HomeMy WebLinkAboutReportECONOMIC FEASIBILITY
MERIDIAN URBAN RENEWAL AREA
Prepared For
THE MERIDIAN DEVELOPMENT CORPORATION
Meridian, Idaho
Prepared By
W. David Eberle Consulting, Inc.
760 Harcourt Road
Boise, Idaho 83702
August 20, 2002
W. David Eberle Consulting, Inc. Boise ID
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Authority
Idaho State Code 50-2905 guides the urban renewal area to prepare and adopt a plan for
the revenue allocation area and submit the plan and recommendations to the local
governing body for approval. Included in this plan is an economic feasibility study. The
following is the economic feasibility study for the Meridian Urban Renewal Area (URA)
proposed by the Meridian Development Corporation (MDC).
Economic Feasibility Study Summary
This economic feasibility study is preliminary to the extent that not all the elements of the
plan have been formalized. And, as such, this study will need to be updated to include
the enhancements, additions and modifications to the plan. The elements not formalized
are the expenditure plan for the MDC. The expenditure decisions that still need to be
made include the size of the parking garage, targeted land acquisitions, and business
stimulus programs. This analysis has made a series of assumptions to begin the process of
determining the economic development plan for the MDC.
There is 146 million dollars in real property within the urban renewal area from a city
wide real property base of 2 billion dollars, accounting for approximately 7.5 percent of
Meridian's total real property value. The projected income to Meridian Development
Corporation will be dependent upon the rate that this assessed property value base
increases. In the 1990s the population of the City of Meridian grew at the astounding rate
of thirty percent annually. COMPASS projects that this growth will dramatically slow to
three percent annually over the next decade. Coupling the slower population growth with
a sluggish economy suggests that the inflationary pressures on real property will also
slow. County wide assessed value for 2002 increased a little over four percent while areas
within the City of Meridian grew about three percent. The revenue forecast uses two base
growth rates of 3.4 and 4.4 percent.
In addition to the increased value of existing properties, all of the tax revenues from new
construction within the urban renewal area accrue to the MDC. The diverse composition
of the urban renewal area necessitated that the area be broken into six sub-areas (Blue
Zone, Green Zone, Pink Zone, Orange Zone, Red Zone, Yellow Zone) for purposes of
estimating new construction for the renewal area. Using interviews with city officials,
real estate experts, and members of the Meridian Development Corporation board, a list
and valuation was prepared of sites that were likely to be developed. The value of new
construction was translated to a percent of total property value within the respective sub-
area, which became the growth rate for new construction within the urban renewal area.
The final determinate in the revenue forecast is the mill levy rate for the Meridian taxing
district. This rate has been declining as a result of statutory restrictions on tax revenues.
The mill levy was adjusted downward by the ten-year average to just over one half of one
percent.
As part of this study the MDC requested that the revenue projections be developed for
two urban renewal area (URA) property boundaries. The first boundary includes what is
being called the Red Zone, which incorporates the "corporate park" that is roughly
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bounded by Meridian Road, I-84, Stratford and Watertower Lane. The second boundary
excludes the corporate park and instead includes the property west of Meridian Road and
north of I-84 that has been designated as the Yellow Zone. Appendix A provides detailed
maps to outline the respective areas.
Using the assumptions outlined above and using the URA that includes the Red Zone
(excludes Yellow Zone) the MDC can expect to earn over the life of the urban renewal
area between 32 to 42 million dollars. In the first five years the Meridian Development
Corporation can expect to earn between 1.5 to 1.8 million dollars.
Using the assumptions outlined above and using the URA that includes the Yellow Zone
(excludes Red Zone) the MDC can expect to earn over the life of the urban renewal area
between 26 to 34 million dollars. In the first five years the Meridian Development
Corporation can expect to earn between 1.0 to 1.4 million dollars.
There are substantial differences between the Yellow and Red Zones. The model
suggests that the Red Zone will generate a larger amount of tax increment financing
(TIF). This outcome is based on several factors that may not hold up over time. The first
is that currently without road access to the Yellow Zone, there is no assumption included
for new construction beyond the base growth rate. Second, once road access is developed
to this area, the land value in the Yellow Zone should increase at a faster rate than in the
Red Zone providing additional TIF not included in the model. These "upside"
assumptions are predicated on the reconstruction of Executive Way and Meridian Road
and the acceptance of the diverted access to the Yellow Zone through Waltman Lane.
The expenses of the Meridian Development Corporation include starting an office with
one full time director and one part-time employee in late 2003. The following year the
part-time employee will be moved to full time. From this point forward the
administrative and general costs are increased ten percent annually unti12012 when and
annual inflation rate of 2.6 percent is used for the remaining life of the urban renewal
area.
There are three community development programs contemplated in this budget. The
first is a facade grant program. The second is a streetscape reimbursement program. And
the third is a public facilities upgrade program. It is assumed that there will be a new city
hall built within the Blue Zone within the next three years. Based on preliminary
construction estimates provided by the city it will cost approximately $13 million in
today's dollars. In this budget it is assumed that a contractual relationship will be made
between the city and MDC for MDC to issue bonds for the permanent financing of the
city hall backed by a one year renewal lease equal to the debt payment. And in 2006 it is
assumed that the Meridian Development Corporation will build a 250-stall parking
garage at $12,000 per stall. Finally, it is assumed that in 2011 plans for gateway
improvements have been made and that a $5,000,000 bond is issued to cover the cost of
improvements. At this time these improvements may include street upgrades in the
Green Zone and or public art. These enhancements to announce the entrance to Meridian
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maybe built in the Green, Orange or Blue Zones. Finally, any available cash flow up to
$200,000 is allocated to the facade and streetscape programs.
The issue for the Meridian Development Corporation is that the expenses are front-end
loaded while the majority of funds are back-end loaded. This requires careful planning of
expenditures in the early years. The proposed budget is designed to maintain a positive
cash balance but it is based on real property values increasing on average at 4.37 percent.
If the assessed valuation growth rate falls to 3.5 percent there will be a shortfall from
2007 through 2014 that can be avoided by reducing the streetscape and facade enhance
programs.
In summary, the Meridian Development Corporation actions will stimulate new
investment growth in the urban renewal area. Investing in the area will stabilize and
improve the value of downtown real estate. The tax increment financing will provide
sufficient revenue to retire the 5.4 million dollars in revenue bonds. Additionally, there
will be sufficient funds to embark on other public investments to enhance the economic
competitiveness of the urban renewal area creating a vibrant central business core for
Meridian. Finally, the new levels of investment within the urban renewal area stimulated
by the Meridian Development Corporation's actions will help offset the impact of
revenue allocation financing through increased income, sales and excise taxes.
Description of Urban Renewal Area
The urban renewal area can be generally described as the area bounded by Fairview
Avenue on the north, bounded by West 4th Street on the west, bounded by East 4th Street
to Franklin Road then Stottard Drive to I-84 on the east and bounded by I-84 on the
south. This area includes a diversity of structure types, economic uses, and public
infrastructure. An economic activity center bonds this diverse area that can be defined as
downtown Meridian. Each area is incomplete on its own and depends upon the economic
uses of the adjacent areas to create the downtown zone.
This report separates this area into six-sub areas for purposes of economic analysis. There
are two purposes for breaking the urban renewal area (URA) into six zones. The first
purpose is to compare the impact of having the Yellow Zone included instead of having
the Red Zone included. The second reason is to better estimate the growth potential of
the tax increment financing. See Appendix A for the accompanying map. The six sub-
areas can be generally described as:
1. Blue Zone -The Blue Zone can be characterized as "old town". Currently it is a
mixture of older brick and wood structures and small commercial buildings such as
drive through banks. In this area it is anticipated that the economic redevelopment
will be mostly remodels and infill of vacant lots.
2. Green Zone -The Green Zone is characterized as an area where many of the
residential structures have been converted to commercial uses and retail structures
have made inroads into the area. This is particularly true in the south Green Zone
between Meridian and East lst Streets. The southern section is currently experiencing
rapid growth. It is possible that the northern border of the Green Zone could also
experience a rapid redevelopment at some point in the future.
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3. Pink Zone -The Pink Zone is characterized by primary residential structures. It is a
mix of single family mobile homes and higher density structures. It is anticipated that
the use will primarily stay residential for the foreseeable future.
4. Orange Zone -The Orange Zone is predominately low-rise commercial and retail
structures with some industrial uses. This zone includes the old creamery and the
railroad property and is expected to experience significant new growth.
5. Red Zone -The Red Zone is predominately office/commercial with retail along the
edge. It is anticipated that this will continue to develop as a commercial area with a
retail component.
6. Yellow Zone -The Yellow Zone is predominately open space with mixed residential
and retail along the edge of the zone. Currently this is underdeveloped because of
poor road access into the area. If the Meridian, Main, Executive, and Waltman
intersection is rebuilt it is anticipated that this area will experience rapid commercial
growth.
Growth Projections for the Meridian City Urban Renewal Area
The urban renewal areas (URA) are comprised of several distinct areas. The
characteristics that identify the different areas include building structures, road design
and economic activity. These unique attributes mean that redevelopment activity will
occur at different growth rates. An effort has been made to identify these characteristics
and incorporate them into the model.
Base Growth
The Treasure Valley has experienced unprecedented growth for over ten years. It is
difficult not to be optimistic about future growth as many of the elements that have led to
the growth in the valley still remain. However, the valley and the City of Meridian are
not immune to the national economy. Since early 2001 the U.S. economy has
experienced a shallow recession and an act of terrorism ending the longest economic
expansion in U.S. history. The Treasure Valley is largely insulated from these economic
shocks because people are moving to the valley and moving to Meridian because of the
quality of life.
In light of this uncertainty the population forecast prepared by COMPASS in February of
this year maybe more reasonable than the experience of the last ten years.
2000 -2025 Forecast A roved by COMPASS February 2002
2000
Census 2010
COMPASS 2015
COMPASS 2020
COMPASS 2025
COMPASS
Population Population Population Population Population
Meridian 34,915 44,010 50,622 51,889 54,495
Ada Coun 300,904 402,949 455,493 466,745 491,520
Meridian Growth 26.05% 15.02% 2.50% 5.02%
Ada Growth 33.91% 13.04% 2.47% 5.31%
During the next ten years COMPASS expects that Meridian's population will increase by
26 percent. This contrasts with the 314 percent increase in population that Meridian has
experienced over the last ten years. The forecast suggests that Meridian will return to
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growing at rates similar to the rest of the valley. There are structural as well as economic
reasons why it is reasonable to expect Meridian to grow at a more conservative rate than
the last decade. The primary factors that will contribute to this slowing of growth include
that large tracts of relatively inexpensive land have already been developed. Congestion
on the local roads no longer gives the area the rural "feel", and the market for lower
middle income homes is migrating west to Canyon County as it migrated from Boise for
the same reasons.
This migration should not be taken to mean that economic growth needs to slow along
with population growth. The typical transition for an economy is that with a threshold
population base it is now possible to develop the retail and commercial infrastructure to
support the base. The creation of the MDC will help create the economic infrastructure
for the population to support the rapid residential growth of the last decade.
Property Value Appreciation
Wells Fargo Bank has estimated the annual increase in the cost of housing for the Boise
area using a 1988 base. Over the last fourteen years the property values in the area have
increased from a high of 11 percent to a low of -5 percent. During the last ten years the
Boise market has increased at a little over 4 percent on average. The following table
provides the historical annual increase in housing costs for the area. The table illustrates
that the increase in housing costs can vary dramatically from year to year. It is important
to remember that changing market costs lead the assessed value of property. Additionally,
by the nature of the way that property value is assessed, there tends to be a smoothing
effect on any trends in changing costs.
Boise Area Cost-of Living
Housln COSts (non-seasonally adjusted)
Year Annual Percent
Increase
1988 2.7%
1989 7.7%
1990 10.7%
1991 7.7%
1992 9.9%
1993 11.1%
1994 8.0%
1995 1.0%
1996 -4.9%
1997 3.1%
1998 5.2%
1999 2.1%
2000 8.2%
2001 -0.0%
Ten Year Avera e 4.4%
The Ada County Assessors Office has just released their estimated increase in assessed
values for one fifth of Ada County. The Meridian area increased on average 6.3 percent
for commercial real property and 5.5 percent for residential housing. This is above the
county average of 3.4 percent. There is considerable variance in changes in assessed
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value by neighborhood. North Meridian increased 2.6 percent while homes in Boise's
North End rose 15 percent. This suggests that there is a general softening in the
residential housing market with hot spots in desirable locations and desirable housing
stock. However, the average property value increases remain above the Wells Fargo ten-
year average. COMPASS'S population estimates suggests that, in the latter part of the
forecast, without a return to a general inflationary period, housing costs will continue to
moderate.
The property value is assumed to increase at two rates, 4.4 percent and 3.4 percent per
year during the forecast period.
Revenue Forecast Real Property
Tax Increment Assessment
All of the URD falls within Tax Code Area 03. The MDC is allowed to collect
substantially all real and personal property tax on increases in assessed value of the real
and personal property taxes within the urban renewal area. There are nine taxing areas.
Only the Meridian School Area is permitted to keep $.004 per assessed dollar on the
incremental assessed value increase within the area. The remaining taxing areas will not
realize additional revenues from the URD. However, the economic development within
the URD will accelerate economic growth outside the zone helping to offset this impact
on the taxing areas.
The calculation for the tax incremental finance income is the (current total assessed value
less the base total assessed value) x (current mill levy - .004) =tax increment revenue.
The only exception to this is the residential homes in the area that have the homeowner's
exemption. For these properties the current assessed value and base value are reduced by
the homeowner's exemption. The homeowners' exemption is calculated as $50,000 or
50% whichever is less. The table below shows the current mill levy charged on real and
personal property.
2001 Tax Levy for Meridian Urban Renewal Area
Tax Code Area 03
Entity Area Levy
Ada County 1 $0.002772336
Ada County Highway Area 6 $0.001014584
Emergency Medical Services 3 $0.000117687
Joint School Area No. 2 8 $0.006573151
Meridian Cemetery 24 $0.000057679
Meridian City 18 $0.003040177
Meridian Library 12 $0.000585497
Mosquito Abatement 43 $0.000023179
Western Ada Recreation 46 $0.000077663
TOTAL $0.014261953
Percent Change from Prior Year -4.2686%
Estimated 2002 Tax Increment Levy $0.010261953
Because of the rapid growth of the Meridian property tax base, the mill levy has fallen
over the last ten years. Last year the mill levy fell over four percent from the previous
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year. On average for the last ten years the mill levy for code 03 has, fallen slightly more
that one half of one percent annually.
The mill levy is assumed to decrease six tenths of a percent per year for the forecast
period.
New Construction
The URD six sub-areas are currently experiencing different rates of new construction.
The following table is based on assumptions that can be found in Appendix B Significant
New Structures. Based on interviews with the Meridian Building Department, MDC
board, and local real estate professionals a list of properties within the URD that are
already under construction or expected to be redeveloped are included. The following
table summarizes the new construction in the area by sub-areas. The table includes two
cumulative summaries.
The first summary includes the Red Zone (excludes Yellow Zone) in the five sub-areas.
This grouping has a base property value of $180 million. It can be anticipated that an
additional $32 million in new construction will occur in the next five years. At this rate of
growth there will be approximately 100 million dollars of new investment in the URA
over the life of the MDC. This translates to, on average, approximately 4 million dollars
of new investment occurring in the area annually.
The second summary includes the Yellow Zone (excludes Red Zone) in the five sub-
areas. This grouping has a base property value of $146 million. It can be anticipated that
an additional $25 million in new construction will occur in the next five years. In
substituting the Yellow Zone for the Red Zone the growth in anticipated new
construction remains approximately at 3.5 percent. The property value base is lower with
the inclusion of the Yellow Zone and construction is not anticipated in the Yellow Zone
within the next five years. However, there should be greater appreciation in the Yellow
Zone property value as the Red Zone has akeady experienced substantial increases in
property value within the last several years. At this rate of growth there will be
approximately 82 million dollars of new investment in the URA over the life of the
MDC. This translates to, on average, approximately 3.5 million dollars of new
investment occurring in the area annually.
There are two areas where growth is expected to be the strongest. The Blue Zone maybe
considered the core of downtown with Idaho and Main Street as the center. There are two
reasons for the high percentage of growth in this sub-area. The first is that it is assumed a
major commercial office building will be built on the Nazarene Church site. The second
is that the assessed base is relatively small. The second sub-area, the Orange Zone is
adjacent to the Blue Zone just to the south. There are a number of planned projects in
this area. It is reasonable that this will grow because of its location to the downtown and
because it is relatively under built.
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ESTI MATED NEW CONSTRUCTION
Sub Area Base 2002 2003 2004 2005 2006 Average
Percent
Chan e
Blue $12,901,670 $0 $473,838 $6,122,692 $727,325 $707,125 15.66%
Green $55,371,750 $894,081 $715,758 $331,200 $0 $5,866,383 2.94%
Oran a $28,527,417 $133,336 $1,298,098 $7,320,944 $1,397,560 $0 5.16%
Pink $33,525,238 $0 $0 $0 $0 $0 0.00%
Red $47,880,200 $0 $2,255,000 $550,000, $3,350,000 $0 2.57%
Yellow $16,007,975 $0 $0 $0 $0 $0 0.00%
TOTAL With
Red $180,350,436 $1,024,417 $4,765,244 $14,324,836 $5,474,885 $6,573,508 3.57%
CUM. With
Red $180,350,436 $181,392,888 $186,158,132 $200,482,968 $205,957,853 $212,531,361
TOTAL With
Yellow $148,478,211 $1,024,417 $2,487,694 $13,774,836 $2,124,885 $6,573,508 3.55%
CUM. With
Yellow $148,478,211 $149,502,628 $151,990,322 $165,765,158 $167,890,043 $174,463,551
The percentage increases are used to forecast new construction for the remaining nineteen
years.
Base Case Model With Red Zone
The base case model assumes that there is no new construction in the URD. The current
assessed value will on average increase 3.4 to 4.4 per year for the twenty-four year
forecast period. It is expected that this will provide the conservative (low-end) estimate
of the expected revenue stream to the URD. Under this base forecast the MDC can expect
to collect between 21 to 30 million dollars over the twenty-four year period. If this
income stream is discounted at the current 30 year government bond rate of 4.5 percent it
would result in a cash value of between 10 to14 million dollars. This value approximates
the loan value if the total cash stream is dedicated to debt financing.
Present Value of Tax Increment Financing On Real Property Over the Twenty-Four Year Life
4.5 Percent Interest Rate
Growth Rate Total Blue Green Orange Pink Red
3.4% $10,536,44,0 $599,279 $3,100,233 $2,303,136 $1,736,543 $2,797,259
4.4% $14,583,079 $829,439 $4,290,912 $3,187,681 $2,403,469 $3,871,578
Most Likely Case Model With Red Zone
The most likely case model uses the base case model with the addition of new
construction. Under this set of assumptions the MDC can expect to collect 42 million
dollars over the twenty-four year period. If this income stream is discounted at the
current thirty year government bond rate of 4.5 percent it would result in a cash value
range of 16 million to 21 million dollars depending upon the growth rate of 3.4 or 4.4
percent.
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Present Value of Tax Increment Financing On Real Property Over the Twenty-Four Year Life
4.5 Percent Interest Rate
Growth Rate Total Blue Green Orange Pink Red
3.4% $16,682,644 $2,282,397 $4,496,503 $4,322,835 $1,736,534 $3,982,611
4.4% $21,415,807 $2,702,982 $5,711,555 $5,435,892 $2,403,469 $5,190,358
When comparing the base case with the most likely case the two sub-areas that increase
proportionately more than the others are the Blue and Orange Zones. This is a reflection
of the assumption that the downtown area will grow proportionately more in real estate
value than the other Zones.
Base Case Model With Yellow Zone
The base case model assumes that there is no new construction in the URD. The current
assessed value will on average increase 3.4 to 4.4 per year for the twenty-four year
forecast period. It is expected that this will provide the conservative (low-end) estimate
of the expected revenue stream to the URD. Under this base forecast the MDC can expect
to collect between 17 to 23 million dollars over the twenty-four year period. If this
income stream is discounted at the current thirty year government bond rate of 4.5
percent it would result in a cash value of between 8 tol 1 million dollars. This value
approximates the loan value if the total cash stream is dedicated to debt financing.
Present Value of Tax Increment Financing On Real Property Over the Twenty-Four Year Life
4.5 Percent Interest Rate
Growth Rate Total Blue Green Orange Pink Yellow
3.4% $8,549,134 $753,742 $3,234,931 $1,666,630 $1,958,613 $1,294,400
4.4% $11,832,525 $1,043,225 $4,477,342 $2,306,718 $2,710,840 $1,294,400
Most Likely Case Model With Yellow Zone
The most likely case model uses the base case model with the addition of new
construction. Under this set of assumptions the MDC can expect to collect 34 million
dollars over the twenty-four year period. If this income stream is discounted at the
current thirty year government bond rate of 4.5 percent it would result in a cash value
range of 13 million to 17 million dollars depending upon the growth rate of 3.4 or 4.4
percent.
Present Value of Tax Increment Financing On Real Property Over the Twenty-Four Year Life
4.5 Percent Interest Rate
Growth Rate Total Blue Green Orange Pink Yellow
3.4% $13,497,078 $2,042,132 $4,692,958 $3,709,110 $1,958,613 $935,219
4.4% $17,332,005 $2,887,798 $6,023,386 $4,580,569 $2,710,840 $1,294,400
When comparing the base case with the most likely case the two sub-areas that increase
proportionately more than the others are the Blue and Orange Zones. This is a reflection
of the assumption that the downtown area will grow proportionately more in real estate
value than the other areas.
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Five Year Forecast
The forecast picture changes substantially if there is continued weakness in the economy.
At the writing of this report there is significant uncertainty over the performance of the
national and local economy. Both the threats of terrorism and weak capital investment
have economic growth essentially stagnant. The national forecasters are evenly divided
on whether the economy will expand or contract. The Treasure Valley should outperform
both the state and national economies for the next several years. However, if there is not
a significant increase in either business spending or an increase in consumer confidence,
the economy could enter a period of economic performance similar to the early 1980s
where little economic growth occurred. What this means for TIF is that the experience of
the last ten years may not be representative of the next ten years.
Five Year Forecast -With Red Zone
This forecast reflects the less optimistic picture of the future. A one percentage point drop
in the assessed value growth rate will lower the TIF income to the MDC by
approximately $440,000 over the first five years. It is also possible that the 4.4 percent
growth rate will be exceeded. There should be a contingency plan for up to a fifteen
percent variance in the revenue estimate.
Nominal Value of Tax Increment Financing Over the First Five Years
Under Most Likel Scenario
Growth Rate 2003 2004 2005 2006 2007 Total
3.4% $191,492 $411,391 $541,453 $674„678 $854,336 $2,673,350
4.4% $229,781 $472,227 $626,656 $786,001 $998,725 $3,113,390
Difference -$38,289 -$60,836 -$85,203 -$111,323 -$144,389 $440,040
Five Year Forecast -With Yellow Zone
This forecast reflects the less optimistic picture of the future. A one percentage point drop
in the assessed value growth rate will lower the TIF income to the MDC by
approximately $350,000 over the first five years. It is also possible that the 4.4 percent
growth rate will be exceeded. There should be a contingency plan for up to a fifteen
percent variance in the revenue estimate.
Nominal Value of Tax Increment Financing Over the First Five Years
Under Most Likel Scenario
Growth Rate 2003 2004 2005 2006 2007 Total
3.4% $142,688 $343,670 $425,045 $545,775 $691,086 $2,148,264
4.4% $173,637 $393,000 $494,013 $635,919 $808,007 $2,504,576
Difference -$30,949 -$49,330 -$68,968 -$90,144 -$116,921 -$356,312
Revenue Forecast Personal Property
There is additional revenue that will be collected by the MDC from personal property tax
on commercial businesses. At the writing of this report the data set that computes an
accurate value of the personal property tax is not available. The Assessors Office
suggests that personal property tax is approximately three percent of the real property tax.
The incremental personal property tax will contribute approximately three thousand
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dollars the first year and approximately fifty thousand dollars over the first five years.
This dollar amount is not included in the cash flow budget but can be seen in the revenue
forecast appendix.
Capital and Operating Budget
A preliminary capital and operating budget has been prepared. There are several
assumptions made for purposes of this report. The revenues have been increased based on
the ten-year average real property inflation rate for the Treasure Valley, thus increasing
the assessed values by that amount. All expenses have been adjusted by the ten-year
average CPI rate of 2.6 percent.
Revenue Assumptions
In this budget there are three basic sources of revenue. The first is the TIF based on the
most likely forecast. The second source is parking revenues on an assumed 250 stall
parking structure. Based on Capital City Development Corporation ("CCDC"), records it
is assumed that the MDC will be able to earn $400 per stall annually. The revenue
estimate is approximately $60 per stall less than what Boise is able to get from their
facilities. It is assumed that Meridian will have to charge less over the next several years
in order for people to gain acceptance of the facility. And, finally, the third source is debt
financing. There are three sources of debt financing used in this analysis. The first is a
construction loan interest only, the second is a long term financing bond and the third is a
line of credit with the bank. The three types of revenue sources are required because the
capital expenditures occur in the early years while the majority of the TIF occurs in the
later years of the life of the MDC.
It is assumed that the MDC borrows the requisite funds at a 7.5 percent interest rate on all
short term debt financing. The long-term bond carries an interest rate of 4.5 percent on a
twenty-year term.
Operating Expense Assumptions
Starting in late FY 2003 it is assumed that afull-time director is hired with a salary and
benefits package of ninety thousand dollars per year. This is a very competitive salary. In
FY 2004 the current part-time employee is made full-time with a salary package of fifty
thousand dollars per year. Additionally, office expenses are also added in FY2003. The
salary and office expenses are increased ten percent per year through the project life. For
the first three years there is an outside expertise to aid the MDC to reach a fully
functioning development agency. Finally, it will cost $280 per stall for operations and
maintenance of the facility once it is constructed. At this point in time there are no other
operating expenses contemplated. These assumptions are relevant for the first five years.
Beyond this time, actual experience and decisions will supersede this forecast.
Capital Expense Assumptions
It is contemplated at the writing of this plan that there will be a number of significant
capital projects. The first is a joint project with the City of Meridian in the construction
of a new city hall within the urban renewal district. The second is the construction of a
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parking structure to serve the downtown core. These are complex decisions that will
involve a number of public and private institutions. The assumptions used in this
economic analysis are but one method that these capital structures may be built. At the
writing of this report the MDC and the City of Meridian are in the preliminary stage of
discussion and the questions of location, ownership and financing are still open. It is
anticipated that once decisions on these matters have been made that the MDC budget
will be adjusted to reflect the contractual relationship between the MDC and the City of
Meridian.
Meridian City Hall
It is assumed that there will be a new city hall built within the Blue Zone within the next
three years. Based on preliminary construction estimates provided by the city it will cost
approximately $13 million in today's dollars. In this budget it is assumed that a
contractual relationship will be made between the city and MDC for MDC to issue bonds
for the permanent financing of the city hall backed by a one year renewal lease equal to
the debt payment. As depicted, the MDC would facilitate a conduit financing transaction.
No direct TIF support for the City Hall is shown. If TIF funds were available, MDC
could contribute to the facility. This budget does not include the purchase of the land,
construction loan, or other cash outlays that may be necessary to complete the city hall.
The budget reflects that the bond would be issued in early fiscal year 2005. Operation
and maintenance expenses would be the responsibility of the City.
Parking Structure
It is assumed that the MDC will fund the construction of a 250 stall parking structure at
$12,000 per stall in 2006. This value is consistent with the costs experienced by the
CCDC.
Purchase of Land and Structures
There is the possibility of a need for the MDC to purchase land and or structures to
stimulate economic growth within the Blue Zone. It is too early in the process to be able
to identify the specific parcels and therefore there currently is no expenditure in the
budget for such purchases.
Gateway Improvements
It is assumed that in 2011 plans for gateway improvements have been made and that a
$5,000,000 bond is issued to cover the cost of improvements. At this time these
improvements may include street upgrades in the Green Zone and or public art. These
enhancements to announce the entrance to Meridian may be built in the Green, Orange or
Blue Zones. There is still considerable discussion as to the nature of a signature gateway
and its location.
Programs Expense Assumptions
There are three programs contemplated in this budget. The first is a facade grant
program. The second is a streetscape reimbursement program. And the third is a public
facilities upgrade program.
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When a new development or redevelopment is proposed a calculation is determined as to
the amount of TIF that will be generated from the program. This creates an available pool
from which to reimburse the developer for costs unique to the redevelopment area. This
would include special design standards for the building and streetscape. Additionally,
depending upon the location of the project, there may be a need to improve the public
infrastructure. To the extent that improvements are beyond the city responsibility, the
MDC will work with the city to coordinate the upgrade of public infrastructure to
promote growth in the URA.
streetscape and Facade Improvement Program
It is contemplated that the MDC will create a grant program to help local landowners
upgrade their streetscape and building facades within the Blue Zone to the new design
standards. This program may also extend into other zones as redevelopment patterns
emerge over time. The program, when fully funded, will provide $200,000 in current
dollars annually for the life of the MDC. However, not unti12008 will the MDC be able
to fully fund this program under the assumptions made in this report. Direct involvement
with building facades remains subject to applicable urban renewal law and other
regulations.
Net Cash Flow Analysis -With Yellow Zone
The following table provides a preliminary operating budget for the MDC with the
Yellow Zone.
This cash flow projection is an aggressive plan. It is important to understand that if the
regional economy remains strong this budget is possible without grants from HUD or
other sources. It would be possible to accelerate some of the capital programs with the
award of grants.
For a complete budget projection the appendix carries the projections out to 2026. If the
MDC determines that a sinking fund is appropriate to prepay the remaining balance on
the bonds by 2026 there will be sufficient income to pay off the existing bonds and
construct a second parking garage.
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CASH FLOW PROJECTION
With 4.37 % Growth Rate 2003 2004 2005 2006 2007 2008
INCOME
TIF $10,759 $122,019 $275,067 $430,589 $552,646 $705,071
CITY OF MERIDIAN $40,000 $40,000 $840,298 $840,298 $840,298 $840,298
PARKING $113,222
INTEREST
OTHER $10,000
DEBT $13,687,527 $3,317,320
TOTAL $60,759 $162,019 $14,802,892 $1,270,887 $4,710,265 $1,658,591
EXPENDITURES
OPERATING
STAFF $10,000 $100,000 $150,000 $165,000 $181,500 $199,650
OUTSIDE EXPERTISE $45,000 $20,000 $15,000 $15,000 $135,000 $15,000
OFFICE EXPENSES $25,000 $27,500 $30,250 $33,275 $36,603
MANTENANCE EXPENSE $77,404 $79,571
TOTAL OPERATING EXP. $55,000 $145,000 $192,500 $210,250 $427,179 $330,824
CAPITAL
FACADE & ST.-SCAPE $5,000 $15,000 $20,000 $25,000 $30,000 $200,000
LAND
STRUCTURES $13,687,527 $3,317,320
TOTAL CAPITAL EXP. $0 $0 $13,687,527 $0 $3,317,320 $0
DEBT REPAYMENT
S.T. LOAN $300,000
L.T. LOAN $840,298 $840,298 $840,298 $1,043,954
TOTAL DEBT PAYMENTS $0 $0 $840,298 $840,298 $1,140,298 $1,043,954
TOTAL $60,000 $160,000 $14,740,325 $1,075,548 $4,914,798 $1,574,778
NET INCOME $759 $2,019 $62,567 $195,339 -$204,533 $83,813
LINE OF CREDIT BAL. $759 $2,800 $65,450 $277,403 $58,363 $148,637
Potential Funding Sources
There a number of funding sources available to the MDC and urban renewal area. Each
source has unique advantages and costs. In this list there are a variety of subsidized
funding sources for private businesses. One of the staff functions of the MDC should be
to work with businesses within the URD in applying for these funds.
1. Local Improvement Areas (LID)
A LID is a compulsory funding through a special assessment that is then typically
used to secure bonded indebtedness to fund capital improvements.
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2. Business Improvement Area (BID)
A BID is a compulsory funding mechanism through a special taxing district. Most
often these organizations are used to pay for services that the local government is
unable to fund and to organize promotional events for the area. For example, the
Boise BID contracts with ACRD to have the streets cleaned more often.
3. Historic Tax Credits
Historic Tax Credits are available to developers who retain the character of a
historically designated structure. The MDC can be instrumental in creating historic
areas or identifying historic properties that could be eligible for the credit. It is
incumbent upon the developer to apply for this income tax credit.
4. Industrial Revenue Bonds
The State of Idaho allows communities to issue industrial revenue bonds.
5. SBA504 Program Capital Matrix administers this Small Business Administration
(SBA) program that can subsidize interest on loans to qualifying businesses for
building costs, equipment and lease hold improvements through the sale of reduced
interest debentures.
6. Municipal Bond Bank The State of Idaho Treasurer's Office will be offering its credit
rating to local municipalities as defined in IC 67-8702 where the state will "roll up"
local bonding requirements into a state offering twice a year. This will substantially
reduce the underwriting and finance costs.
7. Certificates of Participation (COP)
Public facilities can be built and financed by a private developer and have the
property leased back to the public entity. This funding alternative works for
structures that produce sufficient cash flow to cover the debt.
8. Home Program
This HUD program is a city administered program that subsidies new construction or
other special housing needs. Currently the program does not exist in Meridian.
7. City Housing Rehabilitation Fund
This is acity-administered program to subsidize interest rates for remodeling and
rehabilitation. This program uses a revolving fund of HUD money. Currently, the
program does not exist in Meridian.
8. Community Development Block Grant (CDBG)
Currently, the state administers 9.8 million dollars annually through this program.
These funds can be used for job creation, community development or low-income
housing. For FY 2002 there is only about $100,000 dollars left in the fund. These
grants are limited to $500,000.
9. Economic Development Authority (EDA) Grants
These grants are for communities that have unemployment rates above the national
average and per capita income below the national average. Currently, Ada County
does not qualify for this program.
10. Surface Transportation Program
Authorized through the Intermodal Surface Transportation Efficiency Act (ISTEA),
this program provides grants for demonstration projects or alternative modal
transportation routes to enhance air quality and ease traffic congestion. These grants
are applied for through COMPASS.
11. Developer Contributions
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The city may require exactions from developers to contribute towards public
infrastructure that will be required as a result of the development.
12. Developer Advances
Currently, ACRD allows developers to contribute funds to bring forward in time a
road project that a developer believes needs to be built today for the success of their
project.
13. Long Term Ground Lease
If the MDC gains title to land with strong development potential the MDC can ground
lease the property to accelerate development on the site by reducing the up front costs
to the developer.
14. Private Foundations
There are private foundations that will lend for historic preservation. One such
foundation is the Johanna Favot Fund through the National Trust for Historic
Preservations, which awards grants up to $25,000.
Next Steps
There are a number of next steps in completing the economic feasibility study. The first
question of revenue impact has been answered. The second question of how the funds
will be used to revitalize the urban renewal area needs further refinement. Plans need to
be developed that will:
1. Help existing business find better ways to meet their customers needs
2. Recruit new businesses into the area
3. Determine highest and best uses for empty or vacant lots within the area
4. Develop incentive programs to help existing landowners improve their
properties
5. Build on local market opportunities
Essentially the task of the MDC, in addition to encouraging new investment in the area, is
to reposition downtown in the market place. To help identify how downtown should be
repositioned several additional analyses can be conducted. The first is a market study
that:
1. Identifies the sales leakage from the area
2. Identifies the trade area
3. Identifies the consumers who shop in the area
4. Identifies downtown's weaknesses
The second study is a socio economic analysis that evaluates the demographic profile of
the people who shop downtown and compares them to the larger population. This is a
study that the Meridian Chamber of Commerce and the local BID should participate in
and update annually.
A third study relates to the implementation plans, prepares a downtown inventory of
existing structures and evaluates the displacement of business and people resulting from
the new investment. This is a study that the local BID should actively participate in.
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Definitions
ACHD -Ada County Highway District
BID -Business Improvement Area
CCDC -Capital City Development Corporation
CDBG -Community Development Block Grants
COMPASS -Community Planning Association
EDA -Economic Development Authority
ISTEA - Intermodal Surface Transportation Efficiency Act
LID -Local Improvement District
MDC -Meridian Development Corporation
SBA -Small Business Administration
URD -Urban Renewal Area
TIF -Tax Increment Financing. This is the same as revenue allocation financing as
stated in Idaho Code.
References
1. Mainstreet National Trust, 2002, "Revitalizing Downtown, The Professionals Guide
to the Main Street Approach ", Washington DC
2. Partners for Livable Communities, 2000, "The Liveable City, Revitalizing Urban
Communities", McGraw Hill, Washington DC
3. COMPASS 2025 population forecast. www.planning.or .ig d_us
4. Wells Fargo Bank inflation indices for Boise area, www.drsohn.com/#.
5. Keyser Marston Associates, Inc., October 2001, "Economic Feasibility Westside
Downtown Urban Renewal Area"
6. CCDC Parking Costs provided by Max Black
7. Ada County Assessors Office, 2002 Property Tax Base for Meridian provided by
Robert McQuade
8. Preliminary Downtown Moscow Revitalization Plan Chapter 6, "Implementation and
Actions Strategy", Dufrense-Henery, presented January 11, 2002
9. Tax Allocation Financing Feasibility Study for the Research and Technology Park
Business Planning Consultants Inc., May 1996
10. Urban Renewal Agency of the City of Nampa ORD 2449 December 20,1994
11. City of Twin Falls ORD 2684 Urban Renewal Area #4 ORD 2579 Urban Renewal
Plan for Urban Renewal Area #4 and Creating Revenue Allocation Area #4-1
prepared by Urban Renewal Agency of the City of Twin Falls, April 1998
12. Midtown Northwest Boulevard Downtown Proposal Presented: December 16, 1997
City Hall Coeur d'Alene, ID Westside Downtown Master Plan Boise City Council
ORD 6108 Ex 3 Adopted December 8, 2001
13. Lindsay Boulevard Urban Renewal Plan, City of Idaho Falls ORD 1926 Adopted
December 23, 1988 Amended 1992
14. Second Amended and Restated Urban Renewal Plan South Lincoln Urban Renewal
Project Jerome Urban Renewal Agency, City of Jerome, ID ORD 870 Adopted
December 22,1998 Amendment 1 November 2, 1999 Amendment 2 December 19,
2000
15. Urban Renewal Plan, Fourth Street Urban Renewal Project Post Falls Urban Renewal
Commission, City of Post Falls, no effective date
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16. River Front Urban Renewal Plan Garden City, ID October 1996
17. Eligibility Report for the Rigby Urban Renewal Agency Prepared by Elam Burke
March 2002
18. Urban Renewal Plan McCollum Addition and Adjacent Areas, Urban Renewal
Project Buhl Urban Renewal Agency, City of Buhl ID November 2000
W. David Eberle Consulting, Inc. Boise ID