Archive for Grants Central

Downtown Housing and Tax Abatements

Urban centers have been booming with the growth of multi-family residential units. Look at Ohio:

  • Downtown Dayton has 204 units are under construction and another 432 units are in the development phase;
  • Downtown Columbus has over 5700 residential units constituting a growth in residents of 132% since 2000;
  • Downtown Cleveland has over 8000 residential units; and
  • Downtown Cincinnati leads them all with over 8200 residential units.

Many of these urban communities are benefiting from a desire of Millennials to move back to the urban core but they are also using tax incentives to create a level playing field with the less costly suburban housing market. Urban centers are typically complex development sites with existing buildings, property owners and struggles to find the parking and other amenities that are cheap and easy to build when transforming a field of corn into homes. Also, the development of housing and mixed use developments in the urban core benefits the entire region as it breathes new life into downtowns which serve the entire region as a central business district and often a regional or national entertainment center. The public policy and economic benefits of homeownership in urban, downtown centers is even stronger. Homeowners traditionally are more connected to the success of their community as they are invested in the value of that neighborhood. Clearly, supporting the development of downtown housing is a confluences of the current residential market, good public policy and smart economic development.

How can communities big and small create a downtown housing marketplace. The solution generally starts with determining the best tax incentive scheme to use. The Ohio Community Reinvestment Area (CRA) program is an economic development tool administered by municipal and county government that provides real property tax exemptions for property owners who renovate existing or construct new buildings and is the prime economic development tool driving downtown housing growth. Community Reinvestment Areas are areas of land in which property owners can receive tax incentives for investing in real property improvements. The program is delineated into two distinct categories, those created prior to July 1994 (“pre-1994”) and those created after the law changes went into effect after July 1994. The CRA Program is a direct incentive tax exemption program benefiting property owners who renovate existing or construct new buildings. This program permits municipalities or counties to designate areas where investment has been discouraged as a CRA to encourage revitalization of the existing housing stock and the development of new structures. Local municipalities or counties can determine the type of development to be supported by the CRA Program by specifying the eligibility of residential, commercial and/or industrial projects.

For a post 1994 CRA, the tax exemption percentage and term for commercial and industrial projects are to be negotiated on a project specific basis. If the proposed exemption exceeds 50%, local school district consent is required unless the legislative authority determines, for each year of the proposed exemption, that at least 50% of the amount of the taxes estimated that would have been charged on the improvements if the exemption had not taken place will be made up by other taxes or payments available to the school district. Upon notice of a project that does not meet this standard, the board of education may approve the project even though the new revenues do not equal at least 50% of the projected taxes prior to the exemption.

Many downtown residential tax abatement programs are beginning to approach the 15 year mark of their life. Recently, Ohio law was changed to permit the period of the tax exemption for a dwelling to extended by a legislative authority for up to an additional ten years if the dwelling is a structure of historical or architectural significance, is a certified historic structure that has been subject to federal tax treatment under 26 U.S.C. 47 and 170(h), and units within the structure have been leased to individual tenants for five consecutive years. However, this change to state law does not help many other apartment and condo owners who will struggle to compete without their current tax abatement.

First Quarter 2017 Venture Capital Investments Grow

Access to venture capital is a critical measure of a region’s success with technology based economic development as early stage technology companies struggle to gain funding from traditional sources such as banks. U.S. venture capital investments saw signs of growth in First Quarter 2017 versus investments in Fourth Quarter 2016 based upon reports from PricewaterhouseCoopers LLP, the National Venture Capital Association, and PitchBook.

In Quarter 1 2017, venture capitalists deployed $13.7 billion to start-up companies through 1,104 deals, up fifteen percent in dollars and two percent in deals over Quarter 4 2016. An increase in mega-round funding (investments over $100 million in size) helped contribute to the growth in quarterly dollars invested, although the $13.7 billion is the second lowest quarterly total over the past two years. Regional trends were mixed, with LA/Orange County being one of the few major hubs experiencing an increase in both dollars and deals from Quarter 4 2016. Seed investments continued its two-year decline as a proportion of all deals, coming in at 25% of all deals in Quarter 1 2017, while later-stage deals were at eleven percent of all deals. Additionally, the Internet sector deal share decreased to a two-year low of forty-four percent during Quarter 1 2017 while Healthcare increased to a two-year high of seventeen percent and surpassed Mobile and Telecommunications as the second place sector for deal activity.

A summary of Quarter 1 2017 shows:

  • Regions – The Midwest came in eight out of the eighteen regions, preceded by San Francisco in first ($3.47 billion), Silicon Valley, New England, New York Metro, LA/Orange County, Southeast, and the DC Metroplex. In order, Colorado, Northwest, Southwest, Texas, San Diego, North Central , Upstate New York, Philadelphia Metro, Sacramento/Northern California, and South Central rounded out the rest of the regions.
  • Sectors – Internet, Healthcare, Mobile and Telecommunications, Industrial, and Computer Hardware and Services comprised the top five investment sectors. The additional twelve investment sectors include Business Products and Services, Software (non-internet/mobile), Electronics, Automotive and Transportation, Consumer Products and Services, Energy and Utilities, Food and Beverages, Leisure, Financial, Media, Agriculture, and Risk and Security.
  • Development Stages – Expansion Stage led with investments of $5.352 billion followed by Later-Stage ($4.844 billion), Early-Stage ($2.47 billion), Other ($760 million), and Seed ($433 million).
  • States – Top 10 investment states were California ($7.379 billion) followed by Massachusetts, New York, Colorado, North Carolina, Maryland, Texas, Washington, Virginia, and Utah. Ohio came in at nineteenth, with $81 million (down from $142 million in Quarter 4, 2016).

Exit activity continued to be slow, with 169 VC-backed exits during Quarter 1 2017, with corporate acquisitions and buyouts continuing to be the leading exit routes. Software, biotech, and commercial services sectors accounted for approximately seventy-three percent of the total exits. Finally, venture capitalists raised $7.9 billion across 58 funds in Quarter 1 2017, down approximately twenty-four percent from last year’s Quarter 1. Nine first-time funds were closed during this quarter, the most in the last five quarters.

Transportation Improvement Districts Have Big Opportunities for Project Financing

Many growing communities facing infrastructure challenges to keep up with current group and remain positioned to capture future economic development.  Transportation Improvement Districts (TIDs) are a vehicle used to solve these infrastructure challenges.  TIDs are mechanisms to raise revenue for repair of roads, highways, and bridges within a defined geographic area.  District are governed by a commission whose job is to oversee financing, construction, maintenance, and repair of highways and roads. To complete these tasks, districts must capture funding, which they do by imposing taxes, tolls, or other fees.  Revenue raised from these taxes or fees is returned to the city or county’s transportation improvement fund.  Although the U.S. Department of Transportation has acknowledged these entities, no specific regulation or provision directly addresses them.  Therefore, the formation and regulation of transportation improvement districts occurs on the state and local government level. In fact, at least two states (Ohio and Virginia) have legislation governing transportation improvement districts.

In Ohio, TIDs are created by a board of county commissioners. The TID board consists of members appointed by the board of county commissioners, legislative authority of the most and second most populous municipal corporations in the district, the board of township trustees, the county engineer, and the legislative authority of any township or municipal corporation that cannot otherwise appoint a member and is within the geographic area covered by the district. Each district is charged with financing, construction, maintenance, and repair of road and highway projects.   Ohio TIDs raise revenue for projects by levying special assessments and issuing bonds if it finds that the resulting improvement is beneficial to the general public. If levying assessments, the district cannot exceed 10 % of the assessable value of the lot or parcel of the land being assessed and all proceeds raised by the transportation improvement districts shall be applied to road or highway projects.

Ohio House Makes Dramatic Changes to Kasich Budget

The first movement in Governor Kasich’s $69B state operating budget came from leaders of the Ohio House of Representatives and the movement was a substantial.  Responding to the agreement to cut spending substantially as well as to address challenges with the Kasich budget, the Ohio House of Representatives passed House Bill 49 without Governor Kasich’s proposed tax plan and his income tax cut, made several changes impacting economic development, rolled back the proposed Medicaid expansion, made major improvements to higher education and added funding to K-12 education.

As expected, Governor Kasich’s tax plan was the first budget item to go.  The House adopted a completely new tax plan.  The House removed the proposed tax reform plan, including proposed changes to the following taxes: income, sales, severance, commercial activity, tobacco and vapor, and alcohol.  They also struck the centralized collection proposal that would have mandated municipal income tax be collected by the state of Ohio but allowed a business to file a single annual or estimated return through the Ohio Business Gateway which a business may report and pay the total tax due to all the municipalities in which the business earned net profits.  Changes to the Ohio Local Government Fund were also scrapped.

Substantial changes impacting economic development were made to House Bill 49.  The House authorized the job creation tax credit to count employees who work from home in the job creation totals, made changes to the motion picture tax credit to require that a project must have 50% of financing secured to be eligible, priority be given to television or miniseries projects, and the Director of the Development Services Agency to charge an application fee equal to 1% of the estimated credit or $10,000 whichever is less.  The House revised the current data call center sales and use tax exemption to allow the capital expenditure to occur over 6 years instead of 5, retained funding for the Incumbent Workforce Training program at $1.25 M per year, and increased spending for the Defense Development Assistance and Ohio Edison Centers.  The House also authorized a county or municipal government to extend a pre-1994 CRA without triggering the laws enacted in 1994, and elevated the threshold for competitive bidding for port authorities to $250,000.  The House changed House Bill 49 to permits local workforce investment boards to conduct meetings by video and teleconference, and continue the ability for a county or municipality to enter into an enterprise zone agreement after October 15, 2017.  The House extended through July 1, 2019 the ability to apply the state historic preservation tax credit to the commercial activities tax, and eliminates the requirement that a new community district be over 1000 acres.  Finally, the House directed the Governor’s Executive Workforce Board to include an analysis of jobs that pay 125% of the federal minimum wage in the methodology for in-demand jobs.

The House also made major changes to the state’s Medicaid program.  They created legislative guardrails around Group VII Medicaid spending by requiring the Kasich Administration to seek Controlling Board approval on a regular basis for the Medicaid expansion, increased nursing home spending, and limited total Medicaid spending on hospitals to $6.9 B per year, and removed the non-contracting language and requires rates in effect on January 1, 2017 to continue over the biennium.

The Ohio House made several substantive changes to the higher education portion of the budget including:

  • Flat funds the State Share of Instruction and Ohio College Opportunity Grant line items;
  • Removed the proposal on textbook costs and replaces it with a textbook study requirement for public universities and community colleges;
  • Continued funding for the Federal Research Network at $3.5 M per year;
  • Provided $5 M in FY’19 for financial assistance to obtain short-term certificates;
  • Permitted a Community College to increase tuition by $10 per credit hour;
  • Clarified that tuition caps do not apply to tuition guarantee programs and removes the restrictions on increases between cohorts;
  • Exempted health insurance, auxiliary goods and services, non-instructional program fees, licensure costs, fines, travel costs and elective service charges from the tuition freeze;
  • Allowed a Community College to offer an applied bachelor’s degree if the degree is not offered by a public or private university within 30 miles and defines “applied bachelors”;
  • Required the Chancellor to investigate fees charged by institutions, prohibits the charging of any fee and permits the Controlling Board may approve the fee;
  • Required that faculty who assign textbooks must file a financial disclosure statement;
  • Reduced all clinical teaching lines by 10% in FY’18 and collapses them into one line in FY’19; and
  • Provided $750,000 for Co-op/Internship programs and provides earmarks for the 9 university programs traditionally funded through this line for their public policy schools.

The House made substantial changes to the Governor’s K-12 education plan.  They actually increased spending by $80 M—making K-12 one of the few financial winners from the House version of the budget.  They also removed Kasich’s controversial proposals to require teachers to have a private sector internships and placing non-voting business leaders on local school boards.  While the House did add K-12 school funding, Governor Kasich’s revisions to the school funding guarantee that attempts to limit paying public school districts for students they do not have survived.

House Bill 49 now moves on to the Ohio Senate who has raised questions about many of the House changes and is likely to enact additional spending cuts and policy changes to the bill with passage expected to meet the July 1, 2017 fiscal year deadline.

Montrose 1st Quarter 2017 Economic Snapshot Illustrates Mixed Results

The 1st Quarter 2017 economic data illustrates mixed results for the nation and targeted states.

Demographic data is a strong indicator of the potential for economic success and regions demographic and economic indicators vary widely.

Personal income increased $57.7 B (0.4 %) in February, 2017, disposable personal income increased $44.6 B (0.3 %) and personal consumption expenditures increased $7.4 B (0.1 %).

Unemployment rates were lower in March, 2017 in 17 states and stable in 33 states and the District of Columbia and the national unemployment rate declined by 0.2 % to 4.5 %.

Foreign Direct Investment (FDI) in the U.S. continues to increase.  FDI in the U.S. grew to $420.7 B in 2015, an increase of 68 percent from 2014.

Total domestic energy production fell for the first time in years driven by low oil and natural gas prices according to the U.S. Department of Energy.  However, the United States remains on the road to energy independent driven by increases in natural gas production.

Ohio TIF Law Under Attack Again by Ohio General Assembly

Ohio’s Tax Increment Financing (TIF) law is the most important economic development program tied to the development of infrastructure used in the four corners of the state and state legislation, House Bill 69 chips away at its potential future success.  TIFs are a mechanism available to municipalities, townships, and counties to finance public infrastructure improvements and, in certain circumstances, residential rehabilitation. TIFs operate by authorizing a county, municipal corporation, or township to grant a real property tax exemption with respect to the incremental increase in assessed valuation of designated parcels after the designation.

Owners of the property make payments in lieu of taxes to the political subdivision that created the TIF equal to the amount of taxes that would otherwise have been paid with respect to the exempted improvements (“service payments”). TIFs thereby create a flow of revenue back to the political subdivision that granted the tax exemption equal to the amount of property tax that otherwise would have been paid on the increased property value to finance infrastructure or residential rehabilitation projects.   A TIF may be comprised of specific parcels or may be what is called an “incentive district.” An incentive district TIF is an aggregation of individual parcels in an area of not more than 300 acres that is enclosed by a continuous boundary and that satisfies certain criteria of economic distress or inadequate infrastructure.

TIFs drive economic success across the state and the program is highly popular.  The Ohio Development Services Agency reports over 1200 existing TIF agreements in 64 of Ohio’s 88 counties.  As the chart below based upon Ohio Development Services Agency illustrates, regions growing use TIFs aggressively to develop the infrastructure to serve planned capital investment.

Ohio’s TIF program prohibits certain revenue from select special-purpose tax levies may not be diverted by an incentive district TIF. Some portion of the service payments must be paid to the taxing authorities levying the special-purpose taxes to reimburse them for revenue foregone due to the tax exemption. The levies are not actually imposed on the TIF property – the property is legally tax-exempt – but the TIF service payments are paid to the taxing unit as if the levy were imposed instead of being diverted to the TIF fund.

Special-purpose levy reimbursement payments are required only under certain conditions. The TIF must be an incentive district TIF created on or after January 1, 2006, and the reimbursed levy must be approved at an election held on or after that date. If the levy is a renewal or replacement of a levy originally imposed before that date, only an increase in effective millage is reimbursed.

The reality is the more local government funding sources that are excluded from TIF funding the less effective a TIF is as an economic development tool.  The challenge for efforts to create high wage jobs is there are really few tools to replace the TIF to develop infrastructure funding.

Ohio House Bill 69 proposes to add township fire, emergency medical, and ambulance levies to those for which reimbursement payments must be made by a municipal incentive district TIF.

Reimbursement payments would be required only if the township levying the tax provides fire, emergency medical, or ambulance services in the incentive district. The board of township trustees would be authorized to waive the reimbursement requirement or to negotiate an agreement for partial reimbursement with the municipal corporation creating the incentive district TIF. Such reimbursement payments would not be required for incentive district TIFs created by counties.

State Representative Bob Cupp (R-Lima) is the House sponsor.  Representative Cupp testified this bill gives townships the choice of collecting the reimbursement, waiving it, or negotiating a partial reimbursement of the money the levy would have raised but for the TIF and the bill only applies prospectively and to TIFs created by municipal corporations where townships provide the fire, emergency, or rescue services.  The Ohio Township Association testified in support of the legislation and the Ohio Municipal League provided interested party testimony that noted the potential negative economic impact of the legislation.

House Bill 69 sponsor Rep. Bob Cupp is a well-respected majority party member of the Ohio House. He is probably the most qualified member of the General Assembly who has served in local government, Ohio Senate, Ohio Court of Appeals, Ohio Supreme Court and now the Ohio House of Representatives.  Economic development advocates should be very concerned about passage of House Bill 69 and should contact David Robinson if they have any questions on the matter at drobinson@montrosegroupllc.com.

 

$75M in Ohio Historic Preservation Tax Credits Requested

The Ohio Historic Preservation Tax Credit is a popular program spurring economic development all over Ohio.  Recently, Round 18 applications were filed and demand for the program appears to remain strong. The Ohio Historic Preservation Tax Credit Program provides a state tax credit up to 25 percent of qualified rehabilitation cost during a rehabilitation project of a historic building. The program allows for request of no more than $5 million in tax credits unless approved as a catalytic project. A building is eligible if it is listed individually on the National Register of Historic Places; contributes to a National Register Historic District, National Park Service Certified Historic District or Certified Local Government Historic District; or is listed as a local landmark by a Certified Local Government.

In the last funding round, Round 17, the Ohio Development Services Agency awarded $22.8 million in Ohio Historic Preservation Tax Credits to 18 applicants planning to rehabilitate 33 historic buildings. The projects are expected to bring approximately $225.6 million in private investment in 12 communities.  The current applications under review for Round 18 were due in March. The 48 applications from the first round of 2018’s tax credits range from historic theatre renovations to restoring a single storefront. The total request equals $75,657,626. Cincinnati and Cleveland represent the most applications with 13 between the two of them; only 3 applications came from the Capital City of Columbus.

The Palace Theatre, in Columbus is currently undergoing renovations to restore the theatre to its 1926 opulence. CAPA has applied for a $1,655,159 tax credit to help with the restoration of the ornamental plaster in the auditorium and repainting to the original colors and gold leaf accents as well as building upgrades. The Inspirion Group of Cleveland, is asking for $1,392,500 tax credit to help finance the conversion of 3010 Euclid Ave., which will turn the building into market rate apartments.  Other noteable projects under the general credit request include the Traction Company Building, a 60,230 SF building in Cincinnati that The Parkes Cos. plans to convert into mixed use. The Parkes Cos. applied for $4,206,917 worth of tax credit for this project. Cincinnati’s Union Terminal is currently undergoing a $212-million renovation, an application has been submitted for the maximum $5,000,000 tax credit to go towards these improvements. NewcretImage, LLC, has plans to convert the First National Bank Building in Cincinnati into a contemporary lifestyle hotel.  NewcretImage, LLC has asked for a $5,000,000 tax credit to help with the conversion of what was once the tallest building in Ohio. Cleveland’s Terminal Tower, owned by K&D Group, also requested the maximum $5,000,000 tax credit to go towards converting 10 floors to as many as 300 apartments.   The intermediate credit request range from $210,000 to $2,000,000. In Newark, The Home Building Association Bank, also known as The Louis Sullivan Building, owned by the Licking County Foundation, asked for $1,027,000 to renovate the former bank that has sat vacant for a decade. When the renovations are complete, Explore Licking County will take over the space.

Nineteen small credit request were submitted ranging from $31,250 to $250,000. In Akron, 172 South Main is a part of the $11.8 million Civic Theatre block project, that when complete, will include shops, restaurants and apartments. Main Street Partners, the group that is developing the Civic Theatre block, has asked for $249,999 for improvements on the 172 South Main building. Sieber Vine Holding LLC, plan to convert the buildings at 620 and 622 Vine St. in Cincinnati into a large commercial space with three apartments above it. The total project is expected to be a $2 million investment. The group has asked for $249,000 in tax credits to assist with the conversion.

Some of the applications were resubmitted after being passed on in previous funding rounds.  The Illuminating Building in Downtown Cleveland’s $4,000,000 request was not chosen in 2017. They have requested the same amount in Round 18. 1731 and 1815 Elm Street in the Over-the-Rhine neighborhood of Cincinnati both missed out on the historic tax credits last round but are hoping to have different fates this time around. The Niehoff Flats request for $239,500 was not chosen last round so they have come back with a smaller ask of $135,800 for Round 18.

In Round 16, 44 applications were filed for these tax credits. There were three categories of request- general credit request, intermediate credit request, and small credit request. The general credit request range from $1.8 million to $5 million with the average request being around $3.7 million. 50% (5 out of 10) of these requests were awarded.  The intermediate credit request range from $491k to $2 million with the average request being $1.2 million.  35% (7 out of 20) of these requests were awarded. The small credit request range from $82k- $250k with the average request being around $184k. 93% (13 out of 14) of these requests were awarded.

Contact David Robinson at drobinson@montrosegroupllc.com at the Montrose Group if you have questions or need assistance in gaining funding from this competitive state program.