Dan McRae

In the bond world, “PILOT” stands for “Payments in Lieu of Taxes.” PILOT Bonds are revenue bonds that use PILOT payments as the revenue to repay the bonds. PILOT Bonds have already become increasingly important. I expect this trend only to intensify in Georgia if a Constitutional amendment affecting Tax Allocation Districts, or TADs (called tax increment financing, or TIFs, in other jurisdictions), does not pass this month. This Constitutional amendment would restore the option to a Board of Education for it to consent to include its educational millage increment as a source for the payment of redevelopment costs in a TAD. PILOT Bonds are an alternative to TADs, in that they allow for the “monetization” of property taxes. PILOT Bonds have already been used in Georgia to finance, for example, infrastructure for an industrial park, hotels, and the renovation of a convention center. As with other bonds, the interest on PILOT Bonds can be either taxable, or tax-exempt. A new development has just occurred regarding tax-exempt PILOT Bonds. The U.S. Treasury Department released new final Regulations to modify and clarify the tax rules applicable to tax-exempt PILOT bonds. The final Regulations became effective October 24, 2008. For more information about PILOT bonds, visit the White Papers page for "October 2008: Memorandum- Tax-Exempt 'PILOT Bonds'”, and for "March 2008: How to Use 'PILOT Bonds' to Monetize Property Tax ‘Abatement’". You can also visit the Quick Takes page for “October 2008: A Primer on PILOT Bonds.”

We are all aware of the disruption in the financial markets. Bond rates are still elevated compared to what we would typically expect. Nevertheless, the rates I have just posted on the Current Bond Rates page reflect what seem to be improving conditions.

In these times, there is often a gap in the funding necessary for a project. The project can be a traditional economic development facility, such as a building and equipment for a new industrial or commercial company, or a community development undertaking that involves economic development, such as a large mixed-use project. Solution- think “outside of the box.” So, I am starting a new series of Quick Takes newsletter issues, and White Papers, directed at “outside of the box” solutions for bridging this funding gap.

One new solution is to use tax increment financing (in Georgia this is TAD bonds, or tax allocation bonds) to finance economic development. A few years ago, the General Assembly made some changes (HB 409) in our Redevelopment Powers Law that at the same time are both hugely significant and widely unknown. These changes were deliberately intended to “expand the meaning of redevelopment”, and “to change the characteristics of areas eligible for designation as redevelopment areas.” Result- in many cases, new tax allocation districts (“TADs”) can provide funds to bridge that gap. This funding can provide public infrastructure, and, subject to proper documentation and structuring, can even pay for line items on a private developer’s development pro forma if they are eligible. This funding is not limited to blighted areas. To find out more, please download my new White Paper: “New TADs That Can Finance Economic Development.” It’s available on the White Pages section of this website.

Mixed use development and redevelopment are active sectors this year. I was honored to be part of the team chosen for the redevelopment of the Alpharetta City Center. Since then, I have presented to a Breakfast Briefing audience of real estate industry participants on a hypothetical redevelopment with a variety of asset classes (historic hotel, green space, deck parking, HQ office building, tourism and film facilities, shopping center, streetscape and utilities and residential over retail.) The financing techniques included Infrastructure Development District bonds (assuming IDDs to be available based on the referendum passing this November), TAD bonds, savings from property tax "abatement", a HUD Section 108 loan, "taxable floaters", a state grant, senior debt, equity/mezzanine finance, and tax credit financing, including historic rehabilitation tax credits, New Market Tax Credits, and state tax credits (the Entertainment Industry Investment Act and a hypothetical tourism incentive). I presented a variation of this oriented around a large prospect's facilities needs to the Georgia Economic Developers Association at its Spring Workshop in May. For the presentation, please visit the White Papers page.

Sometimes it makes more sense to "buy, rather than build." In other words, sometimes the most cost-effective use of your money is to purchase an existing asset for use in your business, as opposed to financing the construction of an asset (such as a building) or the purchase of a new asset (such as equipment to be installed in the building). In those cases, the use of tax-exempt industrial development revenue bonds can be an attractive financing alternative, but some special rules apply. I recently updated my White Paper on this topic, "Using Bonds to Buy Business Assets", and you can find a copy on the White Papers page.

A recent change in federal tax law allowing larger projects to be financed with tax-exempt industrial development revenue bonds has already resulted in many more borrowers taking advantage of this financing technique. You can find a spreadsheet entitled "Bond Use Analysis from Georgia Department of Community Affairs" posted on the What's New page with some interesting statistics relating to this. The "Bond FAQ's" White Paper on the White Papers page will tell you about the new rules for these bonds. However, when the borrower can't satisfy all of the rules for tax-exempt financing, bonds structured as federally taxable variable rate demand bonds ("taxable floaters") can still be used. I just updated my White Paper on this, "Introduction to Taxable Floaters", and you can find it as well on the White Papers page.

One need that development authorities have had is for a general statute expressly authorizing conference call meetings of their members. To respond to that need, I drafted some possible legislation that appears at the bottom of this page.

Just came off a very exciting year! In 2007, my Finance Group closed 42 bond transactions, as well as a variety of other finance and incentives transactions, including an exceptionally large CMBS issue with debt in three tranches. For that year, our bond and other financings exceeded $1.7 billion. Also, I was gratified to receive the Development Authority of Fulton County's first ever Bond Counsel of the Year award. But what's most gratifying is the contribution that I and my group were able to make to the public good. The transactions we closed will create an estimated 6,000 jobs in Georgia alone, not even counting jobs preserved in connection with these projects. Getting 2008 off to a good start, I am updating many of my White Papers. Please visit the White Papers page for current versions of such standard references as "Bonds for Title", " Bond FAQ's" and "Introduction to Taxable Floaters."

While I am continuing to study possible incentives on the federal level that might help with projects in rural Georgia, I have posted on the "White Papers" page-"'In The Zone'-Special Financing and Incentives for Enterprise Zones and Enterprise And Renewal Communities.

Well, I can see that I’ve got a lot of catching up to do with this blog. What prompts me now, is that I am posting the Memorandum that was among the materials I used when presenting at my roundtable session at the NAIOP (National Association of Office and Industrial Properties) Annual Meeting in Atlanta in October of this year. The Memorandum, “Better Financing Through New Markets Tax Credits and Tax-Exempt Bonds”, can be downloaded at my “White Papers” page. I think New Markets Tax Credits (“NMTC’s”) offer a lot of overlooked potential to help economic development in the rural parts of Georgia and other states. In fact, I am planning in my next Quick Takes newsletter issue to address incentives on the federal level that might help with projects. Meanwhile, I want to recognize, and thank, Curt Noel, of Eclypse Development Group, for his help with my preparation for the NAIOP presentation.

Many good things have happened, and many good things are coming up.

I am on the road a lot in the fall this year.

It was a pleasure on September 18 to meet with economic developers representing most of the 13 counties that are taking a look at forming a joint development authority for their region. The meeting was hosted by the Greater Hall Chamber of Commerce (thank you, Tim Evans!) and took place in Gainesville (yes, in the building that looks like I. M. Pei’s Louvre Pyramid at the main entrance to the Louvre Museum in Paris !). The idea of forming a regional (joint) development authority (JDA) was a RAC (Regional Advisory Council) initiative. This particular meeting was facilitated by David Sargent of the Georgia Mountains Regional Development Center. I presented on joint development authority topics, both legal and practical, including passing on pointers from my colleague, Kevin Brown, who was prevented from attending by a last minute client need. (One of the materials was my White Paper, “Everything You Need to Know About Joint Development Authorities”, which you can download on the White Papers page of this website). The group very wisely focused on identifying a common interest that a JDA could serve. Over lunch, I presented on the hot topic of tax reform. (Most of that presentation is contained in my Sept. 2007 Quick Takes issue, “The state of tax reform in Georgia- 'The Devil is in the details' ”. You can download that from the Quick Takes page of this website.) We all benefited from the presence of, and observations by, Max Burns, Ph. D., a former Congressman, and now Associate Dean. Interim MBA Director, and a Professor in the Mike Cottrell School of Business at North Georgia College & State University.

From the evening of September 26, through September 28, 2007, I will be in Chicago attending the 32nd Bond Attorneys’ Workshop, with time out to participate in a call with the working group that is helping the Fanning Institute at the University of Georgia organize an assessors' training session to be presented in connection with their meeting in mid-November, 2007.

I will be attending the Georgia Economic Developers Association’s Annual Conference in Savannah, Georgia from Wednesday, September 19, 2007 through Friday, September 21, 2007.

I am glad to report that prospect activity (new and expanding business and industry investment projects) remains good in Georgia. However, the Wall Street Journal for September 13, 2007, reported that economic forecasters polled by it on average evaluated the risk of a national recession at 36% (an increase of 8% over the previous month).This is tied, of course, to the current credit crisis and its impact on the financial markets. How long will that go on? We are only about halfway through it, according to about 60% of the economists polled.

The Georgia Local Government Public Works Construction Law potentially affects the construction of projects when a development authority is involved, regardless of whether the development authority is “statutory” or “Constitutional.” In its 2007 Session, the General Assembly changed this law. For a copy of my White Paper that explains the law and these recent changes, please click here for “Everything You Need To Know About Constructing Projects Under Georgia’s New Procurement Law.”