This article, written by ALR executive(s), originally appeared in Environmental Protection
magazine, September 1999 issue, Business Talk column, p. 55. This column is geared towards service professionals who work on brownfield projects, but may also be useful for other business sectors.
People and news
Let's take a look at an organization that works with HUD to offer block grants and 108 loans�the Philadelphia Industrial Development Corporation (PIDC). Philadelphia Mayor Ed Rendell describes PIDC as "one of the most effective economic development corporations in the country." Its president, Bill Hankowsky, tells us that one of the corporation's missions is to provide financing fro businesses expanding or locating to Philadelphia. PIDC has and will continue to achieve its objectives by funding brownfield revitalizaiton.
PIDC uses a variety of tools, including block grants and 108 loans, to finance projects. HUD lends 108 money to PIDC in the following manner: HUD sells debentures�interest-bearing bonds issued against HUD's general credit�to raise cash that is then loaned to PIDC. PIDC then lends the money to developers. PIDC charges developers a higher rate of interest than it pays to HUD. This allows PIDC to repay HUD, while also building up loss reserves to cover bad debts.
PIDC accepts a variety of security for 108 loans, including tax incremental financing (TIF). There are several types of TIF, but one of the most popular is the property tax TIF. Generally, this type of TIF causes property taxes to be frozen at predevelopment levels. The incremental increase in property taxes due to the development goes toward debt repayment, not the municipal government. Unlike most sources of financing, which consist of an initial investment, grant or loan, tax incremental financing does not involve granting, lending or investing capital. Instead, property tax TIF provides a predictable and steady stream of income for the repayment of funds secured from another source, in this case 108 loans.
Many brownfields produce no property taxes before redevelopment. Therefore, the local government does not lose money by offering property tax TIF. By making redevelopment possible, local governments can ensure that there will be long-term tax revenue from the site. And, on a short-term basis, the property tax TIF facilitates redevelopment by providing quality collateral for Section 108 loans.
Brownfields Economic Development Initiative
In 1998, HUD introduced the Brownfield Economic Development Initiative (BEDI) grant program with $25 million, doubled to $50 million in 1999. BEDI should be used fro redevelopment projects that offer "near-term results, including job creation and an increase in the local tax base. BEDI increases collateral for 108 loans and, thus, helps to ensure that CDBG security is never called on. BEDI also helps overcome the cash flow challenges that exist at the beginning stages of many redevelopment projects.
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