Aberdeen City Centre Regeneration Scheme - Tax Incremental Financing (TIF) Proposal Gerry Brough

Transcription

1 Aberdeen City Centre Regeneration Scheme - Tax Incremental Financing (TIF) Proposal Gerry Brough [email protected]

2 What is the TIF Agreement being used to fund? Five projects as part of a wider City Centre Regeneration Scheme (CCRS); 1. St Nicholas House redevelopment 2. City Circle Pedestrian Route (a pedestrian walking route around the city centre) 3. Upper Denburn redevelopment 4. Art Gallery redevelopment 5. The City Garden project Investment totalling 182 million comprising; 70 million of private sector for the City Garden Project 20 million of non-council funding for the Art Gallery redevelopment 92 million from the City Council, using public loan funds An programme that will help; Stimulate further city centre regeneration Create a vibrant and modern city centre that will help to attract future new business and retain existing businesses Page 2

3 The Five Projects Page 3

4 Justification for Public Investment in the CCRS An independent economic assessment undertaken by PriceWaterhouseCoopers confirms that the City Centre Regeneration Scheme will help attract new businesses to the City and these businesses will generate; Additional economic value ( 122m additional GVA per annum over the next 25 years). New jobs (an estimated 6,500 net additional jobs over 25 years) Before the recession, the forecast economic impact would have been sufficient, on its own, to justify an of 92 million from Aberdeen City Council without a TIF agreement This would have resulted in the funding arrangement shown in the following slide Page 4

5 FUNDING CITY CENTRE DEVELOPMENT WITHOUT TIF City Garden Project is part of a wider City Centre regeneration Scheme involving a total enabling infrastructure of 182m 92m loan Public Works Loan Board Private Sector Equity WFT/ Private Donations Grants (Creative Scotland/Lottery etc.) ACC Public Sector Investment Repayment of 92m PWLB loan + interest 70m donation 20m grants 92m Scottish Government 70m 6m 4m 6m 6m City Garden Project St Nicholas House Demolition and New Site Infrastructure Art Gallery Redevelopment North Denburn Demolition and New Site Infrastructure City Circle Walking Route Public Realm Works Stimulates NEW PRIVATE INVESTMENT linked to development of approx. 3.3m sq.ft of new industrial and commercial space, in 3 defined Red Line development areas (City Centre, Dyce Drive, Ellon Road) - An estimated 3.3m sq.ft. involving approximately 328m of private - Substantial in new businesses (potentially > 1000m) - New job creation (6,500 net additional new jobs) - An increased Gross Value Added of 3050m (an avg. of 122m per annum for 25 years) - New annual business rates totalling at least 186m All Business Rates

6 Why do we need a TIF Agreement? Since the recession two factors have influenced how the project can be funded; 1. Aberdeen City Council has less resources, due to a squeeze on public sector spending, making it more difficult to repay a 92 million loan 2. The Scottish Government announced their wish to fund 6 TIF Pilot Projects in Scotland, to fund public in enabling infrastructure projects (projects that enable further development) It would therefore be irresponsible for Aberdeen city Council not to try and take advantage of TIF, when this would enable them to use future business rates paid by new businesses to repay the required loan at no cost to the Council (and, therefore, local ratepayers). Using TIF would result in the funding arrangement shown in the following slide Page 6

7 FUNDING CITY CENTRE DEVELOPMENT WITHOUT TIF TIF City Garden Project is part of a wider City Centre regeneration Scheme involving a total enabling infrastructure of 182m 92m loan Public Works Loan Board Private Sector Equity WFT/ Private Donations 70m donation 70m Grants (Creative Scotland/Lottery etc.) 6m 20m grants 4m ACC Public Sector Investment 92m 6m Repayment of 92m PWLB loan + interest 6m TIF Agreement Scottish Government City Garden Project St Nicholas House Demolition and New Site Infrastructure Art Gallery Redevelopment North Denburn Demolition and New Site Infrastructure City Circle Walking Route Public Realm Works Stimulates NEW PRIVATE INVESTMENT linked to development of approx. 3.3m sq.ft of new industrial and commercial space, in 3 defined Red Line development areas (City Centre, Dyce Drive, Ellon Road) - An estimated 3.3m sq.ft. involving approximately 328m of private - Substantial in new businesses (potentially > 1000m) - New job creation (6,500 net additional new jobs) - An increased Gross Value Added of 3050m (an avg. of 122m per annum for 25 years) - New annual business rates totalling at least 186m All new business rates captured by TIF agreement, to repay 92m PWLB loan All new business rates payable after the loan has been repaid, or afterall 25 years Business whichever comes Rates soonest

8 Key Points A TIF Agreement: Is a contract between ACC and Scottish Government that allows ACC to; Keep all NEW business rates generated from three designated ("red line ) development areas (red line areas)... and use this income to repay borrowing specifically taken out to pay for infrastructure...which stimulates new industrial and commercial development Keep all NEW business rates within the three designated ("red line ) development areas, for a period of 25 years or until the public sector borrowing is repaid, whichever comes sooner. Without a TIF agreement all NEW business rates would otherwise go to the Scottish Government. Without the City Garden Project, it is impossible to justify a TIF agreement for other components of the City Centre Regeneration Scheme ACC and the Scottish Office will only sign a TIF agreement if both are sure that sufficient business rates will be generated to repay the public sector borrowing Page 8

9 The Three Designated ("red line") Development Areas Two peripheral development areas are included because: They need to attract mobile to succeed. A modern and vibrant City Centre will help attract mobile to these strategic development areas. There is a strong link between investing in the city centre and attracting mobile to both strategic development sites and the city centre. Page 9

10 Forecast Business Rates Income Stream Forecast Business Rates Income to Service Rolled up Debt Forecast Business Rates Income m Years 1-25 Business rates income builds up as development occurs. Careful management of private and public sector funding will be used to cover interest costs in early years, pending the subsequent inflow of business rates Page 10

11 Outstanding Debt Profile Debt Outstanding Financial Year End Outstanding Debt Robust financial forecasts prepared by PriceWaterhouseCoopers indicates that the 92 million loan will be repaid within 25 years. Reasonable contingencies have been built into the forecasts Page 11

12 Key Business Case Development Assumptions Assumption Without the 182 milion enabling related to the TIF agreement None of the cultural, leisure or other elements of the CCRS would be taken forward; At least one major site within the red line TIF area, totalling million square feet, would still be taken forward in the anticipated timescales projected by developers; million square feet of new commercial development space (out of a total development potential of million square feet) will go forward within the red line TIF area, over the proposed 25 year TIF period - but such developments will lag, on average, three years behind the profile assumed with the proposed. 2,029 million square feet of new commercial development space (out of a total development potential of million square feet) will not go forward within the red line TIF area, over the proposed 25 year TIF period. Page 12

13 Key Business Case Financial Assumptions Assumption Value Total Capital Expenditure 182m - Private Sector Contributions ( 70m) - Grants ( 20m) - Public Investment (ACC PWLB Loan) 92m PWLB Loan Drawdown Period 01 April 2014 to 31 March 2017 Assumed Interest Rate 5.20% - PWLB 25 year Interest Rate (August 2011) 4.65% - Plus Interest Rate Buffer 0.55% Displacement 1 10% Void Rate/Busines Rates Bad Debt 2 5% Date at which TIF Baseline Frozen September 2013 TIF Rate Capture Period 25 years End of TIF Agreement Term 31 March To take account of busness rates that would be paid by new businesses that may move into the three red line areas from other parts of Scotland. 2 To take account of the fact that all business space created within the red line areas may not be occupied on a permanent basis over the next 25 years Page 13

14 Business Case Sensitivity Analysis Scenario Prudential Borrowing ( m) Repayment Period (years) Potential Early Years Interest Gap ( 000) Base Case % Increase in Capital Costs Increase in interest rates to 6.2% Not repayable within 25 years. Outstanding balance of approximately 13.9m 92 Not repayable within 25 years. Outstanding balance of approximately 20.7m 1,100 3,500 Increase in void rates to 8% Robust, independent forecasts show the Council will not be left with excessive debts in 25 years time. Any unforeseen debt at the end of the 25 year period can be comfortably managed within ACC s overall debt management programme ACC officials have an excellent track record of managing such risks (e.g. Marischal College, Sports Village, New school building programme etc). There is absolutely no evidence to suggest that ACC will not be able to manage the proposed capital. Risk are not excessive and are manageable Page 14

15 Risks of Not Realising the City Garden Project Page 15

16 Risks of Not Realising the City Garden Project More than 182 million of new in city centre will be lost Aberdeen City Council will be unable to fund in the Art Gallery Extension, North Denburn Redevelopment, St Nicholas House Redevelopment or City Centre Walking Route. The proposed bid for UK City of Culture in 2017 will be seriously undermined The business community will disengage from projects that are critical to the City s future economic development, at the very time when public is not available Investors will view Aberdeen as a risk averse, un-ambitious city that dislikes change and is not prepared to invest in the future of its city centre Negative perceptions will: - create a barrier to attracting people and new businesses to the city - encourage people and companies to leave the city - substantially increase the risk of dis and decline Page 16

17 Thank You Gerry Brough