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Reno Recovery Zone Bonds - Offers hope, but it's time to prioritize

08-19-09 - The American Recovery and Reinvestment Act (ARRA) has created several new bond programs. Two of the bond programs, Recovery Zone Facility bonds and Recovery Zone Economic Development bonds, could potentially provide alternative bonds to finance projects for the City of Reno. City of Reno staff assembled a comprehensive list of municipal projects under development and today looked to the Council for direction on pursuing the ARRA alternatives. I've broken down the information from the staff report into tabs below for you to peruse. The final outcome of this was the City Council accepted this list of potential City projects eligible for RZF and RZED bond funding and added a few additions for possibilities, including the Nevada Discovery Museum. As always, the Kings Inn was one of the first things out of the City Council's mouths, but alas, it was recommended by the City's Legal Department to remove the Kings Inn from the list as being eligible. Boooo! That's ok though, there are still a lot of possibilities. Not just redevelopment, but critical projects like fixing roofs of community centers.

I have to commend City of Reno staff for putting together an amazing staff report, of which the below information is dervied from.

Recovery Zone Bond Breakdown

Previous Council Action


December 3, 2008: Presentation of potential “Mainstreet Stimulus Package” projects. Council requested that the projects be submitted to the Congressional delegation.

December 10, 2008: Staff provided an update on the “Stimulus Bill” being drafted by President- Elect Obama’s administration. Council accepted the report.

January 28, 2009: Staff gave an update on the House of Representatives’ version of the American Recovery and Reinvestment. City Council accepted the report.

February 11, 2009: Staff gave an update on the Senate’s Version of the American Recovery and Reinvestment Act and provided an update regarding the anticipated conference process and
passage of a revised bill. City Council accepted the report.

February 25, 2009: Staff provided an update on the final enrolled version of the American Recovery and Reinvestment Act and presented a revised project list. Council accepted the report and directed staff to provide additional information about potential projects that could be funded through the “Stimulus Bill.”

March 11, 2009: Staff provided an update and presented a list of project options under the Community Development Block Grant and Energy Efficiency Block Grant programs. Council selected and prioritized projects within these programs and directed staff to continue providing updates.

March 25, 2009: Staff provided an update and Council identified priority projects for the Byrne Justice Assistance Grants (JAG) and the Homeless Prevention and Re-Housing Program.

April 8, 2009: Staff received Council direction and approval on the implementation of an additional $662,800 in EECBG funds, and acceptance of the update on the American Recovery and Reinvestment Act of 2009.

April 22, 2009: Council accepted a memo in lieu of public presentation providing ARRA updates.

May 13, 2009: Staff received direction to create a new Pre-Application Protocol in order to identify agencies for potential grant partnerships.

May 27: Council accepted a memo in lieu of public presentation providing ARRA updates.

June 10, 2009: Council accepted an update regarding the final change in Recovery Act CDBG projects and approved proceeding with an application for the construction of Reno Fire Department Station #5 to the Department of Homeland Security through the Assistance to Firefighters Grant program.

June 24, 2009: Council approved a Pre-Application Form to be used to assess potential partners for competitive grant applications, and directed staff to research a process, including an independent board, that could be used to identify and evaluate regional competitive grant opportunities.

July 15, 2009: Council adopted Resolution No.7387, designating the entire City of Reno within the current geographic boundaries as a Recovery Zone pursuant to Section 1400U-1(b) of the American Recovery and Reinvestment Act of 2009.

How do the Bonds Work?

The ARRA authorized the creation of two new bond programs:

Recovery Zone Facility (RZF) bonds offer tax-exempt rates for private projects that otherwise would be financed on a taxable basis. The tax-exempt rate allows issuers to realize lower debt service costs. These bonds must be used to finance depreciable property in a Recovery Zone. RZF bonds are available to municipal governments, non-profits, and private developers. The City of Reno has been authorized to issue up to $65,604,000 in RZF bonds. Recovery Zone Economic Development (RZED) bonds are only available to municipal governments for qualified tax-exempt eligible capital projects in a Recovery Zone. The bonds are taxable but are “subsidized” by a federal credit of 45% of the interest, making debt service repayment more affordable. Qualified projects include capital expenditures for property, public infrastructure and construction of public facilities, and education and job training. The City of Reno has been authorized to issue up to $43,736,000 in RZED bonds. There is a limit of 2% on the cost of issuance.



The first step in accessing either type of bonds is the formal designation of Recovery Zones. Because city-wide there were significant levels of unemployment and foreclosures, the entire City within its current geographic boundaries was designated as a Recovery Zone by the Council on July 15. .

Projects looking to be bonded by this funding have some restrictions attached to them. The funds can't be used for:

• Swimming pools
• Golf courses
• Casinos
• Zoos
• Aquariums
• RZF bonds cannot be used to finance land.
• RZF bonds cannot be used to finance “sin businesses” (e.g. racetracks, tanning parlors,
liquor stores, massage parlors).
• RZF bonds cannot be used to finance rental properties.
• RZED bonds cannot be used to refinance outstanding debt.

In addition:
• The bonds must be issued by December 31, 2010.
• The City of Reno is authorized to be the issuer.
• The bond proceeds must be expended within 36 months of issuance.

The intent of these bonds are to provide resources for projects which were in the queue for implementation but were delayed because of fiscal constraints brought on by the economic downturn. RZF and RZED bonds offer interest-rate subsidies for those projects, making debt service repayment more affordable as compared to General Obligation (G/O) bonds, and generally producing higher yields for the same repayment dollars.
The new bonds do not, however, offer bond repayment sources. It is up to the City of Reno to identify those sources.

Yes, these bonds aren't magical and fall off the money tree, they have to be paid back somehow over time. So the next logical question would be, how would these bonds be repaid if issued?

That's a tough one. The Nevada Legislature has recently severely reduced ongoing City revenue sources that would have been previously available for bond payment. Each state has different laws, revenue allocations etc, and Nevada happens to make it a bit tougher on local municipalities (understatement of century). These actions include the cap on property taxes, the increase in administrative fees for collection of sales tax, and the loss of the ad valorem taxes for capital projects. If that weren't enough of a downer, Consolidated Taxes and Room Taxes are not producing sufficient revenues to provide additional funds for bond repayment, due to the downturn in tourism and the economy. That leaves two mechanisms for bond repayment:

1) fee/rate increases, and
2) annual Community Development Block Grant (CDBG) allocations from HUD.

However to add to the challenge of finding repayment sources, these sources have different flexibility and restrictions. Let's focus in on Option 2, Community Development Block Grants. The City would be held to HUD’s national objectives which direct that funds be used for projects which:
• Eliminate blight (However there is an annual cap on the amount of funding that may be expended for this purpose.)
• Create jobs for low- and moderate-income (LMI) persons
• Create affordable housing for LMI households
• Provide public services for LMI persons
• Address the needs of residents in an area predominantly occupied by LMI households. HUD prohibits the use of funds for the maintenance or repair of government-owned facilities or to support government functions. HUD requires environmental reviews, which can affect implementation time frames. HUD must approve the use of CDBG for bond repayments in advance of a bond issuance, limits the repayment period to not more than 10 years, and may limit the amount of funding authorized for repayment. In addition, HUD may also require agreements on the use of its funds, which must be reviewed and approved by HUD’s administrators before a project can move forward. Finally, all funded projects would have to meet a CDBG national objective and comply with all federal regulations.

Eligible City of Reno Projects


Per Council’s direction on July 15, staff assembled a City-wide list of potential projects that could be funded through Recovery Zone bonds. The list shows projects which have been identified through the CIP process, intra-departmental facilities’ assessments, and Council interest. For each project staff has estimated the costs of construction and identified 1) potential repayment sources and 2) the type of Recovery Zone bond program which could be used.

City of Reno Project Est. Cost Potential Repayment Source(s) RZ Bond Program
Public Safety
Damonte Station 20,000,000 RZED
Keystone Station 25,000,000 RZED
North Valleys Station 20,000,000 RZED
Fire Station #1 RZED
Land Acquisition Ineligible
Construction $4,500,000 RZED
Community Centers
Foster Drive 14,000,000 RZED
Linden Grove TBD CDBG RZED/RZF
Oliver-Montello TBD CDBG RZED/RZF
EMNECC Roof 973,000 RZED
Neil Road 110,000
PRCS
Mira Loma Maintenance Center 5,000 RZED
Greenhouse Roof 25,000 RZED
Sky Tavern Roof 35,000 RZED
Plumas Tennis Center 1,000,000 RZED
Virginia Lake Park 400,000 RZED
California Building 160,000 RZED
Paradise Park Activity Center 100,000 RZED
McKinley Arts & Culture 77,000 RZED
Oxbow Nature Study Area 60,000 RZED
Horseman’s Park 50,000 RZED
Parks Office/Urban Forestry 40,000 RZED
Southside School 500,000 RZED
ReTRAC
Cover(s), each 6,000,000 RZED
Enhancements TBD RZED/RZF
Post Office
Land Acquisition Ineligible
Maintenance TBD
Renovation 20,000,000 CDBG RZED/RZF
Terraces 3,300,000 CDBG RZED
Parking Structures
New Downtown Garage 30,000,000 RZED/RZF
Renovations: Parking Gallery 400,000 RZED
Gateways
UNR Gateway 1,200,000 RZED
Kietzke Gateway 150,000
S. Virginia St. Improvements 600,000/ block SAD RZED
Façade Program Downtown 500,000 CDBG RZED
Amtrak Visitors’ Center 100,000 RZED
Public Alley Rehabilitation 10,500,000 Street Funds RZED
Whitewater Park Extension 10,000,000 RZED
Infrastructure
Keystone Bridge Replacement 18,000,000 Street Funds/ FHWA/ NDOT RZED
N. Virginia Sewer Trunk Ph 1B 4,066,000 Sewer fees RZED
Sewer Repl - City Streets Yr. 3 13,385,000 Sewer fees RZED
Digester Lids @ TMWRF 758,868 Sewer fees RZED
Electrical Switch. @ TMWRF 1,946,347 Sewer fees RZED
N. Virginia Street Manholes 97,802 Sewer fees RZED
Lakeside Dr Sewer Trunk 2,800,000 Sewer fees RZED
Collection System Odor Control 1,000,000 Sewer fees RZED

 

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