

Project

Post-RDA Economic Development

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Real Estate & Property

Cities have 7 BASIC TOOLS for Public/Private Projects

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RDA Property: “New Rules” & Unique Opportunity

427 former Agencies must complete Property Management Plans by mid-2014

Economic development can materialize

by strategically managing

PMP tasks & disposition of former RDA properties

One-time opportunity

to use PUBLIC PROPERTY and ZONING

tools together: “PMP” can produce private investment for a City

Over 3,000

former RDA properties must be disposed of

starting in Q1

To sell property,

SAs need OB and DOF approval

of

a Purchase & Sale Agreement. However, SAs can sell

without OB/DOF approval via auction

Some properties need remediation - achievable per

SB 470 (Wright) which

extends “Polanco” to cities

Economic Development can materialize by

strategically managing PMP asset sales

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1 _{Based on Kosmont Companies research}

*DOF = Department of Finance, FOC = Finding of Completion, PMP = Property Management Plan

PMP* STOPLIGHT

100 Successor Agencies waiting for a FOC*

(includes approximately 80 lawsuits)

327 FOCs issued between February 2013 – April 2015

(Of those, 318 PMPs are submitted and/or due by April 30, 2015)

215 PMPs Approved by the Department of Finance

DOF Approvals: 427 Successor Agencies

Current Status as of April 2015

DISCLAIMER: This information was compiled by Kosmont Companies based on best information available and is preliminary in nature. Kosmont Companies makes no representations regarding the accuracy or suitability for use of this information.

Property Management Plans (PMPs) Update

865 South Figueroa Street 35th_{Floor Los Angeles CA 90017 I ph 213.417.3300 I www.kosmont.com}

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Economic

Development

Real Estate

Project

Post-RDA Economic Development

Cities have 7 BASIC TOOLS for Public/Private Projects

These tools often work best when used together

Pledge of Taxes / Revenues

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Post RDA: Basic Tax & Financing Tools

FINANCING TOOL

THE BASICS

Site Specific Tax Revenue

Pledge (SSTR)

• New Tax revenues (sales, property, TOT)

generated by a specific project and applied to reduce gap. Contributes amount calculated each year based on actual increment of public revenues produced that year by project.

• Example: TOT Pledge for Hotel in Redondo Beach; Sales Tax Pledge for Retail Mall in Victorville

Lease-Leaseback

• Lease/sublease of asset between two public

agencies enables lease payments to be leveraged (borrowed)

• Example: Existing building facility, lease payments can start immediately without the need to fund capitalized interest

Lease Revenue Bonds

• Public agency income stream (utility, parking) set

up in long-term lease obligation & leveraged • Example: Lease of City Utility to Utility Authority;

lease payments fund bond payments for public infrastructure improvements for major retail center in South Gate

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Economic

Development

Real Estate

Project

P3 / Project Delivery Methods Enhanced Infr. Financing Districts (EIFDs) Joint Powers Authorities (JPAs)

Post-RDA Economic Development

Cities have 7 BASIC TOOLS for Public/Private Projects

These tools often work best when used together

(Higher Density; Parking)

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Land Use & Zoning can be E.D. Tools

1. Expedited Processing of Entitlements and Permits:



For the private sector time is money. Reduced processing time is a win-win



Shorter timeframes for CEQA and other local Permitting requirements

2. Development Agreement (DA):



Think “prenuptial agreement”



DAs lock in benefits for public & private sector: e.g. infrastructure/public

amenities

3. Specific Plans:



Incorporate “ED” priorities and convert them to zoning policy objectives

4. Development Opportunity Reserve (DOR):



Assign density for preferred uses (mixed use, retail, tax and job generators);

Reward the Buyer/investor not the owner

5. Transfer of Development Rights (TDR):



Specific Plans with an Economic Development “kicker.”

6. Post Construction Operating Covenants:

 Valuable for financing improvements made by a developer and/or tenant

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Land Use/Zoning Options- Density as E.D. Tool

Development Opportunity Reserve (“DOR”):



Problem: Upzoning used to stimulate economic development often results

in a windfall to existing landowners, not targeted end users or uses



Bright Idea: Combine Specific Plans (SP) with Econ. Development “Kicker”



Zoning/Density should protect/advance community desires as per the SP



Place ‘Added’ density into a “Reserve Account” but do not distribute per parcel



Higher density to new projects that comply with pre- set “community objectives”



Economic value of “DOR” density goes to desired projects vs. existing owners

Successful Example of DOR: Burbank Media District Specific Plan

 Burbank Media Overlay District Zone (1991- present) – allows more density

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Economic

Development

Real Estate

Project

Pledgeof Taxes / _Revenues

Post-RDA Economic Development

Cities have 7 BASIC TOOLS for Public/Private Projects

These tools often work best when used together

(Higher Density; Parking) Joint Powers Authorities (JPAs) Enhanced Infr. Financing Districts (EIFDs) P3 / Project Delivery Methods 13

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P3 Infrastructure Overview

• What is Infrastructure P3?

 Contractual Agreement between a public agency and a private sector

entity to deliver facility for the use of the general public

 P3s offer government agencies in CA an alternative mechanism for

financing vital infrastructure projects

 AB 164 - Authorizes local government agencies to use P3s to design,

finance, and maintain fee-producing infrastructure facilities

• Most Infrastructure P3 are State / Fed / Regional Projects

 Transportation: roads, bridges, tunnels, rail

 Defense: Military housing, Utilities, Reuse of Military Base

 Health: Hospitals, Schools, Prisons

 Water: Collection, Desalinization and Distribution

 Social: Civic Houses, Court Houses

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City of Oxnard – P3 Infrastructure Delivery

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The Challenge

• City looked to find a financing source and a project delivery method to build a much needed fire station on vacant 2.49 acre parcel

The Post-RDA Tools Employed

• P3 Infrastructure Delivery

• Lease Revenue Bonds

The Outcome

• Established a California Municipal Finance Authority to issue two bonds to fund project

• Bonds financed design, acquisition, construction and equipping of a “turn-key” fire station to be transferred to the City of Oxnard after 24 months • Revenue bonds earned an “A+” rating from S&P

despite the bonds assuming construction risk

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Economic

Development

Real Estate

Project

Post-RDA Economic Development

Cities have 7 BASIC TOOLS for Public/Private Projects

These tools often work best when used together

(Higher Density; Parking) Joint Powers Authorities (JPAs) P3 / Project Delivery Methods Enhanced Infr. Financing Districts (EIFDs)

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New Tool: Enhanced Infrastructure Financing Districts

 New legislation push cities to create local/regional infrastructure

projects that conserve water & reduce GHG emissions

• SB 375 sets baseline for streamlined environmental review for projects that

improve local and regional sustainability

• Cap-and-trade grant funds (GRGF) reward projects that reduce GHG

emissions with billions in potential funds

• Prop 1 contains over $7.5 billion in water infrastructure project funds

 EIFDs can finance implementation of regional infrastructure via

Public Financing Authority which uses property tax increment in

tandem with a variety of funding sources for project incentives

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EIFD - Summary of Key Terms

1. Enhanced Infrastructure Financing District

• Governmental entity established by a city or county

that carries out a plan within a defined area to

construct, improve and rehabilitate infrastructure

2. Public Financing Authority (PFA)

• Legislative body that governs the EIFD

• Composed of participating governments

and members of the public

3. Infrastructure Financing Plan

• Plan adopted by city or county. Describes public

facilities & development to be financed by the EIFD

• Implemented by Public Financing Authority (PFA)

The Area

The Team

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EIFDs – Diverse Funding Approach



Can use multiple funding sources with tax increment:

• If Bond Issuance then 55% voter approval required



Funding Sources:

• Property tax revenue including RPTTF

• Vehicle License Fee (VLF) prop. tax backfill increment

• Development Agreement / Impact Fees

• User fees

• City / county / special district loans

• Hotel TOT

• Benefit assessments

• Contribution from Special District • Levied by EIFD

• Private investment



Potential to apply State funding sources:

• Proposition 1 bond funds

• Cap-and-trade proceeds



Federal & State Grants

 Greenhouse Gas Reduction Funds

 Federal DOT/EPA/DOE funding programs

EIFD

Fund

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Types of Projects EIFDs Can Fund

Aff. Housing / Mixed Use

Civic Infrastructure Wastewater/Groundwater Light / High Speed Rail

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Successful Post-RDA Case Studies

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Case Study: South Gate – “azalea” Retail Center

The Post-RDA Tools Used

• Utility Authority Bonds for off-sites

• Infrastructure & Fee Waiver Agreement

• New Market Tax Credits (NMTC)

• EDA Grant

The Challenge

• Formerly a pipe mfg plant, the 32-acre site lay fallow & blighted for years

• City purchased the land in 2006 to revitalize community with a quality

regional retail & entertainment center – not an RDA Project

• Demographics: Highest population density in LA County, had a 16%

unemployment rate at project approval

• South Gate lost sales tax to neighboring

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The Process

• Kosmont worked closely with City of South Gate & Primestor

(developer) to fulfill City’s objectives while minimizing project gap

• Negotiated an Infrastructure Financing Agreement to fund public

off-site improvements, thereby reducing developer risk

• Despite deteriorating credit market, sold AA- rated Utility Bonds

with new funds ($8.4MM) for public improvements needed to

implement the City’s #1 E.D. priority

Case Study: South Gate – “azalea” Retail Center

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The Outcome

• Opened August 2014: 98% leased

• Project will generate $2.6M per year in sales tax revenues (2% sales tax rate)

• Created over 600 jobs; over 50% of jobs to locals (target was 30%)

• Public Plaza & Events Center, City Services Annex delivered

Current Tenants Include

:

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The Post-RDA Tools Used



Ground Lease /

Lease-Leaseback



Site-Specific Tax

Revenue Pledge (Prop &

TOT)



Mezzanine Reserve Fund

The Challenge

• City desired to utilize area near Metro station

• Odd lot size & shape; multiple ownership; and vacant condition had deterred private development

• Developer proposed 147-room Hilton Garden Inn, 172-room Marriott Residence Inn and 180 Room Extended Stay Hotel located adjacent to the Metro station

Metro

Station

Case Study: City of Redondo Beach – Marine Ave. Hotels

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The Outcome- Opened May 2014

• Without Site Specific Tax Revenue

project does get financed

• Will add over $3.5 million/year in TOT

& create ~150 jobs

• Brings quality hotel operations to the

City’s “front door”

•Hilton Garden Inn - 147 rooms

•Marriott Residence Inn - 172

• TOD project across street from Metro

Green Line station

• 3rd Hotel; Homestead Suites- 2015

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