All right.

Welcome everybody to the work session.

We will turn it over to I don't know it's city manager or Ken Bowers who will do the first section on tax increment reimbursements.

Yes.

Good morning, Mayor and Council.

We have two items today that are kind of related and interrelated.

The first of which is the tax increment reimbursement program.

We have Ken Bowers with Planning and Development to present this item.

Thank you.

And so the other key thing is that uh sometimes you don't know that there's going to be an opportunity until a specific project is proposed.

So you want to, as a as an organization, position yourself to be able to capitalize on opportunities when they arise, and a key part of that is being able to commit funding.

And so by looking at the tax rankment as the source for funding, it allows the city to act quickly when opportunities present themselves.

And so the land before development only paid $21,000 a year in city property taxes, and after development, it will pay $213,000 in property taxes based on current rates.

So that that increment, that $192,000 of extra money flowing into the city's ad valorum tax receipts is the source potentially for financing stuff.

So the the development the reimbursement from the developers who would come out of this annual tax increment for some period of time.

So like the tax increment grant, you're benchmarking it against these future tax payments.

You're essentially reimbursing the developer a certain share of that over a certain period of time, and the specific share and the length of time would be something that would be negotiated based on the size of the reimbursement that's needed to fund the thing that your developer is building on your behalf.

So a little history, the current tax increment grant policy was adopted back in May of 2021.

Since that time, uh the policy has never been used.

There have been no tax increment agreements entered into uh between a development entity and the city of Raleigh.

The original statutory basis for that was the economic development statute uh in October of 2023.

The City Council adopted some ordinance that allowed us to use some different statutory authority specifically for reimbursement agreements.

And those either are transportation projects or they are items that are uh within the city's capital program.

So for example, if a greenway trail is um part of the city's capital program, and uh a developer is building adjacent to that and builds the trail on our behalf and we reimburse them for that work, that would be done uh pursuant to that type of authority.

Then in April, um staff brought forward and and and this council adopted a partnership policy, and that partnership policy talked about the terms under which the city would enter into a partnership.

And a reimbursement agreement is one type of partnership where a developer builds something extra alongside the development project, and we uh work to offset the cost by reimbursing them for a portion of that cost, either all of it or some of it.

Um so that policy guided how we evaluate them, what sort of due diligence the staff does, what the public process is, and what the process is for council involvement.

And so here we are today talking about this new um replacement for the tax increment grant policy, which is the the where we have given the acronym TERP for tax increment reimbursement program.

A lot of animations here.

So what are the key features of the program?

It is flexible because it can fund projects from small to fairly significant depending on the size of the project, the private project that is being subject to the tax increment.

So a single, say, apartment building would be able to fund several hundred thousand dollars worth of improvements, something the size of a downtown South scale project would be able to fund several million dollars worth of external improvements.

Um the second thing is a very low risk.

The city is not borrowing any money, so this is not like tax increment finance, and we'll get into that.

Um, then the payments don't start until the benefits are constructed and in public use.

And then it's responsible because by basing it, basing the reimbursement payments off of a share of future tax revenues, you're assuring that there will be positive cash flow in terms of tax receipts in every year that the reimbursement is active.

You're never reimbursing more than is flowing in in new property taxes.

So, what kind of projects can we use this for?

The first category is economic development, and this is very much a carryover from the existing tax increment grant policy.

This is what it was structured around.

So you've got a major mixed-use project, and you want to finance some public um uh facilities or attractions.

That could be a sports venue, it could be a performing arts venue, it could be you know a major open space attraction that's allied to a private development project.

But in order to meet the test, it has to be something that creates a lot of jobs and supports economic sectors and grows the tax base.

So because of the job creation, a purely residential project wouldn't have qualified for a tax increment grant under the old policy.

Under the new policy, you can also use the same tool for financing smaller, more modest things.

So I used the example early of a single multifamily building, has about a $60 million assessment.

If you do some math with a you know projecting uh uh, say a 10-year payout based on 50 percent or so, you could finance maybe $700,000 worth of public improvements.

What kinds of things you might you do with that kind of money?

You might enhance a transit stop, you might make pedestrian improvements to an intersection.

If there's a concern in the neighborhood about traffic calming, you can't really require off-site improvements, but you could enter into a partnership to pay for, say, traffic calming on adjacent neighborhood streets to mitigate the impacts of a development.

So there's all sorts of things like that that would fall into that financeable range for a more modestly sized project that could be purely residential, or you could enter into a reimbursement agreement using this tool.

So, what are the project requirements?

It's got to align with city plans and goals, it has to have an agreement value that can be paid for by the tax increment, and we put a sort of minimum figure on there just because there is a certain amount of administrative overhead with doing a program of this nature.

So the you know, the value of the agreement to the city has to be at least 200,000.

It's finances stuff that would not occur but for participation in the program, the tax revenue is sufficient to cover.

And we're also requiring the developer to at least make a request of Way County, even though I think in many cases the type of stuff that would be that would be uh uh financed could be would be financed basically through city participation only.

But it is important to remember that the split between this on your property tax bill, if you live in the city, over 60 percent goes to Way County, less than 40 percent goes to the city.

So with county participation, the amount that could be financed is significantly higher.

And so for regional facilities or things for which there is a county interest if the county participated that could um generate a lot more financial power for this program.

So just to highlight again, risk is very low, the developer is building the thing and getting paid back, so they're essentially assuming the risk during funding and construction.