WASHINGTON – A $28 million bond transaction using a unique form of tax increment financing to raise funds for a development district in Prince Georges County, Md. recently won an award by Council of Development Finance Agencies.
The bonds, which won CDFA's 2016 Excellence in Development Finance Project Award, were issued by the Revenue Authority of Prince George's County in Maryland in April.
The bond proceeds are to be used to buy land, build infrastructure and encourage development in what project officials describe as a "blighted" section of the county roughly five miles southeast of Washington across the Anacostia River.
County officials said the Suitland-Naylor Road Development District, which was created three years ago, will attract investment and expand the district's commercial tax base.
The project is unique because, unlike most tax increment financings which rely on the growth of tax revenues from a specific new development, the bond proceeds will be used to acquire unspecified property and to repay the bonds from the expected growth in a broader, 1,800 acre section of the county. Also, unlike typical set repayment schedules in TIF deals, payments here are based on the availability of revenues in all years except on final maturity dates.
Joe Fanone, a public finance partner with Ballard Spahr in Washington, which was bond counsel, said that the deal was unusual because of its reliance on existing tax revenues.
TIFs usually secure tax-exempt borrowing by anticipated increases in tax revenues within a defined newly created development district.
"Unlike most TIF deals which look to new projects being constructed within a TIF district, this deal basically looked at existing incremental tax revenues in order to repay debt and not looking for additional development to occur within the district," Fanone said. "From an investor's perspective, we wanted them to look at the transaction with the notion they're going to get repaid through existing incremental tax revenues and not look to future development."
Another unique aspect, he said, is that bond proceeds are being used to acquire the property to fund infrastructure improvements that can be made available for projects going forward.
A resolution adopted by the Prince George's County Council in November 2013 created the Suitland-Naylor Road Development District, which includes the Suitland and Naylor Road Metrorail stations along Suitland Parkway in suburban Washington. The district is also home to the U.S. Census Bureau, the Smithsonian Institution and other federal agencies.
County officials said the creation of the TIF district would provide incentives to attract investment in the area, which it said would expand the commercial tax base and spur growth.
The county amended the resolution in November 2014, to allow the county executive, after the issuance of the bonds, to enlarge the district but not reduce the size of it unless certain conditions are met. In a press release, Prince George's County Executive Rushern L. Baker, III called the project a "game changer."
"It will bring jobs to people throughout the area, rejuvenate a neighborhood that has suffered so much in recent years, and provide an opportunity for people to work together to make meaningful, positive change," Baker said.
According to Ballard Spahr, the project was chosen by CDFA in the revitalization category from more than 100 U.S. projects submitted for the annual awards. CDFA announced the Suitland project award late last month as well as three other awards for finance programs, projects and agencies that help kickstart economic development.
Fanone said it was "terrific" to win the award, but gave much of the credit to Prince George's County, which he said came up with the unique TIF concept.
"Hats go off to the county and their thought process to think outside the box," Fanone said. "We just helped them navigate that. It was their concept in trying to incentivize developers to come into this area of the county."
Although Fanone said he has not worked on a TIF deal like this before, he said he thought other jurisdictions may use it as a model to utilize existing incremental tax revenues.
He also gave kudos to Stifel Nicolaus, the investment banking and wealth management firm that served as underwriter.
In a press release, Nathan Betnum, managing director with Stifel's public finance group, said he was "proud to see Suitland-Naylor get national recognition and even prouder for what it will mean for the county and the people who live and work there."
The other Ballard Spahr attorneys who worked on the deal were Linda Schakel and P. Andrew Spicknall. Schakel, who handled the tax aspects of the deal, told The Bond Buyer that the main challenges were within the TIF elements.
According to Ballard Spahr, the Suitland-Naylor project was used as a model for successful district financing at CDFA's National Development Finance Summit last week in New Orleans.
Earlier this month, Ballard Spahr was named national law firm of the year for public finance by U.S. News & World Report.