Okaloosa County BOCC — February 4, 2014 — [White Paper] FINAL - Okaloosa County Citizens Transporation Committee

Okaloosa County Citizens Transportation Committee The Pressing Issue: Okaloosa Transportation Infrastructure in the 21st Century Transportation issues surrounding the PJ Adams/Antioch Corridor in Crestview have long been identified as impediments to economic growth and development in Okaloosa County. Specifically, in the Crestview area, inadequate capacity prevents the easy addition of new growth and development not only along the corridor itself, but throughout the city and surrounding area. Growth of the County’s tourism industry which is concentrated in the area south of the Eglin Reservation, is also slowed by the inability to move traffic quickly and efficiently from north-end feeder highways (Interstates 10 and 65) through to the beaches along State Road 85, the region’s only four-lane highway that stretches across Eglin Air Force Base. Moreover, during evacuation periods, the congestion along the Highway 85/Highway90/Interstate 10 corridor prevents the orderly flow of traffic out of south-end wind and water danger zones. These facts are well established and have been examined exhaustively. The problem is not going to be solved easily, and it will certainly not be solved quickly. The problem will not be solved at all if Okaloosa County chooses to chart a course of inaction. The time to act is now. There are a number of options that could ensure sufficient funding to complete this project, including a sales tax increase, a gas tax increase, a property tax increase, the institution of a franchise tax and/or a series of state and federal grants. Okaloosa County residents, for a number of reasons, find many of the tax options unpalatable, and grants almost always require local matching funds, particularly where large amounts of money are involved. Another avenue involves the establishment of a Tax Increment Financing (TIF) District which results in a “savings account” into which a local government sets aside a portion of an ad valorem revenue stream for a specific project. The ad valorem stream that feeds the TIF savings account derives from the value appreciation that occurs as a result of the infrastructure investment for which the TIF was established. The funds that flow into the account do not in any way require an ad valorem tax rate increase, but rather are generated by “growth paying for growth”. A successful TIF solely involves a dedicated set-aside based on current tax rates and future growth potential, not a tax-rate increase. As previously stated, there are many avenues by which the County or a municipality can increase funding for transportation improvements in Okaloosa County. Creating a TIF District does not preclude other efforts to enhance transportation funding, nor will it solve every problem. But, the efforts of the Citizen’s Transportation Committee have focused solely on the TIF because it is a) feasible, b) easily established by local governments c) revenue neutral and d) does not contemplate a tax increase. It is important to note that the TIF plan will not completely finance the necessary PJ Adams/Antioch Corridor improvements. The TIF will, however, give local government enormous leverage when pursuing federal and state grants by generating a source of matching funds. Perhaps more importantly, it will demonstrate the local commitment to this important infrastructure enhancement. It is not the end solution. It is, however, a strong beginning. In the passages that follow, we outline the TIF plan as currently conceived by the Citizen’s Transportation Committee. Tax Increment Financing Districts A Tax Increment Financing District (TIF) is conceived to allow future revenues to be segregated into different pots in order to provide a dedicated stream of cash to finance infrastructure improvements. A TIF district may be imposed on an area that has infrastructure problems, an area which may be blighted, or an area where greater focus on development is predicted. A TIF district essentially “freezes” ad valorem tax collections at current levels and segregates future revenue collections above the current level into one or more pots of money. There is enormous flexibility in the way in which TIF districts can be created thus allowing local governments to maximize the potential benefits. For example, a TIF district can “freeze” ad valorem tax revenues at current levels and dedicate all future revenue collections into a single pot of money to be used for improvements within the district. As an example, suppose that a TIF district were created in Town A in which there existed one piece of property which generated $1,000 in ad valorem revenue in Year 1 (the year of the TIF district’s creation). Suppose further that in Year 2, the value of that piece of property goes up and the ad valorem revenue is adjusted to $1,100 – a 10% increase in the revenue. The taxing authority would receive $1,000 in revenue from the property in Year 2 and the TIF district would receive $100 in revenue (the appreciation) thus establishing two “pots” of money: one for the taxing authority and one for the TIF district. Suppose further that a new structure were added in Year 2 which increased the assessment to $1,500. In that case, the taxing district would receive $1,000 and the TIF district would receive $500. It is also possible to imagine scenarios in which the TIF district received only a portion of the increasing ad valorem revenues. For example, suppose that the TIF were created to split the appreciation revenues evenly between the taxing authority and the TIF district. In this case, the taxing authority in Year 2 would receive $1,250 (the original $1,000 assessment plus half of the increase in the assessed value) while the TIF district received $250 (half of the increase in the assessed value). A system of this type ensures that the taxing authority’s revenues rise over time (as a result of new growth) in order to absorb increasing costs of government. At the same time, the system generates funds for the TIF without necessitating a rise in the baseline ad valorem tax rate. Okaloosa Tax Increment Financing District Proposal Given the flexibility inherent in creating the TIF, the scope of Okaloosa’s transportation issues and the fiscal resources necessary to solve those issues long-term, it is critical to ensure that the Transportation TIF does not “starve” local governments of necessary revenues while at the same time creating substantial revenues for transportation improvements. To this end, the Citizen’s Transportation Committee has divided future revenues into four separate types: Type 1) those revenues generated by existing stock at existing values when the TIF is established, Type 2) those revenues generated by the addition of new stock, Type 3) those revenues generated by the appreciation of Type 1 existing stock and Type 4) those revenues generated by the appreciation of new Type 2 stock. To fully understand these separate revenue streams consider the following hypothetical situation. A home exists in Year 1, when the TIF is established, which generates $1000 in ad valorem taxes. This would be revenue type 1 (the ad valorem tax collection when the TIF is established). In Year 2, an outdoor shed is added to the home which brings the total ad valorem tax collection to $1,100. The $1,000 remains Type 1 revenue, but the $100 addition becomes Type 2 revenue which is revenue resulting from the addition of new stock. In Year 3, the house is reappraised and is now generating $1,150 in revenue. Fully $1,000 of this remains Type 1 revenue (existing stock) but the $150 becomes Type 3 revenue which is the appreciation in value of the stock (house) that existed when the TIF was established. The outdoor shed is also reappraised and the ad valorem revenue for Year 3 on the shed is $125. Of this $125, $100 remains Type 2 revenue (the initial ad valorem revenue resulting from the addition of the shed in Year 2) and $25 becomes Type 4 revenue (the ad valorem revenue which results from the increase in value of the shed between Year 2 and Year 3). The Okaloosa County Citizens Transportation Committee proposes that Type 1 revenue, consistent with the spirit of a TIF district, remain with the taxing authority. The Committee also proposes that all Type 2 revenue accrue to the taxing authority as well. Type 3 and Type 4 revenues, which result from the appreciation of stock over time, will accrue to the TIF district. Thus the taxing authority (in the above scenario the County or City) will receive new revenue from the addition of stock over time, but the appreciation of existing and new stock will accrue to the TIF district. Given the nature of the proposed infrastructure improvements that the TIF is designed to support, the Committee proposes that all of Okaloosa County which lies north of Eglin Air Force Base be assigned to the TIF district. The Committee also proposes that the City of Crestview participate in the TIF district as well – as part of a joint venture with the County. Together, these two taxing authorities would generate substantial TIF revenues in the coming decades. Revenue Generation Potential Okaloosa County, north of Eglin, generated nearly $6.6 million in ad valorem tax revenue (at the 3.2899 millage rate) in 2012. This, we label Type 1 revenue. Over a 20 year period, the County is expected to realize $131.8 million in Type 1 ad valorem revenue from the area north of Eglin. The TIF proposal would not affect this. The additional stock in this district, over the coming 20 years, is forecast to generate an additional $40.4 million in ad valorem revenue (Type 2 revenue). The appreciation of old stock is forecast to generate $40.0 million in revenue (Type 3 revenue) while the appreciation of new stock, over a 20 year period, will generate $6.5 million in Type 4 revenue. Consistent with the committee’s proposal, the taxing unit (Okaloosa County) would receive all Type 1 and Type 2 revenues for a total of $166.8 million in ad valorem revenue over the coming 20 year forecast period. The TIF district would receive all Type 3 and Type 4 revenue which totals to roughly $47.2 million in revenue. It is this fund that the Committee proposes the County use for construction of the P. J. Adams enhancement. The City of Crestview generated approximately $4.6 million in ad valorem tax revenue (at the 3.2899 millage rate in 2012. This would total to just over $92.7 million in Type 1 over the next 20 years if the TIF were established today which would continue to accrue to the Crestview taxing district. The growth of new stock in the city is forecast to generate nearly $25.0 million in Type 2 revenue which would accrue to the city as well. The appreciation of the stock that exists currently is forecast to generate just under $28.7 million in ad valorem revenue over the next 20 years which we would assign as Type 3 revenue. The appreciation of the growth stock (Type 4 revenue) would generate $4.6 million over the same period. Type 1 and Type 2 revenues, which would continue to go to the City, would yield $117.7 million in revenue for the City in the coming 20 years. Type 3 and Type 4 revenues, which result from appreciation of existing and new stock, would generate $33.3 million for the TIF district over the 20 year period. If the City and the County unite in this effort, which the committee believes is necessary, the revenue potential of the TIF district is a combined $80.6 million over the coming 20 year period. Utilizing a 5% discount rate, the net present value of the 20 year TIF collection is $41.4 million. Thus we would expect a bond issue (hypothetically) to generate just over $41 million if it were to be bonded immediately. Of course, depending on the structure of the bond and the nature of the TIF, any of these figures could change. Summary and Recommendations The Committee, at the outset of its investigation, explored multiple options to support the improvement of Okaloosa County’s transportation infrastructure. This included tax and fee increases, grant opportunities and other forms of long term financing. The committee, after deliberation, established several criteria for benchmarking alternatives and continued analysis. These criteria included:  Final proposal must be revenue neutral  Final proposal must continue to generate increasing revenue for the county in order to cover long-term and increasing costs of government  Final proposal must allow the taxing authority to increase or decrease its tax rate as needed to accommodate operations, annually  Final proposal must not increase taxes  Final proposal must generate substantial revenue  Final proposal must focus on transportation issues surrounding the Highway 85/Highway 90/ Interstate 10 corridors.  Final proposal must be long-term in nature.  Final proposal must include collaboration among multiple taxing districts in the County. The Committee quickly settled on the creation of a Tax Increment Financing District to overlay Okaloosa County north of the Eglin Reservation. The committee, through the research and discovery process, determined that the TIF District should structured so as to allow Type 1 and Type 2 money to continue to accrue to the taxing districts while Type 3 and Type 4 monies accrue to the TIF District. The Committee also determined that success of the TIF District hinges on the creation of a successful partnership between Okaloosa County and the City of Crestview in order to generate sufficient revenue for the infrastructure project. If these conditions are met, the TIF Committee determined that  The structure of the TIF will allow growth revenue to accrue to the taxing units (County and City) thus paying for future growth in the taxing units while at the same time generating substantial revenues for TIF district over its 20 year proposed life.  The TIF district will accrue over $80 million in total revenue over the 20 year period with a net present value of over $40 million at a 5% discount rate.  The funding stream will be substantial, but will not be adequate to complete the proposed expansion of the PJ Adams Corridor.  The solution is not immediate – it will be several years before the TIF generates sufficient revenues to begin work on the PJ Adams Corridor project.  The County and City must actively leverage the TIF funding stream against state and federal infrastructure improvement matching dollars in order to complete the entirety of the project.  The creation of the TIF district does not require any tax increases on the part of the City of Crestview or Okaloosa County in order to generate revenue.