DRAFT BUSINESS/FINANCE PLAN FOR THE RED LINE REGIONAL RAIL PROJECT NORTH CORRIDOR: MOORESVILLE TO CHARLOTTE, NC PREPARED FOR: THE RED LINE TASK FORCE AND NORTH CAROLINA DEPARTMENT OF TRANSPORTATION PREPARED BY: and November 30, 2011 ACKNOWLEDGMENTS Report Authors: Mark Briggs, Parsons Brinckerhoff Katherine Henderson, KKH Consulting Project Sponsor: North Carolina Department of Transportation Red Line Task Force: Mayor John Woods Mayor Jill Swain Mayor Jeff Tarte Bill Thunberg Carroll Gray Commissioner Harold Cogdell, Jr. Mayor Anthony Foxx Iredell County Representative (Vacant) TABLE OF CONTENTS CHAPTER 1: INTRODUCTION .................................................................................................. 5 1.1 Project Introduction & Plan Overview ........................................................................... 5 1.2 Previous Financing Discussions ................................................................................... 7 1.3 The Current Initiative .................................................................................................... 7 Dual Benefit ........................................................................................................................ 8 Unified Approach ................................................................................................................ 8 Single Entity ........................................................................................................................ 8 CHAPTER 2: METHODOLOGY ................................................................................................10 2.1 Objective: Project Costs ..............................................................................................10 2.2 Local Share: Selected Value Capture Mechanisms ....................................................12 Tax Increment Financing (TIF) ...........................................................................................12 Special Assessment Districts .............................................................................................13 Joint Development & Negotiated Agreements ....................................................................14 2.3 Value Capture Projections: Methodology Overview .....................................................14 2.4 District Mapping ..........................................................................................................15 2.5 Identification of Targeted Developments .....................................................................15 2.6 Reconciliation with Noell Market Analysis ....................................................................16 CHAPTER 3: FUNDING APPROACHES AND REVENUES .....................................................19 3.1 Creating the Benefit District: Timing ............................................................................19 3.2 Tax Increment Revenues ............................................................................................19 3.3 Assessment District Revenues....................................................................................20 3.4 Joint Development & Negotiated Agreements .............................................................21 CHAPTER 4: FINANCING ALTERNATIVES .............................................................................22 4.1 BOND FINANCING .....................................................................................................22 Structure 1: Stone & Youngberg ........................................................................................23 Structure 2: Guggenheim Securities ...................................................................................25 Bond Financing Discussion ................................................................................................27 4.2 P3 APPROACH OPPORTUNITIES FOR PUBLIC PRIVATE PARTNERSHIP ............27 Overview of Public-Private Partnerships for Rail Transit Systems ......................................28 Design-Build-Operate-Maintain (DBOM) ............................................................................29 Red Line Regional Rail: Draft Business/Finance Plan 1 November 30, 2011 Design-Build-Finance-Operate-Maintain (DBFOM) ............................................................31 Early-Stage Financial Evaluation of P3 Options .................................................................32 P3 Results Summary .........................................................................................................33 Preliminary P3 Conclusions and Next Steps ......................................................................37 CHAPTER 5: PROJECT GOVERNANCE .................................................................................39 5.1 North Carolina Enabling Legislation ...........................................................................40 5.2 Creating a JPA: Recommendations for the Project .....................................................41 5.3 State Leadership and Support ....................................................................................46 CHAPTER 6: RECOMMENDATIONS .......................................................................................48 6.1 Create a Joint Powers Authority (JPA) .........................................................................48 6.2 Initiate the Tax Increment Financing (TIF) ...................................................................48 6.3 Approve Special Assessment District Financing ..........................................................48 6.4 Pursue Joint Developments and Negotiated Agreements ...........................................49 6.5 Fund the Operation and Maintenance Costs ...............................................................49 6.6 Implement the Financing Approach .............................................................................49 CHAPTER 7: PROCESS AND NEXT STEPS ...........................................................................51 Figures Figure 1: Red Line Regional Rail Potential Benefit & Allocation District ..................................... 5 Figure 2: Tax Increment Financing: Assessed Value (AV) Over Project Life .............................13 Figure 3: Preliminary Sources of Funds in P3 Scenarios— DBOM (with Public Financing) (left) and DBFOM (right) ....................................................................................................................34 Figure 4: DBOM scenario—Annual SA/TIF Debt Service vs. Annual SA/TIF Revenue (and Associated Coverage) ...............................................................................................................35 Figure 5: DBOM scenario—Annual Total Revenue vs. Debt Service, O&M Costs, and Less R&R Costs ................................................................................................................................36 Figure 6: DBFOM Scenario—JPA’s Sources and Uses of Funds During Construction and Operation ..................................................................................................................................37 Tables Table 1: Project Costs by Category ...........................................................................................11 Table 2: Annual Tax Increment Revenues ................................................................................20 Table 3: Special Assessment District Revenues .......................................................................21 Table 4: S&Y Bond Approach—Revenue Anticipation Notes and 30-Year Revenue Bonds ......24 Table 5: Guggenheim Securities Bond Approach—Program Summary .....................................26 Table 6: U.S. Rail P3 Projects ...................................................................................................29 Table 7: Sample Recent International Light Rail P3 Projects.....................................................29 Table 8: JPA Functions .............................................................................................................44 Red Line Regional Rail: Draft Business/Finance Plan 2 November 30, 2011 Attachments Attachment 1: Red Line Potential Benefit and Allocation District Map Attachment 2: Bond Runs by Stone & Youngberg (Bond Underwriter) Attachment 3: Financing Memo by Guggenheim (Bond Underwriter) Appendices (provided as a separate pdf document) Appendix A: Red Line Value Capture Report Appendix B: Policy memorandum: Achieving Integrated TOD/FOD in the North Corridor Appendix C: Technical memorandum: Freight-oriented development; Strategy insights for multi- modal integration Appendix D: Policy memorandum: Considerations for Implementing a Joint Powers Authority Red Line Regional Rail: Draft Business/Finance Plan 3 November 30, 2011 List of Acronyms and Abbreviations MTC: Metropolitan Transit Commission NCDOT: North Carolina Department of Transportation CATS: Charlotte Area Transit System UBD: Unified Benefit District (see map in Attachment 1) TIF: Tax Increment Financing SAD: Special Assessment District P3: Public-Private Partnerships JPA: Joint Powers Authority RLTF: Red Line Task Force COPs: Certificates of Participation LGC: Local Government Commission JP: Jeff Parker and Associates Noell: Todd Noell Associates RCLCo: Robert Charles Lesser Company FOD: Freight Oriented Development TOD: Transit Oriented Development VE: Value Engineering O&M: Operations and Maintenance Revenues Available or RA: Revenues Available for Debt Service and O&M DB: Design-Build