DATE: May 31, 2016
TO: Board of Mayor and Aldermen
FROM: Eric Stuckey, City Administrator
Russell Truell, Assistant City Administrator
SUBJECT:
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Review of Tax Increment Financing (TIF) District
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Purpose
The purpose of this memo is to provide information to the Franklin Board of Mayor and Aldermen (BOMA) concerning McEwen Economic Development District, commonly referred to as the TIF District.
Background
The McEwen Economic Development District was created in 2005 to assist the City of Franklin Industrial Development Board (IDB) execute financing of a headquarters building for the Nissan North America. The IDB issued bonds to finance the purchase of fifty acres of land for the Nissan site. In the process, the City agreed to dedicate any incremental property taxes from the Nissan property, and from the immediately surrounding area, to the repayment of the bonds that were issued for the land purchase.
In the ensuing years, the original amount of the bonds has been reduced from slightly under $15 million to $11.1 million. In April, 2015, the bonds were refinanced into two segments: a note for $5.2 million at a fixed rate of 2.26%, and a variable rate note for $7.2 million which follows a bank index that is currently set at 1.1875%. The fixed rate note will be paid in April, 2020. The variable rate note matures in 2025 but can be paid at any time without penalty for prepayment.
2015 property taxes in the TIF district totaled $1.3 million. Approximately $1.1 million is devoted to principal reduction. The current forecast is for tax collections to rise, on average, approximately $100,000 per year based on conservative estimates of construction. That forecast translates to a payoff of both the fixed and variable rate notes in roughly nine years. That time frame could be expedited by faster build out of projects in the District, or by increases in receipts due to tax rate increases or valuation changes or a combination thereof.
In addition to the outstanding notes, the IDB owes the City General Fund approximately $2.3 million resulting from a standby loan arrangement provided by the City in the early years of the TIF District. A total of $2.7 million was advanced between 2006 and 2009 to assist in paying the debt service prior to tax-producing development in the District.
Financial Impact
The financial impact on the City budget is a diversion of property tax income during the repayment period of the IDB borrowing. It is worth noting that much of the property tax revenue that is diverted results directly from the Nissan property or from other development that may not have occurred without the Nissan project and the infrastructure improvements in the District.
Recommendation
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This is a staff report that does not require a recommendation.