[RP TownTalk] Charter Amendment on Debt Limit

[Dwight Holmes]

There should be a category of Pulitzers for this. Thank you, Alan!

On Mon, Jun 3, 2013 at 6:00 AM, Alan K. Thompson <
akthompson at riverdaleparkmd.gov> wrote:

> Friends and Neighbors,
>
> A constituent contacted me Saturday about the dense block of legalese on
> page 3 of the Town Crier, wanting to know why it was there and what it
> meant, and wanting me to share the answer not just with her but with other
> residents of the Town.
>
> The block of text is a "fair summary" of a change the Town Council is
> considering making (tonight!) to the Town Charter, and the reason it is
> there is that we are required to publish either the full text of the change
> or a fair summary of the change.  This summary was (I believe) written by
> our bond counsel. She is an excellent legal advisor, but apparently her
> ability to translate that knowledge into something non-lawyers can
> understand is not as strong.  I'll try to do a better job of that in this
> message.
>
> Before getting into the charter change itself, I'm going to review (for
> reasons that will become clear later) a topic that's been discussed here
> before: Tax Increment Financing (TIF). I'm going to use an example at hand,
> the funding of the bridge (and road) crossing the CSX tracks from Rivertech
> Court to the Cafritz development.
>
> TIF is for a development project that will greatly increase the value of a
> piece of property, but that needs publicly-funded infrastructure before the
> project can go forward.  In the case of the Cafritz Project, the land is
> currently valued at $1,449,600, and, at full build-out, the property is
> expected to be worth approximately $300 million, a factor of 200 over the
> current value.  Before full build-out can happen, by the terms of the
> zoning change that allows the development (and other legal agreements), the
> bridge must be built, with all but $5 million of the cost is to be funded
> by tax dollars.
>
> If we assume a total cost of the bridge of $14 million (within the range
> of current estimates), the Town's share would be $3 million. With a 30-year
> loan at 5 % interest, payments of just under $200,000 per year would be
> required.
>
> While the tax revenue at full build-out will greatly exceed $200,000 per
> year, a lot of things could happen between where we are now and full
> build-out, and those of us on the Council want to be sure that the
> taxpayers of Riverdale Park aren't required to make those payments if the
> project has run into problems.  That's where TIF comes in - the payments
> are made not from the general revenues of the Town, but ONLY from the
> increased revenue from the project.  Under our current tax rate, the
> property generates less than $10,000 in tax revenue each year. In 2014 we
> are expecting total revenues of more than $300,000 from the parts of the
> development completed by then, assuming everything goes according to plan
> (with even higher revenues in years after that).
>
> If everything goes as expected in 2014 (including the amount for the
> bridge, interest rate on the loan, etc.), then $200,000 of the tax revenue
> will go to pay the loan, and $100,000 will come to the Town as general
> revenue, to be spent on anything else.
>
> If things DON'T go according to plan in some way, and there is only
> $100,000 in tax revenue from the project, then the Town will keep the
> $10,000 in tax revenue that we currently receive, $90,000 will be spent to
> pay the loan, and the investors for the loan won't get the rest of the
> payments that year -- the Town will NOT have to pay for the bridge from our
> general tax revenues.
>
> This sort of financing - TIF - is very different from the form the Town
> has used for many decades, so-called "general obligation" (GO) financing,
> where the Town put's its "full faith and credit" into paying for a loan,
> which means that the Town will pay the loan payments no matter what
> happens.  GO financing is how we have paid for police vehicles, road
> improvements, equipment for Public Works, etc.  Because putting the "full
> faith and credit" of the Town behind such loans is a big deal, the amount
> of debt that the Town can take on is limited by the Town Charter (Section
> 619 of the Charter limits debt to 2 % of the assessed value of property in
> the Town).  The impact of a TIF loan on the Town is much less, because the
> terms of the loan WON'T require tax increases or service cuts if revenues
> are less than expected.
>
> This is where we come back to the proposed change in the Charter.
>
> The State of Maryland law that allows TIF financing specifically excludes
> the debt assumed under TIF from limits like the one in our Charter, so we
> can take out a loan using TIF, and it would NOT count against our 2 %
> Charter limit on debt. The fact that our Charter is not absolutely clear on
> its compliance with the State's law introduces a little bit of uncertainty,
> and in the world of finance, uncertainty increases interest rates (and loan
> payments).
>
> By amending our Charter to be clearly compliant with State Law, as the
> legislation described on page 3 in the June Town Crier will do, we can make
> sure that we have room within our 2 % limit to borrow money for other
> projects, and also that more revenue from the Cafritz improvements well
> come into the Town's general revenue stream.
>
> I hope this letter, as long as it is, cleared up any questions you might
> have about TIF financing and the Charter amendment under consideration.
>
> Best,
>
> Alan K. Thompson
> Ward 2 Town Council Representative and Finance Committee Chair
>
>
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