Masterclass In Wellington: How Do We Fund The Future Development Of Our Cities?

A three-day international ‘masterclass’ in Wellington, starting Thursday 22 July, will tackle a looming issue for governments and local authorities – how do we continue to develop the infrastructure of our cities without going broke?

Tax-increment financing (TIF) will be in the spotlight during the masterclass. Since the 1950s, TIF has been used throughout the United States to fund a range of infrastructure and economic development projects. It has been used for water and wastewater upgrades, transport projects, emergency services, environmental remediation projects and town centre revitalisation initiatives.

The masterclass has been organised and hosted by Wellington City Council with assistance from Sinclair Knight Merz (SKM), an international engineering, sciences and project delivery firm based in Sydney.

Wellington Mayor Kerry Prendergast says it is an excellent opportunity for New Zealand government and business leaders to hear about new thinking on the funding of urban development.

The Council’s plans for a radical transformation of Adelaide Road in Newtown – from an anonymous area of low-rise commercial buildings, to a tree-lined boulevard fringed by apartments, offices, cafes, shops and great public transport choices – will be used as a case study during the masterclass, says Mayor Prendergast.

Four US experts (see details below) in urban regeneration and financing will help lead the masterclass. They will then fly to Sydney to conduct related briefings with state ministers, officials and industry representatives.

In Wellington, attendees will include representatives from the Ministry of Economic Development, Treasury, local and regional councils, academics, the NZ Planning Institute, the Property Council, law firms, developers, the banking sector and the NZ Council for Infrastructure Development.

Mayor Prendergast says Wellington City, along with other local authorities, is required to manage the city’s resources in a prudent manner, taking into account present and future needs. One aspect of this obligation is to apportion the costs of facilities and infrastructure to those who benefit - whether they are individuals, owners and developers whose property values rise as development takes place, or the community as a whole. An examination of new ways of infrastructure financing is all part of this obligation.

“Councils and other public bodies are in a constant battle to keep up spending to deal with the growth of our population and to keep our cities and regions up and running. At the same time we have to avoid big increases in rates and in debt levels.

“We need to consider innovative funding ideas if we are to grow as a nation and give our people the quality of life they expect and deserve. That’s why we’re interested in hearing how things are being done in an affordable and sustainable way overseas.”

About tax-increment financing (TIF)

- A TIF programme usually begins when a municipality (the sponsoring jurisdiction) designates a geographic area as a ‘TIF district’.

- The TIF district usually encompasses an area that is underperforming or in need of revitalisation and infrastructure upgrades.

- The sponsor’s intent is to demonstrate a public commitment to the viability of any area and thereby encourage complementary private sector investment.

- To qualify for TIF, the area and infrastructure must meet certain requirements – typically detailed in TIF enabling legislation and supporting regulation and guidelines. These requirements are aimed at ensuring TIF-funded infrastructure and urban development/redevelopment deliver genuine benefits to the TIF district and broader community.

- In the TIF district, a tax ‘base’ is established. This is usually the existing property tax base ‘frozen’ at pre-TIF levels – alternatively it could be this tax base indexed by some factor over time (e.g. the rate of inflation).

- The TIF district becomes operational when the sponsor borrows funds (usually via issuing bonds) and undertakes investments in eligible infrastructure and development in the district. These investments can involve varying levels of public and private partnership arrangements, and can apply to a range of economic development and infrastructure projects and programmes.

- As time goes on, these investments lead to higher levels of economic activity and property appreciation – which in turn, leads to growth in the district’s tax revenue.

- For property owners, there is no new tax or rise in property taxes – the TIF bonds are repaid from the uplift in property values created by the improvements

- The difference between the tax revenue and the tax base in each future year is called the incremental value, and a proportion of this increment is assigned to the sponsor to service its TIF debt (usually TIF bonds).

- When the debt is retired, the TIF ceases to exist.

TIFs have proven to be popular in the Midwest of the US – particularly in cities like Chicago and St Louis. The targeted public investments in a specific area are designed to attract corresponding private investment – and the tax revenue increase from the TIF area is then used to pay for the public improvements.

The advantages of TIF

- It avoids or overcomes the drawbacks of the current development charges approach to infrastructure funding, including slowing development and adversely impacting on housing affordability by relying on up-front infrastructure contributions

- It provides a market test and added rigour around infrastructure selection. TIF administrators have a strong incentive and accountability to invest in infrastructure that generates ‘value’ to the community.

- It provides an upfront and sustained commitment to specific infrastructure provision – that is, it ensures that long-term funding and planning, which is necessary for the effective provision of public infrastructure, is not eroded by competing priorities or short-term distractions.

- It ensures that the provision of infrastructure is appropriately timed – as infrastructure provision (or at least its effects) is tied to revenue, there is an incentive to ensure that delivery is not delayed.

- It provides a transparent approach to infrastructure selection and provision.

- It provides a transparent and equitable approach to the distribution/sharing of infrastructure cost.

About the Adelaide Road case-study

Wellington City Council has long-term plans to transform the northern end of Adelaide Road – between the Basin Reserve and Riddiford Street – and its environs.

The area, currently dominated by low-rise commercial buildings, is expected to come under increasing development pressure as the city’s population increases. The Council wants to manage these changes to ensure they are positive for the local community and the wider city.

The northern end of Adelaide Road is also a major transport route and has been deemed, for planning purposes, part of the city’s ‘growth spine’. The intention is to transform this area, through new development, apartments, businesses, shops, bars and restaurants. A new height limit would also allow taller buildings – up to 18 metres.

Proposals include improving the public transport corridor through permanent bus lanes, an improved look and feel of the street for cyclists and pedestrians and possibly, light-rail in the future.

The Adelaide Road Framework also suggests more street trees, upgrading the Hospital Road reserve and the green space between King Street and Myrtle Crescent, and a greater number of crossing points for pedestrians making use of the new landscaped median as a safe central point

The City Council’s Director of Strategy, Planning and Urban Design, Teena Pennington, says Adelaide Road makes an excellent case-study for the masterclass. “It is a clearly-defined area with great redevelopment potential.

“We would love to get to work straight away on the area but, of course, we do not have access to unlimited amounts of funding. That’s why we want to hear whether concepts such as TIF could be used for developments like Adelaide Road.

“I stress, however, that we go into this masterclass very much with open minds. We may find that TIF – or other funding mechanisms – may not be for us. But we feel it is important to look at all options and at all new thinking.”

About the four US experts

John Brancaglione, Vice President, PGAV PLANNERS in St Louis. He has 43 years’ experience in planning and zoning, economic and community development and tax increment financing. He has provided urban planning consulting services to more than 300 communities and is a recognised expert on TIF, having managed TIF planning assignments for more than 100 cities and counties in 12 states. He has worked with the city of Chicago for 14 years. www.pgavplanners.com and www.pgav.com

Laura Radcliff, Senior Vice President, Stifel Nicolaus Public Finance in St Louis. She has served as an investment banker on more than 300 bond issues with a total par amount in excess of $16 billion. She focuses on economic development finance and has served as the lead investment banker for TIF projects throughout the US. www.stifel.com.

Gregory Hummel, Partner, Bryan Cave LLP in Chicago He has practiced law for 36 years and concentrates in public-private partnership matters, including infrastructure and special district financings, economic development and TIF, energy, solid waste and other project financings, and incentives for large and small businesses. He has advised on the creation of TIF districts in over 20 states. www.bryancave.com.

Professor Ed Blakely, Honorary Professor of Urban Policy at the University of Sydney’s US Studies Center and internationally recognised expert on urban renewal, will facilitate the workshop. www.blakelyglobal.net

ENDS

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