DATE: January 28, 2015
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
Russ Truell, Assistant City Administrator
SUBJECT:
title
*Consideration of Resolution 2015-11, authorizing Contract 2015-0038, Amending a Revolving Loan Agreement with the Franklin Industrial Development Board (02/10/15 WS)
body
Purpose
The purpose of this memorandum is to provide information to the Franklin Board of Mayor and Aldermen (BOMA) concerning the McEwen Economic Development District, also known as the Tax Increment Financing (TIF) District, and the Revolving Loan Agreement between the City of Franklin and the Franklin Industrial Development Board.
Background
Industrial development corporations ("IDBs") are authorized under Tenn. Code Ann. § 7-53-312 to prepare and submit to cities and counties an economic impact plan with respect to an area that includes an industrial park within the meaning of Tenn. Code Ann. § 7-53-312 or a project within the meaning of Tenn. Code Ann. § 7-53-101 and such other properties that the IDB determines will be directly improved or benefited due to the undertaking of such industrial park or project. Tennessee Code Annotated § 7-53-312 also authorizes cities and counties to apply and pledge new incremental tax revenues, which arise from the area subject to the economic impact plan, to the IDB to promote economic development, to pay the cost of projects or to pay debt service on bonds or other obligations issued by the IDB to pay the costs of projects.
In 2005, the Tennessee Department of Economic & Community Development identified a headquarter relocation project to elected officials in Williamson County. The project was to be a headquarters office building for a major corporation and would be located on an approximately 50-acre portion (the "Project Site") of parcel 14.00 on tax map 062. The Project Site was located east of I-65, north of McEwen, west of Carothers and south of Cool Springs Boulevard. The Project Site, the corporate headquarters office to be constructed thereon and the furniture, machinery and equipment to be installed therein are herein referred to collectively as the "Project". In order to make the Project financially feasible, The Industrial Development Board of the City of Franklin (the "Board"), subject to the approval of the Board of Mayor and Aldermen of the City of Franklin (the "City"), engaged in tax increment financing pursuant to Title 7, Chapter 53 of Tennessee Code Annotated to provide funds to pay all of the cost of acquiring the Project Site. The proceeds of the tax increment financing would be used exclusively to pay all or a portion of the cost of acquiring the Project Site. The Project was an eligible project within the meaning of Tenn. Code Ann. § 7-53-101(11)(A)(iv).
The City's contribution to the project was the 50 acre land parcel, to be provided through the Industrial Board and financed through a tax-increment financing district. Several impediments and delays in construction of the project led to a shortage of funding for debt service in the early years. A revolving loan agreement between the City and the Industrial Board allowed the City to advance funds to the IDB during this period of shortage. It also allowed for temporary advances to cover interest payments during the period between the beginning of the fiscal year and the months when tax revenue is actually collected. Beginning in 2012, the revenues from the TIF district began to exceed the debt service and the loan agreement has only been used for cash flow purposes.
The IDB is now confronted with an opportunity to refinance the remainder of the project on favorable terms that will retire the outstanding debt more rapidly than the current repayment structure. This opportunity involves direct purchase of the bonds by one of the financial institutions. In order to accommodate the new funding mechanism, changes to the Revolving Loan Agreement are required to reflect different payment schedules that are advantageous to the City and recognition of cash flow advances from the City while property taxes are invoiced but not yet collected. The Industrial Board will ask that the City of Franklin endorse the refinancing mechanism recommended by Public Financial Management, the City's financial advisory firm, and by City staff, and approve amendments to the Revolving Loan agreement.
Financial Impact
Prior to establishment of the McEwen Economic Development District, a detailed financial impact study was undertaken by Bill Fox of the University of Tennessee Department of Economics and Business, showing a large positive impact from the project. A copy of that report is on file with the City, the University and the State ECD Department.
The restructuring proposal being recommended has a positive influence on the financing cost of the project, and therefore accelerate the timing of the final payoff on the TIF bonds.
Recommendation
Staff recommends approval of the Resolution and the Amendment to the Revolving Loan Agreement between the City of Franklin and the Franklin Industrial Development board. Staff also recommends endorsement of the plan of refunding recommended by Public Financial Management and the staff of the City's Finance Department, subject to approval of the City Administrator and City Attorney.