The Opportunity Zones Program

In December 2017, Congress established a new community development program called “Opportunity Zones”. This blog post will provide an overview of the program, subject to change as it evolves. The Opportunity Zones program is based on the bipartisan “Investing in Opportunity Act” but was enacted as a part of the Tax Cuts and Jobs Act in the 2017 tax reform efforts. The concept was initially created in 2015 by the Economic Innovation Group, in order to address persistent poverty and unequal recovery.

The program offers an incentive to inspire long-term private investment in low-income urban and rural communities across the country by allowing investors to utilize their unrealized capital gains by reinvesting into Opportunity Funds. Opportunity Funds will be dedicated to investing in the identified Opportunity Zones; these zones will be designated by the Governors of every U.S state and territory. Governors have 120 days from December 22, 2017 (March 21, 2018) to identify up to 25% of the total number of low income census tracts in their respective state or territory as opportunity zones. (North Carolina has requested an extension.) For the most part, the Opportunity Zone census tracts align with the qualified census tracts defined in the New Market Tax Credit (NMTC) program. Nevertheless, the governors must still identify low-income communities to receive Opportunity Zone Investments since up to 25% of census tracts can be designated. Continue reading “The Opportunity Zones Program”

Four Federal Water Infrastructure Funding Programs to Watch

The White House’s Legislative Outline for Rebuilding Infrastructure in America, which was released early this year, outlines the President’s proposed steps to encourage increased State, local, and private investment in infrastructure. And though you’ve probably heard a lot about it, chances are you haven’t had the time to read and reflect on the 55 page document. So what might the President’s plan mean for infrastructure in your community? While the plan outlines programs for infrastructure of all sectors, this post provides a quick overview of the 4 proposed programs with relevance to water infrastructure.

Continue reading “Four Federal Water Infrastructure Funding Programs to Watch”

On Borrowed Ground: A Ground Lease Primer – Part 1

Imagine that you find the ideal land parcel to develop, but the owner does not want to sell – and desires to retain ownership in any future land appreciation. Or, you find the perfect development site that offers superior investment returns – but the land cost is prohibitively expensive, and makes your project infeasible.

In both scenarios, development is still possible by embracing a ground lease.

A ground lease is a lease for the land between a lessee, such as a developer, tenant, or asset manager, and the owner of the land. The owner, the lessor, provides rights to the lessee to develop his/her land while retaining ownership of the land. Meanwhile, the lessee retains ownership of the structures built upon the land. Both parties agree to the nature of development, land use, and the financial terms of the lease. Continue reading “On Borrowed Ground: A Ground Lease Primer – Part 1”

The CDFI Bond Guarantee Program

It is no secret that the struggle to preserve affordable housing and increase economic growth is more challenging than ever. Subsidies are growing smaller and building costs are increasing, making affordable housing more difficult to develop. However, a federal program known as the Community Development Financial Institution (CDFI) Bond Guarantee Program (BGP) is making it possible for CDFIs across the nation to invest in the distressed communities of the United States.

The CDFI Bond Guarantee Program was created by the U.S. Treasury’s CDFI Fund through the Small Business Jobs Act of 2010. The program was designed to provide long-term, low-cost capital for community revitalization and economic growth. Through this program, federally certified Qualifed Issuers (CDFIs or approved designees) are eligible to apply to the CDFI Fund for the authorization to issue bonds worth a minimum of $100 million total. These bonds are guaranteed 100% by the U.S. Treasury, up to $1 billion per year. The proceeds from these bonds can be used to extend credit for community development purposes or to refinance existing obligations. Continue reading “The CDFI Bond Guarantee Program”

Local Government Owners of Historic Property Asked to Convey Property by End of 2017: What Public Officials Should Know

Federal tax reform is likely to be enacted before the end of the year. While the final form of the bill has not been determined, it is nearly certain that federal historic preservation tax credits—an important financing mechanism for preservation of historic properties—will be significantly affected. In fact, most observers anticipate that the value of the tax credits will be diminished by tax reform, thereby making historic preservation projects more difficult to finance and complete. For that reason, some real estate developers have asked local government owners of historic properties to convey those properties to new ownership before the end of the 2017 tax year (December 31, 2017) in order to “grandfather” those projects under the older, more favorable rules. This post briefly describes how federal tax reform could affect historic rehabilitation projects and offers some guidance for North Carolina public officials who wish to respond (on a very tight deadline) to a request to transfer historic properties owned by local governments. Continue reading “Local Government Owners of Historic Property Asked to Convey Property by End of 2017: What Public Officials Should Know”

Leveraging Revenues from New Development: Critical Infrastructure Assessment Authority in 2017

Critical infrastructure assessments are charges levied against property (usually new development) to reimburse a local government for the costs incurred for certain public infrastructure projects that directly benefit the property. In other states this tool offers an alternative to imposing impact fees on new development (that is often preferred by developers) to compensate the local government for the impact of that new development. In North Carolina, local governments do not have authority under general law to impose impact fees (with the limited exception of system development fees for water and sewer infrastructure). Nonetheless, critical infrastructure assessments are among the many tools that counties and municipalities in this state have to fund public infrastructure projects that benefit private development. Like project development financing authority (aka tax increment financing or TIF), the critical infrastructure assessment authority allows a local government to leverage new growth to pay for public infrastructure improvements that are necessitated by and/or benefit the new growth. And it does so without putting all the financial risk on the developer and without directly affecting the local unit’s general fund. For these reasons, it is a potentially attractive tool to both local government officials and developers. That said, of all the methods available to local governments to fund public capital outlay, a critical infrastructure assessment is among the most complex and most costly. Because of that, it is not be the right tool for every circumstance.

I have blogged about the general contours of a local government’s critical infrastructure assessment authority here, and here. During the past few legislative sessions, the General Assembly has both extended the sunset date (now to July 1, 2020), and made a few (mainly clarifying) amendments to the law. This post reviews the general structure of, and process for levying, these assessments, and for funding and undertaking the underlying project(s), as the law has been amended in recent years. Continue reading “Leveraging Revenues from New Development: Critical Infrastructure Assessment Authority in 2017”

Equity with a Twist: The Low Income Investment Fund’s Social Capital Tool

The Low Income Investment Fund (LIIF) is a community development financial institution (CDFI) dedicated to providing innovative capital solutions that create a bridge between private capital markets and low income neighborhoods. The organization strives to create pathways for investors in projects that have high social value, but may not have access to traditional banking services.

In its latest venture to connect low income communities to private capital, LIIF, in partnership with JPMorgan Chase & Co., created Equity with a Twist (EQT) in February 2016. EQT is a social capital product that provides flexible, low-cost financing to support and incentivize solutions to poverty in low income neighborhoods. It is advertised as providing high social return and modest financial return to its investors, and projects are geared towards mixed-income housing to provide families with affordable homes, K-12 education, and early childhood education. Continue reading “Equity with a Twist: The Low Income Investment Fund’s Social Capital Tool”

Catawba County’s Innovative Water Service Partnership Model

It seems like almost everyone, including regulators and utility organizations, recognize the benefits and need for expanded partnerships and collaboration in the water and wastewater sector. Small towns are finding it difficult to meet their growing infrastructure and regulatory needs and are talking with each other and their larger neighbors about different regional service models. Partnerships are not limited to small systems; the cost of new water and wastewater supply is so great, that even large, financially healthy systems are increasingly working together to share costs and partner on  large facilities. Most of these partnerships involve two or more utilities working together, but in at least one North Carolina county, one of the key partners in many of the region’s recent water partnerships is a local government (Catawba County) that is not a direct utility service provider.  For more than 20 years, Catawba County has assisted many of the municipalities in the County install Continue reading “Catawba County’s Innovative Water Service Partnership Model”

What’s the deal with modular construction?

AC Hotel Chapel Hill Downtown

In May of this year, Marriott International announced that it would ramp up the use of modular construction in its hotels. Marriott said they anticipated signing on at least 50 hotels in 2017 alone that would be primarily modular, citing that this type of construction would enable them to generate returns for their partners faster, decrease waste, and employ a steady and reliable skilled labor force. In fact, one of these 50 properties is in Chapel Hill; the new AC Hotel Chapel Hill Downtown. The four-story above-ground structure (with two levels of parking beneath) will boast 123 guest rooms, all built using modular construction. Continue reading “What’s the deal with modular construction?”

Legal and Business Reasons Why Downtown Development Programs Should Involve Secured Loans—Not Grants

Dr. Blaine Beeper is a retired hospital administrator who was recently elected to council in the Town of Bushwood. Dr. Beeper thinks he has figured out how to jumpstart revitalization of Bushwood’s historic downtown. He proposes for the Town to offer annual cash grants to any owner who redevelops a commercial property within the downtown. Dr. Beeper reasons that redeveloped properties will carry a higher tax assessed value, and the additional tax revenue can be “granted back” to the owners in the form of cash grants for five years, calculated as some percentage of the additional property taxes received by the Town.  When Dr. Beeper floats this idea, he runs into resistance from the Town Attorney and the Economic Development Director, each for different reasons. The Town Attorney raises serious concerns about the legality of such a program, while the Economic Development Director says it doesn’t make good business sense and a loan program would better address owners’ financing needs. This post explains the legal and business reasons why Dr. Beeper’s proposed grant program should be scrapped in favor of a loan program. Continue reading “Legal and Business Reasons Why Downtown Development Programs Should Involve Secured Loans—Not Grants”

Federal Housing Finance Options for Mixed-Use Development

Federal housing finance policies and programs exist to provide financing for the acquisition and construction of homes and boost investment in the housing industry. While a variety of housing loan products exist, a report released by the Regional Plan Association (RPA) in February 2016 highlighted the unintended consequences of housing finance policies at that time. One of the consequences highlighted was the structure of federal loan programs that did not support mixed-use, multi-family developments, effectively limiting the access of these properties to financing options. In areas where two and three story buildings with the potential to support residential spaces above commercial storefronts exist, this type of access could be crucial to revitalization and diversification of neighborhoods. Continue reading “Federal Housing Finance Options for Mixed-Use Development”

Legislative Changes Affecting the Tools in the North Carolina Water Finance Toolbox

Water and wastewater utilities have a wide range of capital project needs. Most utilities have existing assets (treatment plants, water storage tanks, underground lines) that have reached the end of their functional life and need significant rehabilitation and replacement investment. Some utilities also have capital investment needs that are driven more by customer growth. These types of growth projects may include a new water line and storage tank to reach a new industrial park or a wastewater treatment plant expansion that provides capacity to a new residential sub-division.

Figuring out how to pay for the costs of water and wastewater capital in general is hard, but paying for the cost of growth related projects carries its own set of unique challenges. Existing customers are often wary of paying for projects to serve newcomers, particularly when their existing system has so many capital needs. In the past, water and wastewater utilities have used a variety of upfront fees to generate revenue that to offset the costs of serving new customers. Many utilities believed authority for these different fees was far reaching and granted in Continue reading “Legislative Changes Affecting the Tools in the North Carolina Water Finance Toolbox”

4% LIHTC Use in North Carolina’s Triangle Region

A Brief Introduction to the 4% Low-Income Housing Tax Credit

Development of low-income housing in the United States continues to be a challenge for local governments, affordable housing developers, and policy advocates. Institutional, market, and financing obstacles are all barriers to increasing the supply of affordable housing. Since the passage of the Tax Reform Act of 1986, Low-Income Housing Tax Credits (LIHTC) have helped finance 2.6 million low-cost housing units. The LIHTC program seeks to address the financial barriers by incentivizing private investment in the affordable housing market. Despite lower vacancy and debt service common in affordable housing deals, lower rents often result in a project that are not feasible for private developers, resulting in a funding gap. Developers of low-income housing units, therefore, must gain access to various sources of gap financing such as low-income housing tax credits.

The LIHTC program offers two tax credits types: the 4% and the 9%. The 9% credits, limited by federal law and distributed on a per capita basis to states, amount to a larger benefit for the tax credit developer, usually accounting for 70% of total project costs. However, use of the 9% credits prohibit the developer from using additional federal subsidy programs and a competitive application process allocates limited credits to a few successful bids. The 4% credits, on the other hand, leave open the opportunity for developers to take advantage of additional federal subsidies and are accessible through a noncompetitive application, but cover a smaller portion of the total project costs (usually nearing 30%). The additional funding sources eligible for 4% LIHTC projects help to close this larger funding gap. Continue reading “4% LIHTC Use in North Carolina’s Triangle Region”

Conveyance of property in a public-private partnership for a “downtown development project”

Downtowns across America are experiencing a renaissance. Population growth in downtowns has outpaced growth in the broader regions in which those downtowns are located. North Carolina downtowns are likewise experiencing record growth. To capitalize on this renewed interest in downtowns, private developers and local governments are increasingly seeking to partner on relatively larger, coordinated development projects that involve construction of both public and private facilities.

Often these public-private partnerships are necessary because the local government owns property downtown and needs a private partner to develop it. When a municipality (not a county) seeks to partner with a private developer for development of a downtown parcel involving construction of both public and private facilities, there is a statute designed just for that purpose: G.S. 160A-458.3 Downtown development projects. The statute makes some potentially confusing references to a variety of other statutes when authorizing disposition of real property and therefore requires some explanation. This post provides historical context for the statute and describes the property disposition procedures. Continue reading “Conveyance of property in a public-private partnership for a “downtown development project””

Boosting LIHTC: Difficult Development Areas & Qualified Census Tracts

The Low-Income Housing Tax Credit (LIHTC) program was designed to encourage the private development of affordable rental housing in the United States. (If you are new to LIHTC, check out the CED blog’s primer on low-income housing tax credits before proceeding.)   But even with the dollar-for-dollar reduction in tax liability, affordable rental development is constrained in some areas by high costs or concentrations of low-income households.

To incentivize private developers into these “hard-to-serve” areas, the U.S. Congress mandates that the Department of Housing and Urban Development (HUD) designate special zones that can receive higher credit allocations.  Projects situated in a Difficult Development Area or Qualified Census Tract qualify for a 30% boost in the LIHTC eligible basis, a significant increase in equity for a project. The eligible basis includes development costs that are subject to depreciation such as new construction, rehabilitation, and building acquisition and excludes costs such as land acquisition. Continue reading “Boosting LIHTC: Difficult Development Areas & Qualified Census Tracts”

How a Mezzanine Loan Can Reduce Equity Requirements, Boost Returns, and Attract Investment to a Redevelopment Project

The Parker Building is a two-story, 8,000-SF brick building in downtown Milliganton, NC. The building is subdivided into two small retail tenant spaces, but for the most part it is an empty shell. Despite having been mostly vacant for the last several decades, the building is in good shape.  A recent roof repair and functional heating, ventilation, and air-conditioning have kept the building from falling into disrepair. Continue reading “How a Mezzanine Loan Can Reduce Equity Requirements, Boost Returns, and Attract Investment to a Redevelopment Project”

A Little Slice of Heaven: A Primer on Air Rights in Development

Common law holds that once person owns a piece of land “it is theirs all the way to Heaven.” In a modern development environment, however, the transfer of air rights—fee simple title to a three dimensional space located at a precisely defined location—between owners is becoming increasingly common. Today we will take a brief look into the uses of air rights in development and how they are transferred.

While air rights in New York and Chicago have made headlines for years, air rights also play an important role in economic development in North Carolina. In particular, as communities of all sizes see value in creating a mix of uses in their downtown environments developers have sought to maximize value and lower risk through increasingly complex vertical ownership structures. Continue reading “A Little Slice of Heaven: A Primer on Air Rights in Development”

The Birth of a New Federal Water and Wastewater Financing Program — WIFIA Arrives

What is WIFIA? WIFIA stands for the Water Infrastructure Finance and Innovation Act, the name of the federal act that authorized an interesting new federally managed water and wastewater infrastructure funding mechanism. WIFIA includes both direct loans and a new credit enhancement/guarantee mechanism (more on WIFIA guarantees in a future blog post). The WIFIA program was first created in 2014, but its funding appropriation and program guidance was not completed until the end of 2016. The US Environmental Protection Agency (EPA) announced the Notice of Funding Availability for WIFIA on January 10th, 2017. Borrowers interested in taking out a loan with this year’s funds have until April 10th, 2017 to submit letters of interest that will be considered by EPA.

Here’s how the EPA describes what a WIFIA loan has to offer:

“It can offer borrowers the advantage of developing customized terms, including sculpted repayment terms to match the specific needs of a project. Finally, the WIFIA program lends at a low, fixed interest rate equal to the Treasury Rate for a comparable maturity. (WIFIA Program Handbook)

As with most federal programs, it is important to read the fine print. WIFIA loans have some strings Continue reading “The Birth of a New Federal Water and Wastewater Financing Program — WIFIA Arrives”

Reshaping Suburban Spaces

There is no constant in community. Population ebbs and flows; market preferences shift; the economy fluctuates. Each community evolves. In many suburban places across North Carolina—indeed, across the U.S.—that evolution includes a move toward more density, more mixed uses, and more connected neighborhoods. Communities are grappling with questions about how these places will change. What is the local government’s role in this transition? How does a city or county encourage the redevelopment of suburban spaces? And what are the practical and political implications?

A new School of Government report, Reshaping Suburban Spaces, considers these questions and explores how communities across North Carolina are responding. Continue reading “Reshaping Suburban Spaces”

New Report Highlights Public-Private Partnerships

p3sThe Urban Land Institute (ULI) recently published an updated guide to Public-Private Partnerships (P3s) that introduces their varied forms, their utility to both the public and private sectors, and examples of successful P3s from around the county. The report offers insights to local government staff and elected officials as well as private development professionals looking to better understand how P3s may be used to address priorities of both parties. Continue reading “New Report Highlights Public-Private Partnerships”

Upfront Charges for Local Government Water and Sewer Capital

In the wake of a recent North Carolina Supreme Court decision invalidating certain water and sewer fees (Quality Built Homes, Inc. v. Town of Carthage), counties and municipalities across the state have been taking a closer look at their own fee schedules. (A summary of the case and its holding is here.) Through Quality Built Homes, and other relevant case law, the North Carolina courts have set out the basic outlines of the types of fees that are lawful and unlawful. Unfortunately, there is still quite a bit of grey area (or as I refer to it below, yellow light area) as to the full contours of a county’s or municipality’s authority. Each local unit must work with its attorney and, if applicable, rate-setting consultant, to determine if changes are needed to its fee schedule. The following sets out a framework to aid in that analysis.

There are two primary fee statutes that authorize counties and municipalities to assess charges associated with their water and sewer systems—the general utility fee statute and the availability fee statute. This post focuses on the general utility fee statute. (Previous posts have discussed the availability fee authority for both municipalities and counties in detail. See here, here, here.) Note also that this post only looks at county and municipality authority. It does not address the fee authority of other local government entities that provide water and sewer services. Continue reading “Upfront Charges for Local Government Water and Sewer Capital”

Solar Schools and Environmental Finance

North Carolina is one of the leading states in the country when it comes to installing solar energy. The growth of solar in North Carolina has been a fascinating opportunity to study the impact of different environmental finance systems. While the financial incentives and environmental finance systems available to solar developers across the state have been critical to supporting the growth of solar; not all property owners have had equal access to these incentives. Given the importance of income tax incentives to solar developers, it’s not surprising that Continue reading “Solar Schools and Environmental Finance”

Flexible Opportunities in North Carolina’s Brownfields Program

brownfrfrIn the past the CED blog has explored the basics of brownfields programs in North Carolina, how they are administered and implemented, and their role in revitalizing communities. In this edition, we’re looking at two innovative facets of the state Brownfield’s program that were developed to better respond to the needs of landowners and developers to clean contaminated sites and bring them back into productive use. The Ready for Reuse program and Redevelopment Now Option give flexibility when pursuing projects that have high public benefit, and so should be in the toolbox of every local government, developer, or landowner when pursuing development or sale of contaminated land. Continue reading “Flexible Opportunities in North Carolina’s Brownfields Program”

EPA Resources on Smart Growth Economic Development

Many small towns and rural areas had an economy that was built on a single economic sector (for example, logging, mining, or manufacturing) that has changed significantly by technology and/or market forces, leaving residents without jobs and governments without a healthy tax base.  Some communities respond with an economic revitalization strategy that seeks to attract major employers to replace lost jobs.  Another approach is “Smart Growth” economic development, which builds upon existing assets, takes incremental actions to strengthen communities, and builds long-term value to attract a range of investments.

This past year, the U.S. EPA released Framework for Creating a Smart Growth Economic Development Strategy: A Tool for Small Cities and Towns.  This tool is intended for small to medium sized cities and towns that have stagnant population growth, struggling economies, and areas of divestment.  It is the latest in a slew of resources available from EPA on Smart Growth, including other tools, publications, technical assistance, and case studies. Continue reading “EPA Resources on Smart Growth Economic Development”

Conveyance of Local Government Property for Affordable Housing

A developer of affordable housing for low and moderate income persons has approached the City and County about an affordable housing project near the City’s downtown. The developer’s plan is to acquire and assemble two adjacent parcels—one owned by the City and one owned by the County—and then develop 20 units of affordable housing on that site.  There’s a catch: The developer has asked the City and County to provide the two parcels as a gift to the project. Local governments are generally not permitted to make gifts to private individuals or entities, so the developer’s request is immediately problematic. Can the local governments convey their property to the project in order to encourage the development of affordable housing? This post explains North Carolina law pertaining to the developer’s request. Continue reading “Conveyance of Local Government Property for Affordable Housing”

EB-5 Visa Program Helps Fund NC Charter Schools

Dillard School-CCPThe CED blog has written previously about the EB-5 program, which as a reminder allows foreign national to obtain a green card for themselves and their families in exchange for an investment in the United States of either $1 million, or $500,000 in an area that is designated as particularly high need (for more information, read here).  These visas are an interesting pathway for high net worth foreign nationals to fast track their approval for residence in the United States, and were designed to encourage meaningful investment in the country.  However, given the complications associated with finding an investment, and the increasing popularity of the program, since its inception a number of specialty firms have risen to present EB-5 compliant investments to applicants.

In the CED blog’s previous discussion of the program we highlighted the construction of a hotel and marina in Wilmington, NC, which was led by USAInvestCo, a Wilmington based developer whose principals have engaged in projects around the country, and which focuses on providing EB-5 investment opportunities.  This post will highlight a similar firm, Education Fund of America, which provides investors with the opportunity to allocate capital to Charter schools, including at least four in North Carolina according to their websiteContinue reading “EB-5 Visa Program Helps Fund NC Charter Schools”

Renewed Funding Extends New Market Tax Credit Program Through 2019

Grading siteThe CED blog has previously written about the importance of New Market Tax Credits, and their place in the process for developing real estate transactions (a primer can be found here, and a discussion of the process for investment can be found here).  Briefly, these credits are designed to drive capital to underserved communities, notably those which are determined to be ‘highly distressed,’ and provide investors with a 39% tax credit, paid over seven years, for investments in qualified projects.  Credits are allocated to designated Community Development Entities (CDEs), which then select impactful projects in which to invest.  Because funding for the Program is limited, investments tend to be highly competitive: this makes the impact of the project extremely important, and allocations often tend to concentrate around the various CDE’s mission targets, which could range from solar energy, to rural health, to small business development, to any number of other things. Continue reading “Renewed Funding Extends New Market Tax Credit Program Through 2019”

A Primer on Applying for Historic Tax Credits and the National Historic Register

In development, it is often easier to start from scratch – buy a property, clear the land, and begin building the structure you want.  In fact, this is frequently the most cost effective way to develop a property: old structures can literally be ‘messy,’ with major deferred maintenance, old systems, and outdated uses commonly making it cost prohibitive to bring an old building back to life.

However, at the same time many of our State’s older buildings are beautiful, character-rich structures which should be worth saving.  North Carolina’s history of textiles and manufacturing alone has left the state with hundreds of beautiful buildings with fascinating histories, plus detailing and charm that would be nearly impossible to replicate.  At the same time, as much as a developer might wish to preserve a structure, financial realities must prevail, and some properties are simply not financially viable as they are.

Readers of the CED blog should be aware of the existence of Historic Tax Credits, and the value of their use in the redevelopment space (see previous posts here, here, and here).  However, to the owner of a historic structure, or someone hoping to invest in one, the process might seem far too complex and daunting to be worth their time.  This common misperception leads property owners to follow the path of least resistance, and allow their properties to fall into further disrepair.  Continue reading “A Primer on Applying for Historic Tax Credits and the National Historic Register”

Brownfields Programs as a Revitalization Tool: NC Case Studies

Site Plan for the River Landing Park in Williamston, NC
Site Plan for the River Landing Park in Williamston, NC

Last month the CED blog published an overview of Federal and State Brownfields programs and how these programs can assist in remediating and revitalizing tough-to-develop sites that  are plagued by environmental contamination. This post will provide two case examples of how the US EPA and NC Brownfields Program have been employed in two North Carolina communities.

Case #1: Conover Station, Conover, NC

In the town of Conover, an abandoned Broyhill Furniture manufacturing plant has been turned into a revitalizing, mixed-use development. Conover (population 8,165) is located in Catawba County, just east of Hickory along Interstate 40. When the Broyhill plant closed its doors in 2005, it quickly became an eyesore in the heart of the community. Petroleum and volatile organic contamination from years of underground and aboveground storage tank use was present in the soil and groundwater, with problematic product lines existing underground and throughout the buildings. Despite the challenges, the town saw potential to redevelop the site into a mixed-use development that would preserve the historic Warlong Glove building as its centerpiece.  Continue reading “Brownfields Programs as a Revitalization Tool: NC Case Studies”

Report: The Unintended Consequences of Housing Finance

Housing in a Community Land TrustThe Unintended Consequences of Housing Finance is a recent report by the Regional Plan Association that addresses the negative externalities of certain federal housing finance rules, and myriad methods to address these externalities through rule changes and amendments. Perhaps it is not immediately apparent how financing rules can have dramatic impacts on the physical form of our cities, but this report demonstrates the way in which these rules encourage certain types of development (single-family housing and large multifamily projects) and discourage others (mid-rise, mixed-use multifamily projects). Continue reading “Report: The Unintended Consequences of Housing Finance”

How to Use Federal and State Brownfields Programs to Accomplish a Community Revitalization Project

technical_assistanceLearning that a site for redevelopment is affected by real or perceived environmental contamination can be one of the biggest barriers to community revitalization. Brownfield sites, which are defined by the North Carolina Department of Environmental Quality as “abandoned, idled or underused properties where the threat of environmental contamination has hindered its redevelopment,” pose legal and financial challenges to prospective developers. Lenders are typically wary of providing financing to projects with substantial risk for litigation around environmental contamination. Remediating pollutants can also be a costly endeavor for developers.

Despite the challenges, remediating brownfield sites has many benefits for a community. Environmentally, redeveloping on a brownfield site saves greenspace, utilizes existing infrastructure, cleans the air and water, and preserves natural habitats. Additionally, since many brownfield properties are neglected eyesores, remediation can have a positive impact on adjacent property values and crime rates while contributing to a sense of community pride. Continue reading “How to Use Federal and State Brownfields Programs to Accomplish a Community Revitalization Project”

More Federal Funding Available to Grow Clean Energy Small Businesses

Back in September, this blog highlighted a new program from US EPA to work with small businesses nationwide to develop and commercialize technologies that tackle critical environmental problems:  the Small Business Innovation Research (SBIR) Program.  Now the US Department of Energy’s Office of Energy Efficiency and Renewable Energy has launched its own program to assist small businesses, the Small Business Vouchers (SBV) pilot program.  The Small Business Vouchers program links small businesses who promote clean energy technology with the DOE National Laboratories. Continue reading “More Federal Funding Available to Grow Clean Energy Small Businesses”

Tools for financing development in revitalization areas: HUD Multifamily Loan Products people are familiar with HUD FHA mortgage insurance programs for single-family housing. These programs insure mortgages for lenders providing loans to single-family home borrowers and have been a significant driver in shaping the housing and mortgage markets in the United States over the last 80+ years.

In addition to these more well-known programs, the agency also features insured financing programs for new construction and rehabilitation of multifamily projects, through Section 220 and 221 of the National Housing Act. This post will serve as an introduction to Section 220 and 221 and will be the first of two posts. Part II of this series will examine how these programs are being used in North Carolina. Continue reading “Tools for financing development in revitalization areas: HUD Multifamily Loan Products”

New SEC Rules Play to the Crowd

"Hogarth Marillion Paris 2005" by Laurent Franchi
“Hogarth Marillion Paris 2005” by Laurent Franchi

Crowdfunding, a method of raising money over the Internet, usually in modest increments from large numbers of individuals, has been around for almost 20 years. Informed cultural critics (and now, readers of this blog) often point to British neo-prog rock band Marillion’s 1997 email plea to fans for advance album orders as the genesis of crowdfunding. Marillion raised about $60,000 and went on to write and record the album “This Strange Engine,” which featured the single “Man of a Thousand Faces,” which seemed to speak to the budding consequence of crowds of stakeholders: “I’m the man of a thousand faces/A little piece of me in every part I take/I hold the tape for a thousand races/A different point of view in every speech I make.”

In the ensuing 20 years, crowdfunding has emerged as a powerful tool for artists and musicians, entrepreneurs, and dreamers. This blog has shared how crowdfunding can allow small businesses and community economic development projects to access capital as well as how crowdfunding is being used to fund civic projects. This blog has also detailed how a North Carolina brewery used crowdfunding for its initial startup capital, which it then leveraged to attract an angel investor and, ultimately, traditional financing.

Beginning this spring, crowdfunding will enter a new phase Continue reading “New SEC Rules Play to the Crowd”

Reimbursement Agreements

A developer in town is seeking approval for a large new real estate project. The zoning and subdivision ordinances call for the developer to construct and dedicate public streets and parks and water infrastructure. But, the city has plans for some additional improvements adjacent to the development—a greenway on adjoining property and some intersection improvements nearby. The developer’s contractors will already be on site, grading land and constructing improvements. Could the city just pay the developer to build the city’s improvements, too?

The answer is yes. But, of course, there are limits and procedural requirements. Cities and counties may enter into agreements for certain improvements—beyond those required as part of the development approval—to be made by a developer. The General Statutes include overlapping authority for contracting for public enterprise improvements, roadway improvements (cities only), as well as general reimbursement agreements. This blog outlines the basics of those overlapping authorities. Continue reading “Reimbursement Agreements”

Public-Private Partnerships: Universities & Private Developers

first-ward-park-rendering-370pxUniversity enrollments are at an historic high and an increased student population requires that universities grow in other areas as well, such as housing and facilities. In recent years, universities have been partnering with private developers to advise and help them manage this growth. Previous posts on this blog have highlighted the role that higher education can play in economic development and in downtown revitalization.

There are many benefits to a university in seeking a private partner as they expand and redevelop their facilities. Reduced budgets, hiring freezes, and capital cutbacks mean many university departments are already working at capacity. Hiring a private developer to take on the work of managing major redevelopment greatly reduces the pressure on campus staff and brings in development expertise that the in-house staff may not have. The result of that expertise can mean reduced construction costs, expedited timelines, and better buildings that capitalize on the latest academic trends.

The move to using private developers to create facilities also has the added benefit of providing access to new sources of private funding unavailable to universities, and access and expertise in using funding sources such as government grants, loans, and tax credits, that can significantly reduce the cost burden on the public partner. Private development partnerships can even provide a university the option to complete the project through off-sheet financing if their current debt structure does not necessarily allow for the undertaking of new, costly projects, thus allowing them to still meet the needs of their students despite concerns of debt capacity. Continue reading “Public-Private Partnerships: Universities & Private Developers”

U.S. EDA Resources Help Communities Build the Local Ecosystem for Sustainable Economic Development

EDA logoIt takes a multitude of resources, dedicated professionals, and committed organizations to promote economic development. Successfully realizing the economic potential of a place requires doing the hard work of leveraging all existing regional assets to build the environment, or ecosystem, where business can flourish, jobs are created, and citizens prosper. It is this integration of assets, resources, best practices, and complementary actions that energizes a region’s economic potential. Continue reading “U.S. EDA Resources Help Communities Build the Local Ecosystem for Sustainable Economic Development”

Commenting on the NC Qualified Allocation Plan year the North Carolina Housing Finance Agency (NCHFA) reviews the Qualified Allocation Plan (QAP) that describes the selection criteria for developers submitting projects for Low-Income Housing Tax Credits (LIHTC). LIHTC credits provide developers the ability to feasibly develop affordable housing. During the revision process, developers can submit comments regarding the previous QAP.

As of late October, the NCHFA had received over twenty-five comments. The NC QAP affects developers in NC as well as in neighboring states with five of the submitted comments coming from developers outside of NC. In addition to comments by private developers, nonprofit organizations and law firms also provided comments. Three topics that were frequently raised in the comments relate to the principal cap, tiebreaker method and developer experience.  Continue reading “Commenting on the NC Qualified Allocation Plan”

Changes to Municipal Service District (MSD) Authority

[UPDATE: Additional changes were made in 2016. Those changes are summarized here: 2016 Changes to Municipal Service District (MSD) Authority]

In the state budget bill, S.L. 2015-241, the legislature made a few changes to municipal service district (MSD) authority. An MSD is a defined area within a municipality in which the unit’s governing board levies an additional property tax in order to provide projects or extra services that benefit the properties in the district. (Counties have similar authority, referred to as county service districts.) A service district is not a separate government. It is simply a mechanism whereby a local government may raise money to pay for services or projects from those property owners that most directly benefit from the services or projects. (Click here for more information on MSDs.)

Under general law, a municipality may define one or more service districts for any of the following functions:

  • Beach erosion control and flood and hurricane protection works
  • Downtown revitalization projects
  • Urban revitalization projects
  • Transit-oriented development projects
  • Drainage projects
  • Sewage collection and disposal systems
  • Off-street parking facilities
  • Watershed improvement, drainage, and water resources development projects

(There are a few additional authorized purposes for certain municipalities. See G.S. 160A-536.)

The most common municipal service districts are established for downtown or urban area revitalization. A municipality may establish one or more downtown revitalization districts in its central downtown area. It may form an urban area revitalization district in an area that meets any one of these criteria: (1) it is the central business district of the municipality; (2) it consists primarily of existing or redeveloping concentrations of industrial, retail, wholesale, office, or other significant employment-generating uses; (3) it is located in or along a major transportation corridor (with certain restrictions); or (4) it is centered or focused around a major concentration of public or institutional uses.

Downtown and urban area revitalization districts are commonly referred to as business improvement districts or BIDs. Establishing a BID allows a municipality to levy an additional property tax on real and personal properties within its central downtown, or other commercial area, to fund a variety of downtown projects and services, such as street and sidewalk improvements, promotional and marketing efforts, increased security, additional trash collection, and building façade improvements. (Click here for more information on BIDs.)

Section 15.16B of S.L. 2015-241 (state budget) imposes limitations on a municipal board’s authority to levy an MSD tax for any of the authorized purposes. It also mandates that a municipality follow certain procedures before entering into a contract with a private entity to provide services within certain types of MSDs—namely those established for downtown or urban area revitalization. Finally, the new law designates a study commission to look at the feasibility of allowing property owners to opt out of an MSD. Continue reading “Changes to Municipal Service District (MSD) Authority”

Local Government Economic Development Powers “Clarified”

Grading siteOn October 20, 2015, the Governor signed Session Law (S.L.) 2015-277, placing into effect several “clarifications” to the primary economic development statute used by local governments, G.S. Chapter 158, Article 1, “The Local Development Act of 1925.” The modifications fall into three categories: first, broad discretionary language was removed; second, new procedural requirements were imposed; and third, historic rehabilitation was explicitly included within the penumbra of allowable economic development activities, subject to the same limitations that have long been imposed on such activities by the statute and the North Carolina Constitution. Each will be addressed in turn. Continue reading “Local Government Economic Development Powers “Clarified””

New Rules on Historic Rehabilitation Tax Credits, and Where Credits are Due

Renfro MillNorth Carolina’s historic rehabilitation tax credits program—a critical tool for communities around the state that sought to put historic structures to productive economic use—expired on December 31, 2014. The credits are back, though they differ in some important ways from those that existed prior to 2015. This post explains how the new state tax credits program will work. Continue reading “New Rules on Historic Rehabilitation Tax Credits, and Where Credits are Due”

Cash Grants for Real Estate Developers without Competition for Jobs—A Constitutional Quandary

shopping mall constructionA local real estate developer, Al Czervik, proposes to construct a mixed-use development with residential, office, and retail space. The city council likes the development plan because it is consistent with the council’s vision for the area. Czervik, seeing incentives being offered to convince companies to locate in North Carolina rather than other states, misses the significance of the competition element of those incentives and thinks his development, too, should receive incentives. He requests a $1 million cash grant ($100,000 per year for 10 years) from the city to “make the project work.” Czervik is unwilling to promise jobs, of course—because it is the tenants who will provide jobs, not his development—but he is confident that tenants with jobs will locate in the development and therefore he seeks a subsidy nonetheless. Czervik’s request gets the attention of the city attorney, who is well aware that this request rests on very shaky legal ground (as explained in this blog post and this law review article). How might the city attorney frame the legal issues for city council members, who are initially receptive to Czervik’s request? Continue reading “Cash Grants for Real Estate Developers without Competition for Jobs—A Constitutional Quandary”

How a Local Government Loan Can Make a Revitalization Project Possible

historic commercial bldgAn historic manufacturing building in the town of Sunrise, North Carolina, is in disrepair. There are holes in the roof, standing water in the basement. Residents treasure the 3,500 square foot building and public officials want to see it redeveloped and contribute to the revitalization of their historic downtown, but they haven’t been able to figure out how. At the urging of councilmembers, Town Manager Estella Perez makes the project a priority.

Her staff estimates that the building will cost about $620,000 to acquire and redevelop into office space. This includes hard costs related to roof repair and general construction as well as soft costs such as architectural, engineering, and legal services. The town isn’t ready to make an investment of that size, but perhaps a private developer could be convinced to take on the project. She turns to a graduate student team in the Community Revitalization course at the School of Government for assistance with evaluating the financial feasibility of redevelopment.

The student team approaches the project from the perspective of a private developer. The team determines that the bulk of the redevelopment costs can be financed through a traditional bank loan. The team assumes that a private developer could receive a primary loan of about $215,000, or 75 percent of the expected value of the building once it is fully leased to tenants.

The team also assumes that, because the building is on the National Register of Historic Places, the project will qualify for historic rehabilitation tax credits that will contribute around $160,000 in equity for the project. The use of tax credits means that the building must be held for the first six years after it’s developed, but the student team’s calculations assume that it would then be sold, resulting in a large amount of income after six years. Continue reading “How a Local Government Loan Can Make a Revitalization Project Possible”

Five Dangerous Myths for Small Water Systems

Small water systems serving 10,000 people or less comprise more than 94% of our nation’s public water systems. They are a large and diverse group, and are managed by a wide variety actors – from local and tribal governments, to mobile home park owners, to homeowners associations, to shopping mall operators and hotel managers. These managers often have many other, very different responsibilities and often face challenges in running the water system. In 2011, 25 percent of the nation’s smallest systems violated health-based standards in part due to their geographic isolation, small staff size, growing infrastructure needs and small customer bases. And as we wrote about earlier this year, small water systems with financial difficulties are more likely to have violations.

Since 2012, the Environmental Finance Center at UNC and the Environmental Finance Center Network have been working to help educate and build financial and managerial capacity within small water systems. Through our work under the Smart Management for Small Water Systems Project, we’ve noticed 5 dangerous myths in financial planning. These myths can appear wherever water system planning occurs, but seem to be most prevalent among smaller communities that are considering creating a new or significantly expanded water system.

Continue reading “Five Dangerous Myths for Small Water Systems”

Civic Crowdfunding

Kansas City’s B-Cycle Program

Earlier posts on this blog have explored the idea of crowdfunding and its legal implications, growing popularity as a source of capital, and use in supporting local businesses. As these posts explained, crowdfunding is the concept of online fundraising from a pool of many different donors or investors. These online crowdfunding platforms, most notably Kickstarter, have emerged over the last several years and crowdfunding has capitalized on its viral nature and led to the successful funding of many different projects, ranging from business startups to theatrical performances.


In recent years, new platforms – Citizinvestor, ioby, and – have emerged with a specific focus on public goods -“civic crowdfunding”. These websites facilitate the funding of public projects, some of which are organized by local governments themselves and others organized by citizens and community organizations interested in bringing new services or facilities to an area. Crowdfunding may be a preferred method of fundraising when bond issuance may be too cost prohibitive or where there is a group of citizens willing to coordinate the fundraising effort. One of the largest civic crowdfunding campaigns is BikeShareKC’s Kansas City B-Cycle program, a campaign that used to raise nearly $420,000 to support a project providing 90 shareable bikes at 12 sharing stations around downtown Kansas City. Continue reading “Civic Crowdfunding”

Can Community Ownership Eliminate Food Deserts?

imagesA previous post to this blog looked at development finance tools that can be used to address food deserts. This post introduces new findings about food deserts and looks at a cooperative grocer in Greensboro that aims to eliminate its neighborhood’s food desert and spur economic development.

“Give a person a fish,” the proverb goes, “and you’ll feed them for a day; build a neighborhood a grocery store and you’ll see ‘minimal effect on household food availability and no statistically significant impact on consumption habits.’”

Or something like that. Recently, the New York Times reported on new research that casts doubt on the idea that putting grocery stores in food deserts—areas with limited access to affordable and healthy food—is an effective way to improve the health of residents of low-income communities. One study concluded that after its first year, the introduction of a government-subsidized grocery store in an underserved South Bronx neighborhood had “minimal effect on household food availability and no statistically significant impact on consumption habits.” Another study suggested that the nutritional quality of a bag of groceries has much more to do with the education—and to some extent the income—of the person pushing a cart than it does that person’s proximity to a store that sells healthy food.

One takeaway from these studies is that shoppers—in addition to stores—must change in order to solve the health problems associated with food deserts. In an economic sense, communities must address both the supply and demand for food in order to eliminate food deserts. What ends up on your plate may not so much reflect what’s on nearby supermarket shelves, but rather your personal preferences, cultural food traditions, and budget. It may also reflect the amount of time and energy you have to prepare a meal after a day at work, the condition of your kitchen, and what you know how to cook. Still, eliminating food deserts by increasing access to healthy food is a necessary first step toward improving community health and food security. Continue reading “Can Community Ownership Eliminate Food Deserts?”

Redevelopment Case Studies of Victorian-Era Psychiatric Facilities

danvers4Earlier this month, a post on CED in NC provided an overview of the redevelopment of Victorian-era psychiatric facilities.  Many historic psychiatric institutions throughout the country have closed, leaving large, architecturally significant buildings on vast campuses behind. The redevelopment of these facilities generally requires public-private partnerships, non-traditional financing, and creative programming. To illustrate the variety of opportunities that cities and towns have pursued with former psychiatric facilities, here are three projects that have tackled these challenges in different ways.  Continue reading “Redevelopment Case Studies of Victorian-Era Psychiatric Facilities”

Leasing Historic Tax Credit Property to Local Governments: Disqualified Lease Rules

O'Neil Building in Kinston, NCPrevious blog posts have looked at how communities can redevelop historic properties through the creation of public-private partnerships as well as how IRS rules affect the allocation of historic rehabilitation tax credits to investors in redevelopment projects. This blog post explores what happens when properties utilizing federal historic tax credits seek to lease space to local governments and other tax-exempt tenants.

The Case of Emerald City

Tina Woodman, a longtime community member, has approached the city manager of Emerald City, Dora Gale, about possibly redeveloping an historic downtown building. Woodman has a heart for the city and hopes that she can contribute to the downtown’s nascent revitalization through redeveloping the property from an eyesore into a beautiful, productive building. She knows that this will be a challenging project, but believes that with the use of historic rehabilitation tax credit equity and a stable tenant, this project could succeed and, importantly, catalyze further redevelopment. A few years ago she redeveloped another historic building and benefited from both federal and state historic tax credits, which saved her almost 30 percent on the project costs, and made an otherwise infeasible project successful.

Woodman asks Manager Gale if Emerald City would be interested in leasing space in the redeveloped building as municipal offices. It is no secret that the City has outgrown its office space, and its participation would likely improve the project’s ability to attract other investors. Gale is excited about the possibility of moving some of the municipal offices into a building with ties to the city’s storied past.  Continue reading “Leasing Historic Tax Credit Property to Local Governments: Disqualified Lease Rules”

A Thousand Acres and Half a Million Square Feet: Redevelopment of Victorian-Era Psychiatric Facilities

Traverse_City_State_Hospital_postcard_circa_1930Shuttered psychiatric facilities provide endless material for macabre imaginations. However, for creative communities and developers, these historic facilities also inspire ideas for uses like recreation, housing, healthcare, education, or retail. Many states built grand psychiatric facilities in the late 1800s and early 1900s in response to reform work led by Dorothea Dix, who argued that people with mental illness and disabilities should have a permanent place to live. Thomas Kirkbride, a reformist psychiatrist, inspired the designs of these campuses, most of which featured a very long, grand building with ornate architecture, set in an Arcadian landscape. This layout was known as the Kirkbride Plan. Psychiatric institutions of centuries past have a mixed history; some provided comfortable long-term residences while others were sites of terrible and chronic abuse. In recent decades, it has been recognized that most people with psychiatric conditions benefit from living in an integrated community, and institutionalization is no longer favored. As a result, many historic psychiatric institutions have consolidated and closed.

The potential for redevelopment of closed psychiatric facility holds great appeal at first glance. The buildings were built with high quality and architectural detail. They sit on vast campuses of hundreds of acres, often in locations surrounded by urbanization that occurred since the land was set aside for the facilities. However, effective redevelopment has major challenges, some particular to Victorian era psychiatric facilities and others associated with large redevelopment projects in general. Continue reading “A Thousand Acres and Half a Million Square Feet: Redevelopment of Victorian-Era Psychiatric Facilities”