« PreviousNext »

Appendix 1 Case Studies

Atlanta BeltLine

Summary

The Atlanta BeltLine (“BeltLine”) sought to transform Atlanta’s mostly abandoned freight rail corridors into a 33-mile trail network and about 22 miles of transit. The full trail network and transit system will connect 45 neighborhoods in Atlanta. The project, much of which has already been constructed or is under design, is expected to be completed by 2030 at an estimated cost of $4.8 billion (B).

This project illustrates how a project was been impacted by the GFC and COVID-19 economic shocks and the mitigation measures it employed. While strategic planning for the project was comprehensive, the initially-projected funding levels never materialized. Revenues came in lower in part because the forecast of TIF revenues was overly optimistic. Another reason was the GFC, which depressed property values. Overcoming these funding constraints required flexibility on the part of stakeholders and the renegotiation of key project agreements, including with the Atlanta Public School (APS).

Initial Funding and Financing Plan

After its initial introduction, the project quickly gained support from the broader community and governance structures were put in place to raise funding for the project.The BeltLine began with an idea put forward in a 1999 Master’s thesis by Georgia Tech graduate student Ryan Gravel and grew into the largest redevelopment project in Atlanta’s history.³⁴ By November of 2005, after six months of community engagement, the Atlanta City Council, Fulton County Board of Commissioners, and the APS Board of Education approved the BeltLine Redevelopment Plan and the BeltLine Tax Allocation District (TAD), which is the term for TIF in Georgia.³⁵

When the TAD was created in 2005, properties around the proposed BeltLine generated limited tax revenue. To spur economic development, the City of Atlanta, Fulton County, and APS agreed to create a TAD on parcels surrounding this BeltLine’s rail corridor, with the idea being that as investment increased, the TAD would generate tax revenue to support ongoing project investments.

Initial projections estimated property values to rise by $20B between 2006 and 2030, and of this growth, the TAD was originally projected to collect $3B in revenue for the BeltLine. ³⁶ This projection would mean that the TAD would cover 66 percent of the project’s initially estimated $4.4B in required investments. The balance was expected to come from Federal, State, local, and private philanthropic funds and to be used for several purposes, based on the relative flexibility of the TAD guidelines

With the revenues projected from the BeltLine TAD, Atlanta BeltLine Inc., was able to issue $78.1M in revenue bonds. The bonds were successfully placed since the assessed value of the BeltLine properties when the bonds were sold in 2009 was over 100 percent higher the 2005 “Base Value” assessment, as shown in Table 5. Bondholders became comfortable that the large assessment increase would remain stable even though it declined by over eight percent in 2009 due to the GFC. This was in part because annual average property appreciation from 2000 to 2009 was 13.36 percent throughout Fulton County. Furthermore, the project sponsor demonstrated high expected debt service coverage levels in projections.³⁷ The bonds were successfully placed in the municipal finance market without a credit rating and Moody’s subsequently assigned the bonds an investment grade rating of A2 in 2012, a confirmation of the bonds’ credit quality.³⁸

Table 4. Growth in Assessed Valued with the BeltLine TAD since 2005³⁹

Tax Year	2005	2006	2007	2008	2009
Assessed Value	$542,867,760	NA	$862,283,230	$1,121,949,870	$1,028,029,444
% Increase over Base Value	NA	NA	+58.8%	+113.6%	-8.37%

As per an initial intergovernmental agreement, the City of Atlanta, and the Atlanta Development Authority (d/b/a “Invest Atlanta”), were to make payments in lieu of taxes to APS. This is because APS would forego additional tax revenues from within the TAD over the life of the TAD. To compensate APS, initially, starting in year six of the TAD, BeltLine was to pay APS $7.5M per year during years 6 to 25.⁴⁰ Fulton County, GA, had a similar arrangement with the City of Atlanta, paying APS $13.5M per year during the same years.⁴¹

Challenges to the Funding Plan

Funding from the BeltLine TAD failed to materialize as forecast. This occurred in part because of the GFC, which depressed property values and slowed property value appreciation in Atlanta. In 2012, as part of the development of a Strategic Implementation Plan for the project, the TAD revenue projections were updated. The update used a more conservative forecasting approach, which considered only development projects that had been completed at the time of the analysis.⁴² Based on this new analysis, total tax increment revenue from the BeltLine TAD available for the project was halved, as illustrated in Figure 7.⁴³

Figure 7. Projected Annual TAD Revenue, 2012-2030⁴⁴

The updated projections were more realistic as assessed valuations declined from 2009 to 2013.⁴⁵ As shown in Figure 8, assessed valuations did not really take off until 2014 to 2015, forcing the BeltLine experience approximately five years of stagnant assessments, essentially a full business cycle. Figure 9 shows the impact of a recession on assessment growth.

Figure 8. Updated Tax Digest Values, Atlanta BeltLine TAD⁴⁶

Ongoing legal battles over the contribution of the APS further complicated the funding. The legal trouble over the APS PILOT payments began shortly after the creation of the TAD with a 2006 lawsuit that challenged the constitutionality of APS forgoing its tax revenue for a purpose other than education. This question was ultimately put to voters in a referendum, and voters narrowly approved use of school property taxes for the TAD.⁴⁷ In addition to this legal challenge, the intergovernmental agreement between APS, City of Atlanta, and the Atlanta Development Authority (d/b/a Invest Atlanta) needed to be amended multiple times to renegotiate the PILOT payments from the BeltLine TAD to APS. The first two amendments in 2009 effectively backloaded the PILOT payments. Thus, more was paid to APS in the later years of the TAD district, freeing up revenues in the early years of the project.⁴⁸

The 2030 Strategic Implementation Plan in 2014 showed a roughly $900M funding gap for the project. The funds identified to finish the project are listed in Table 6.

Table 5. Identified Funding Sources for the Atlanta BeltLine, 2014⁴⁹

Funding Source	Amount (in millions)
TAD	$1,575
Federal funds	$1,295
City of Atlanta	$146
Federal, State, regional, or local funding for streetscapes	$343
Local funding for parks	$157
Private philanthropic donations	$312
Other	$11
Unidentified (funding gap)	$891
Total	$4,730

Further, the City of Atlanta had trouble making the payments to APS.⁵⁰ By 2014, there was a push from the city to renegotiate the terms of the agreement with APS to better reflect the real estate market realities and the reduced TAD revenues. This renegotiation proved tough, but a third amendment to the intergovernmental agreement resulted in the transfer of real property–a space APS intended to use to house its school buses–in exchange for reducing the PILOT obligation, from $162M⁵¹ to $73M,⁵² over the life of the TAD.

Path Forward

Despite the challenges faced by the project, especially in the mid-2010s, the project was bolstered by robust stakeholder and community engagement. As shown in Table 6, there were several public and non-profit stakeholder groups engaged in the development of various aspects of the project. The involvement and support of these stakeholders, as well as the visible success of the parts of the BeltLine trail that were completed, resulted in sufficient political support from Atlanta residents to continue supporting the project.

Table 6. Stakeholders Involved in the Development of the Atlanta BeltLine⁵³

Stakeholder	Description of Role
City of Atlanta	Future owner of all Atlanta BeltLine investments. Participated in BeltLine TAD. Appointed members to the Atlanta BeltLine, Inc. (ABI) and Atlanta BeltLine Affordable Housing Advisory Boards.
Fulton County	Participated in BeltLine TAD. Makes appointments to the ABI Board of Directors and the Atlanta BeltLine Affordable Housing Advisory Board.
Atlanta Public Schools	Participated in BeltLine TAD. Makes appointments to the ABI Board of Directors and the Atlanta BeltLine Affordable Housing Advisory Board.
Atlanta Development Agency, d/b/a Invest Atlanta	City of Atlanta’s economic development agency. Responsible for the creation and management of all Atlanta-based TADs. Plays an active role in the affordable housing components of the project.
Metropolitan Atlanta Area Rapid Transit Authority (MARTA)	The Atlanta transit agency. Will develop intermodal linkages to the Atlanta BeltLine and will be responsible for the development of the Atlanta BeltLine’s transit components.
Georgia Department of Transportation (GDOT)	GDOT owns the right-of-way (ROW) on the Atlanta BeltLine corridor and coordinates with ABI to manage the Atlanta BeltLine’s ROW. GDOT administered the Statewide Transportation Improvement Program, part of which funds the Atlanta BeltLine’s design, ROW acquisition, and construction.
Atlanta Regional Commission	A planning and intergovernmental coordination agency that has supported ABI’s planning and has assisted in securing State funds.
Tax Allocation District Advisory Committee (TADAC)	The Atlanta BeltLine TADAC was established by the city of Atlanta to make recommendations to ABI, Invest Atlanta, and the city on issuance, allocation, and distribution of TAD bond proceeds. The TADAC also measures the Atlanta BeltLine’s impact and progress on implementation of its redevelopment plan.
BeltLine Affordable Housing Advisory Board	Advised on issues related to affordable housing with members from Fulton County, the city of Atlanta, Atlanta Public Schools, community development corporations, and the real-estate community.
Department of City Planning	Responsible for the Atlanta BeltLine’s planning area zoning. It separated the 16,000 acres within one-half mile of the rail corridor into 10 subareas for land-use master plans, which encourage land uses that facilitate transit, parks, denser development, walking, and bicycling.
Atlanta BeltLine Partnership	The Atlanta BeltLine Partnership was funded by the private sector. It was created to raise capital, awareness, and support for the project. The Atlanta BeltLine Partnership hosted guided tours, “adopt-a” programs, speakers, and other programming.
PATH Foundation	Created to enhance and preserve Georgia greenways. Works with ABI and the Atlanta BeltLine Partnership to develop the Atlanta BeltLine trail network, including coordinating the use of private funding.
The Trust for Public Land	The Trust for Public Land helped evaluate the Atlanta BeltLine TAD’s financial feasibility and purchased the parcels on which Atlanta BeltLine parks will be developed.
Trees Atlanta	Trees Atlanta is working with ABI to create an arboretum, to plant trees, and to remove certain species from the Atlanta BeltLine area.

After the successful renegotiation of the APS PILOT payments, Atlanta BeltLine Inc. successfully issued refunding and new money bonds close to $145M using TAD revenues as a pledge and secured additional sales taxes monies. In 2016, the City of Atlanta refunded its 2008 and 2009 bonds for a lower interest rate and issued bonds to help pay for around $40M of further capital expenditures related to the BeltLine project. The amounts of the bonds and their intended purposes are outlined in Table 7. While not a pledge for the bonds, in 2016 Atlanta voters also voted in favor of a special-purpose, local-option sales tax for transportation of 0.4 percent. Expected to generate approximately $300M over a five-year period to fund significant and expansive transportation projects citywide, it included $66M for the BeltLine. The sales tax approval further illustrates the community’s support of the project.⁵⁴ The sales tax approval further illustrates the community’s support of the project.

Table 7. 2016 Atlanta BeltLine Bonds⁵⁵

Bond	Amount ($)	Notes
BeltLine Project – Refunding Series 2016A	21,600,000	For refunding the original bonds
BeltLine Project – Refunding Series 2016B	39,035,000	For refunding the original bonds
BeltLine Project – Refunding Series 2016C	6,290,000	For refunding the original bonds
BeltLine Project – Series 2016D	39,605,000	Net proceeds will be used primarily to fund portions of capital projects related to the trail, transit and park system.
BeltLine Project – Series 2016E	38,325,000	To fund APS PILOT Payments and costs and expenses associated with the implementation of the Affordable Housing and targeted Economic Development elements of the project.
Total	144,855,000

Despite the Pandemic’s impact on BeltLine area businesses, the City of Atlanta approved a type of SAD to raise $100M to finalize the BeltLine trail. Approved on March 16, 2021, the district, called locally a “Special Services District” or the “BeltLine SSD”, will impose an ad valorem property tax on all taxable real property located the Atlanta BeltLine SSD, as shown in Figure 10. A substantial portion of the SSD overlaps with the BeltLine TAD, as shown in Figure 7. This funding, alongside $100M in positive tax allocation increment from the BeltLine TAD and $150M from additional Federal, State, philanthropic and local sources, will help fund the remaining $350M needed to finalize the project’s trail portion.⁵⁶

Conclusions

The BeltLine project took advantage of two tools identified in Section 4 to mitigate the impact of economic shocks:

1. Development of strong community support: The BeltLine has managed to progress and garner new funding sources primarily due to broad-based public support. This support has enabled the project to overcome stresses and achieve key funding milestones:

   • Helping the project survive in the face of difficult negotiations with the APS regarding the PILOT payments; and
   • Enabling the City Council to create an additional district (BeltLine Special Services District) to levy more taxes to fund the remaining trail portion of the BeltLine.

2. Successful/strategic project phasing: Driven out of funding necessity the project is being built in phases. Initial developments were completed in heavily used areas where bikers and walkers could enjoy the trails and understand the project’s goal. By allowing these stakeholders to partake in early project benefits, the BeltLine encouraged community-buy in, thus helping subsequent phases to receive needed funding.

Mosaic Project

Summary

The Mosaic District (Mosaic) is a walkable, mixed-use, primarily “road-oriented” development in northern Virginia, successfully financed with TIFs and supported by special assessments. Mosaic was successfully developed after the 2008-2010 recession with financial measures that anticipated financial downturns. Its debt was refinanced in 2020, with additional mechanisms that anticipated downturns in the market due to the Pandemic. It demonstrates the process from planning to developer input to financing that resulted in significant funding for local roads and other infrastructure financed by the project.

Initial Financing in 2011

Mosaic is a mixed-use development constructed from 2012 to 2018. . As of August 31, 2020, Mosaic included 1,004 rental apartments; 112 townhouses; approximately 509,501 square feet of retail space; 72,750 square feet of office space; and a 148-room Hyatt House hotel. It also included two acres of park and open space.⁵⁸ By 2018, the original plan has been realized and is fully built out, as described in Table 8.

Table 8. Mosaic District Project by Property Type, 2011 and 2020⁵⁹

	2011 Intended Plan	2020 Actual Plan
Retail Space (sq. ft)	504,100	509,501
Target Store (sq. ft)	168,900	168,900
Class-A multifamily rental apartments (units)	853	1,004
Class-A townhomes (units)	114	112
Class-A Office Space (sq. ft)	65,000	72,750
Hotel (number)/(rooms)	2/150	1/148

Mosaic is in suburban Washington, D.C., near the region’s “beltway,” another interstate, major arterials, and a 20-minute walk to a transit station. Consisting of approximately 31 acres in Fairfax County, Virginia, Mosaic is located approximately 12 miles west of Washington, D.C. and close to the heart of the metropolitan region. It is located close to the I-495 beltway, the major I-66 east-west route, and other east-west routes of Routes 29 and 50.⁶⁰  Its center is located 0.9 miles from the Washington Metropolitan Area Transportation Authority (WMATA) Dunn-Loring Merrifield Station.⁶¹

Mosaic is located on property that was in a low-density, former industrial area, a less desirable location. The property consisted of a former movie theater, a heavy equipment rental enterprise, and parking lots. It was termed “an uninviting industrial suburban crossroads” by the New York Times in 2012.⁶² While it had good transportation access, it was in a sort of “no man’s land” between “inside the beltway” housing developments to its east and more desirable developments to the north and northwest. The property was originally zoned “Medium Intensity Industrial,” “General Industrial,” and “Highway Corridor Overlay Districts.”⁶³

Mosaic planning began in the late 1990s and underwent several stages before construction commenced in 2012, a period not unusual for such a complex project. In 1998, a Fairfax County Board of Supervisors task force started to plan what became the “Comprehensive Plan for Merrifield in 2001.”⁶⁴ In 1998, the Supervisors also designated the area including Mosaic as “a Commercial Revitalization Area (CRA),” setting the groundwork for the creation of the County’s first TIF district.⁶⁵ Then in 2009, Fairfax County established its first “Community Development Authority” allowing for TIF and special assessments in the Mosaic District.⁶⁶ As part of the process, the area was rezoned to “Planned Development Commercial,” “Planned Residential Mixed Use,” and “Highway Corridor Overlay Districts.”⁶⁷

As often occurs, Mosaic’s developer changed during the planning process. The developer, Edens, teamed up with National Amusements, the owner of the existing movie theater and additional property, and Clark Realty Group, to develop the “Merrifield Town Center Plan.” At the end of a two-year entitlements process, Edens had bought out both partners. Such a change in developer configuration is not unusual, especially during a major regional and national recession that had a major impact on real estate development.⁶⁸

Mosaic’s developer created the Mosaic District Community Development Authority (Mosaic CDA) to issue bonds to pay for a majority of the infrastructure. Under Commonwealth of Virginia law, the Mosaic CDA could issue bonds to finance infrastructure within the Mosaic CDA benefitting Mosaic. It also could levy special assessments to pay for debt service. The Mosaic CDA was created by a petition filed with Fairfax County from owners of more than 51 percent of properties consisting of the Mosaic.⁶⁹

The primary funding source for the Mosaic infrastructure was TIF. Mosaic’s developer entered a memorandum of understanding with Fairfax County for Mosaic TIF revenues to be used to pay the debt service on the bonds issued in 2011 (2011 Bonds) as long as they were outstanding. Should these tax increments not have been adequate, then Mosaic CDA would request Fairfax County to levy a special assessment.⁷⁰

Mosaic financed a portion of the approximately $68.1M of public infrastructure costs, mostly roads and parking, with the 2011 Bonds. The 2011 Bonds funded public roads, streetscaping, parks, and open space, stormwater improvements, other utilities, school improvements, and retail parking open to the public. Of the total amount funded by the 2011 Bonds, 46 percent was for roads and 35 percent for public parking.⁷¹

A significant increase in property values helped yield a high value-to-bond ratio, a statistic evaluated by the credit rating agencies for TIFs and SAD projects. The ability to repay 2011 Bond debt service was demonstrated by a forecast of incremental property value increases from $38.2M in 2011 to over $400M at full build-out, based on several development scenarios, as shown in Table 10 and defined as follows:

• Scenario A is based on the approved development plan, serving as a base case, with real property value increases of 3 percent and real property tax rate decreases of 0.75 percent annually. Scenario A was based on specific square footage for retail, restaurants, hotel rooms, a smaller number of rental units, townhouses, and a movie theater.
• Scenario B represented a proposed amended development plan, assuming less retail and theater space, more rental units, townhouse, but the same inflation/tax rate growth factors as in Scenario A.
• Serving as the primary downside case, Scenario C’s main difference from Scenario B was no real increase in real estate value and no decline in the tax rate growth.
• Scenario D was similar to Scenario B, except that the projected value was based on a market study prepared by an experienced real estate consultant, the Concord Group, making this the “upside” case. This study assumed different market values by real estate type, including lower values for residential and office, higher for hotel and theater, higher for rental units, and lower for townhouses.

Table 9. Assumptions Used in Four Scenarios Deriving Incremental Value⁷²

Scenario	Inflation/ Tax Rate Growth	Retail (Sq Ft)	Restaurant (Sq Ft)	Hotel Rooms	Theater (Sq Ft)	Rental Units	Town-houses (For Sale)	Incremental Value
A	3%/0.75%	450,063	52,600	375	120,000	803	0	$424,335,098
B	3%/0.75%	403,300	60,700	300	40,100	853	114	$411,396,588
C	0%/0%	403,300	60,700	300	40,100	853	114	$411,396,588
D	3%/0.75%	403,300	60,700	300	40,100	853	114	$437,106,789

The 2011 Bonds were secured by a SAD backstop, which, in the worst case, resulted in a payment of $40M SADs over the life of the 2011 Bonds. As shown in Table 11 and illustrated in Figure 12, the projected special assessments through the life of the outstanding 2011 Bond was $38.8M in Scenario C; Scenario B was also projected to require $1.2M of SADs.⁷³

Table 10. Mosaic District Projected Special Assessment, Life of Tax Revenue Bonds⁷⁴

Scenario	Total Project Special Assessments Through Bond Year Ending 2041
A	$0
B	$1,160,244
C	$39,820,889
D	$0

Figure 9. Projected Available Revenues and Debt Service for Scenario C⁷⁵

The 2011 Bonds included standard credit features that helped reduce financial risk. Mosaic structured the expected financing with a debt service coverage (DSCR) ratio, the amount of available cash flow over annual debt service, of over 1.00x assuming only tax increments. If special assessments were assumed in addition, then coverages would be over 2.00x.⁷⁶ The 2011 Bonds also included a standard debt service reserve fund structured as either 1) the maximum amount of debt service due in any year, 2) 10 percent to the original bond amount, or 3) or 1.25 percent of the average annual amount of debt service.⁷⁷ As shown in Table 12, Mosaic also benefitted from two years of capitalized interest during the construction period of several years of interest-only payments and upward sloping debt service payment curve all of which reduced the debt service payment pressures in the early years.⁷⁸

Table 11. Mosaic District Annual Debt Service Requirements, 2011 Bonds⁷⁹

Year	2011 A Bonds: Principal	2011 A Bonds: Interest	2011 A Bonds: Total	2011 A-T Bonds: Principal	2011 A-T Bonds: Interest	2011 A-T Bonds: Total	Total Principal	Total Interest	Grand Total
2012	-	2,320.5	2,320.5	-	883.6	883.6	-	3,204.1	3,204.1
2013	-	3,188.5	3,188.5	-	1,353.6	1,353.6	-	4,542.1	4,542.1
2014	-	3,188.5	3,188.5	-	1,353.6	1,353.6	-	4,542.1	4,542.1
2015	-	3,188.5	3,188.5	-	1,353.6	1,353.6	-	4,542.1	4,542.1
2016	-	3,188.5	3,188.5	-	1,353.6	1,353.6	-	4,542.1	4,542.1
2017	465.0	3,188.5	3,653.5	150.0	1,353.6	1,503.6	615.0	4,542.1	5,157.1
2018	580.0	3,159.5	3,739.5	200.0	1,342.7	1,542.7	780.0	4,502.2	5,282.2
2019	705.0	3,123.2	3,828.2	250.0	1,328.2	1,578.2	955.0	4,451.4	5,406.4
2020	840.0	3,079.1	3,919.1	305.0	1,310.1	1,615.1	1,145.0	4,389.2	5,534.2
2021	990.0	3,026.6	4,016.6	360.0	1,288.0	1,648.0	1,350.0	4,314.6	5,664.6
2022	1,145.0	2,964.8	4,109.8	430.0	1,261.9	1,691.9	1,575.0	4,226.6	5,801.6
2023	1,320.0	2,888.9	4,208.9	500.0	1,230.7	1,730.7	1,820.0	4,119.6	5,939.6
2024	1,505.0	2,801.5	4,306.5	580.0	1,194.4	1,774.4	2,085.0	3,995.9	6,080.9
2025	1,705.0	2,701.8	4,406.8	660.0	1,152.4	1,812.4	2,365.0	3,854.1	6,219.1
2026	1,920.0	2,588.8	4,508.8	755.0	1,104.5	1,859.5	2,675.0	3,693.3	6,368.3
2027	2,155.0	2,461.6	4,616.6	850.0	1,049.8	1,899.8	3,005.0	3,511.4	6,516.4
2028	2,410.0	2,313.4	4,723.4	960.0	988.2	1,948.2	3,370.0	3,301.6	6,671.6
2029	2,690.0	2,147.8	4,837.8	1,070.0	918.6	1,988.6	3,760.0	3,066.3	6,826.3
2030	2,985.0	1,962.8	4,947.8	1,195.0	841.0	2,036.0	4,180.0	2,803.8	6,983.8
2031	3,305.0	1,757.6	5,062.6	1,330.0	754.4	2,084.4	4,635.0	2,512.0	7,147.0
2032	3,650.0	1,530.4	5,180.4	1,475.0	657.9	2,132.9	5,125.0	2,188.3	7,313.3
2033	4,025.0	1,279.4	5,304.4	1,630.0	551.0	2,181.0	5,655.0	1,830.4	7,485.4
2034	4,420.0	1,002.7	5,422.7	1,805.0	432.8	2,237.8	6,225.0	1,435.5	7,660.5
2035	4,850.0	698.8	5,548.8	1,985.0	302.0	2,287.0	6,835.0	1,000.8	7,835.8
2036	5,315.0	365.4	5,680.4	2,180.0	158.1	2,338.1	7,495.0	523.5	8,018.5

The Mosaic CDA further benefitted from a surplus fund of excess tax increment revenues. The surplus fund, which consisted of excess tax increment revenues for the Mosaic CDA could be used to restore any deficiency in the debt service reserve fund or pay debt service on the 2011 Bonds if tax increment revenues are insufficient.⁸⁰

Refunding in 2020

Mosaic developers completed most of the development as intended, yet some changes were made, reflecting inevitable changes in market demand. As shown in Table 9, the developers completed a similar amount of retail space intended in the 2011 Bonds, including the anchor Target store. It realized 17 percent more rental apartments and almost the same amount of townhomes. It also developed slightly more office space. The biggest change was a reduction in about half of the hotel beds and the construction of only one hotel.⁸¹

Because Mosaic was successful, it was able to take advantage of resulting in a refunding in 2020. This refunding allowed the bonds to attain an investment-grade rating, which therefore allowed them to be sold in the  public tax-exempt market which made it accessible to all retail bondholders, instead of the private placement market which is generally restricted to sophisticated ones. This higher quality was the reason why the interest rates declined from 7 percent to 2 percent from the 2011 bonds to the 2020 bonds, respectively.⁸²

A review of tax increment history shows that Mosaic’s sponsors had accurately forecast the revenues supporting the 2011 Bonds with a reasonable degree of accuracy. However, as shown in Figure 10, the actual incremental revenues vary by year. Actual revenues in 2016 came close to projections, leaving very little room for a buffer. This underscores the uncertainty of projections and the need for a backup in downside cases.

Figure 10. Projected and Actual Incremental Revenues, 2011 Bonds⁸³

From 2012 to 2018, the assessed value of Mosaic properties increased by almost four times, resulting in a positive value-to-bonds ratio, a financial metric. The assessed value was $178M in 2012 and $673M in 2020 or a compound annual growth rate of 18.1 percent and a change of $495M. Based on principal in 2020 of $56M, this resulted in a value to bonds ratio of 12.09x. This is a metric used by credit rating agencies to evaluate the credit quality of a special assessment district transaction.⁸⁴

Future assessed growth is expected to result in incremental taxes that will more than cover debt service. Mosaic expects assessed value to increase by 2 percent per year under “Scenario A” as shown in Figure 11. This results in $7M of 2021 debt service increasing to $10M in 2036. This assumed a tax rate of $1.150 per $100 assessed value, Fairfax’s current rate in 2020 and 2019, and roughly the median of Fairfax tax rates over the last 32 years.⁸⁵ This results in a coverage ratio of 1.50 in 2022 and increasing thereafter.⁸⁶

Figure 11. Projected Debt Service & County Advanced Rev. (Base Case), 2020 Bonds⁸⁷

Figure 12. Projected Debt Service & County Advanced Rev. (Sensitivity), 2020 Bonds⁸⁸

Mosaic’s pandemic “Scenario B” downside case assumed 2020 assessed values remained the same for two years showing that no special assessment was necessary. The scenario assumed that January 1, 2021, assessed values are the same as the January 1, 2020 values and remain that way on January 1, 2022, as well. Thereafter, real property values will increase at a 2 percent annual rate of inflation from January 1, 2023, onwards as shown in Figure 15. It assumed the same $1.150 tax rate per $100 of assessed value. In this scenario, coverage ratios in 2021 will decline from 1.50x to 1.32x, still a reasonable margin.⁸⁹ Mosaic made it clear that “This scenario is purely illustrative in nature. The full extent and duration of pandemic impacts to future County Advanced Revenues is not known at this time, and actual reductions of these revenues could materially exceed those forecasted under Scenario B.”⁹⁰

The financial markets accepted the 2020 refinancing for several reasons, including because Mosaic made reasonable assumptions about property tax appreciation and future tax rates, although subject to market volatility and local politics. The two-percent rate appreciation is much lower than 3.80-percent CAGR of the combined appreciation of residential and non-residential property appreciation over the last 32 years.⁹¹ During two sets of years during this period, however, assessed values fell four years and three years in a row, during the early 1990s recession and the GFC, respectively. Further, the assumed tax rate ($1.150 per $100 assessed value tax rate) was roughly the median of Fairfax tax rates over the last 32 years. While the tax rate was affected by the level of revenue generated as a result of assessed values, they are also set by policymakers whose motives are not necessarily based on purely technocratic estimates of budget needs. Policymakers may unexpectedly delay or change tax rates to reflect new budget needs and/or reduce taxes to win favor with voters.

As a backstop, the bonds benefited from a special assessment on Mosaic property should tax increment monies be inadequate; they also benefited from standard municipal bond credit features. The special assessment is an ad valorem special tax that may be levied within Mosaic of $0.25 per $100 of assessed value⁹² in case the tax increment revenues were inadequate. The bonds issued in 2020 (2021 Bonds) also benefited from the same standard municipal bond credit features that helped reduce financial risk as with the 2011 bonds, which included coverage ratios and reserve funds. Furthermore, the bonds benefitted from municipal bond insurance, provided by Build America Mutual Assurance Company (BAM).⁹³

While Mosaic was structured around the downside case, has standard credit mitigation measures, and benefitted from special assessments, the Mosaic District Official Statement, 2020 underscored the financial uncertainty of COVID-19: “With respect to the Mosaic District, COVID-19 has created significant business disruption for many retail operators, including theater and fitness uses, while some quick-service restaurant businesses have seen growth during the Pandemic… Given the uncertainty of the progression of the virus and government emergency orders affecting the operations of some leases within the Mosaic District, there is no timetable for when operations at the Mosaic District will return to normal for all leases. The full impact of COVID-19 and the scope of any adverse impact on the Mosaic Development cannot be fully determined as of the date of this Official Statement.⁹⁴”

Because of the way that it was structured, Mosaic was able to obtain an investment-grade rating from Moody’s. Moody’s awarded the refunding bonds a rating of S&P AA/Moody’s A2,⁹⁵ based on several rating criteria:

The A2 rating reflects the moderately-sized and growing tax base within the Mosaic District, a fully developed mixed-use residential and commercial tax increment financing (TIF) district in Fairfax County, VA (Aaa stable). The rating also reflects above-average top taxpayer concentration, strong resident income levels, and adequate debt service coverage provided by growing tax increment revenues. The rating also incorporates a special assessment back-stop in the event incremental revenues are insufficient to cover debt service, a cash-funded debt service reserve fund, additional available liquidity in a surplus fund (not pledged to bondholders) comprised of excess tax increment revenues, and strong oversight from the county.⁹⁶

2021 Experience

Bond disclosure documents show how Mosaic has weathered the Pandemic since the 2020 Refunding. As reported on March 31, 2021, Mosaic has reported that leased occupancy of retail and office space was 96 percent and 100 percent on June 30, 2020, respectively, and 94 percent and 100 percent on October 9, 2020.⁹⁷

Tax increment revenues declined because assessed values and tax rates declined in the last year. The assessed value of $672,598,740 as of January 1, 2020, declined to $663,560,710 in January 1, 2021, or a 1.3 percent decline. Furthermore, Fairfax may lower its tax rate to $1.14.⁹⁸ The combined impact of changes to tax increment 2021 receipts is to reduce them from $7,294,761 to $7,128,294 or an overall decline of 2.3 percent.⁹⁹

The impact of this expected decline from 2021 was not expected to trigger the need for special assessments. The debt service coverage ratio is expected to decline from 1.50 to 1.44.¹⁰⁰ In comparison, Scenario B from the Mosaic District Official Statement, 2020 assumed a decline to 1.32.¹⁰¹ As per the terms of the Surplus Fund, a balance of $2,442,411 was also available to cover potential downsides.¹⁰²

Conclusions

The following are key takeaways from this case that may be appropriate for other value capture-related projects:

• Mosaic provides a useful example of how an underutilized industrial district can be transformed into a mixed-use, resilient area, even when it is not well-connected to high-capacity transit. This is relevant for many suburban areas throughout the U.S. Furthermore, it shows how projects may change during planning and implementation and that well-thought plans can anticipate this risk.
• Mosaic has employed many of the tools to manage the impact of economic shocks as discussed in chapter [4]. These include:
• Analyze downsides: Mosaic prepared a number of scenarios and showed that it could mitigate them.
• Overcollateralize: Mosaic showed high DSCRs as well as value-to-bond ratios.
• Add reserve funds: Mosaic bondholders benefitted from a surplus fund of excess tax increment revenues that could be used to restore any deficiency in the debt service reserve fund or pay debt service on the 2011 Bonds if tax increment revenues were insufficient.
• Reduce early year cashflow pressure: Mosaic had several features to reduce early-year cashflow pressure, including delaying the repayment of principal for several years, two years of capitalized interest during the construction period and upward sloping debt service payment curve all of which reduced the debt service payment pressures.
• Backstop projects with creditworthy sources: While it has not been used, the SAD has backstopped the TIF and was cited as one factor in Moody’s A2 rating.

Further Information on Additional Cases Referenced

Case	Mode	Value Capture Technique	Summary	Further Information
Route 28, Virginia	Highway	Transportation Improvement District/ Special Tax District	State Route 28 was a primary State highway through Northern Virginia. In the 1980s, Route 28 was a two-lane country road in need of expansion to accommodate the region’s growth and increased traffic volume. To fund this expansion, Virginia made use of special tax districts (transportation improvement districts) together with bond financing. In the district, a 20-cent surcharge was applied to property tax bills for each $100 of value for commercial and industrial properties.	Virginia Route 28 – Special Tax District , Case Study, FHWA
E-470, Colorado	Highway	Impact Fee	E-470 is a 47-mile, primarily four-lane, limited-access toll road that makes up a major portion of a beltway around the eastern portion of the Denver metropolitan area.	Colorado E-470 Toll Road and Vehicle Registration Fees, Case Study, FHWA
Denver Union Station, Colorado	Transit	SAD, TIF, Joint Development	Redevelopment of historic Denver Union Station as a transit hub as the center point of a new transit system and vibrant neighborhood in downtown Denver. Ultimately, the $500M project tapped nine different sources, including an inventive use of two federal loan programs repaid with joint development, SAD, and TIF monies. Part of the project also involves a real estate P3.	Value Capture Case Studies: Denver’s Historic Union Station, Chicago’s Metropolitan Planning Council Guide to Value Capture Financing for Public Transportation Projects (2016), Appendix C
Kansas City Streetcar, Missouri	Transit	Special Assessment District; Sales Tax District	The KC Streetcar is a two-mile modern streetcar, which opened in 2016. The streetcar was developed during a period of economic expansion in downtown KC. Sixty percent of the project’s $102M capital costs were covered by bond financing which was backed by property and parking assessments as well as a 1 percent sales tax levied from within the borders of a transportation development district (TDD)	Guide to Value Capture Funding for Public Transportation Projects, Appendix E – Kansas City Streetcar, Kansas City, MO. Transit Cooperative Research Program (TCRP), 2016.
Parole Town Center, Maryland	Highway and Roads	TIF	Parole was a neighborhood in Annapolis, MD, which was being redeveloped beginning in the mid-1990s, designed to focus future growth into an “Urban Design Concept Plan” to reduce future suburban sprawl. Tax increments of property in the 2.35-mile Development District were used to fund the $8.3M bond, which paid for needed improvements to help realize the plan, including streets, roadways, and ramps to US 50, MD Route 2, MD Route 450, and other roads.	https://emma.msrb.org/IssueView/Details/MS57274
Assembly, Doraville, Georgia	Transit	TIF, SAD	The Assembly Project, an adaptive re-use project that featured commercial, residential, entertainment, and a filmmaking studio in Doraville, GA, illustrated the importance of conducting a downside scenario.	https://emma.msrb.org/P21433847-P21113500-P21524247.pdf
Osceola County, Florida	Roads and Bridges	Impact Fees	Osceola County, FL, has taken advantage of transportation impact fees to facilitate construction of key bridge and roadway infrastructure for three decades. The fees were implemented in 1990 to address rapid growth in the county that had led to severe traffic issues and citizen frustration. The fees were suspended in 2011 and repealed in 2012 in response to an economic slowdown.	https://www.fhwa.dot.gov/ipd/pdfs/value_capture/ value_capture_implementation_manual_2019.pdf; see Section 4.1.8

Footnote

³⁴Blau, Max. “What happens now that the Atlanta BeltLine dispute is over?” Atlanta Magazine. January 29, 2016, https://www.atlantamagazine.com/news-culture-articles/what-happens-now-that-the-beltline-dispute-is-over/.

³⁵These are also known as tax increment financing districts in other jurisdictions.

³⁶Atlanta BeltLine, “Securing Economic Resources to Get the Project Done,” https://beltline.org/the-project/project-funding/

³⁷Municap, “BeltLine Tax Allocation District: Tax Increment Project Study,” October 20, 2009, p. 14, in City of Atlanta, GA Tax Allocation Bonds (BeltLine Project) Series 2008A, Official Statement (OS).

³⁸Moody’s, “Moody’s assigns an initial A2 rating to City of Atlanta’s (GA) Tax Allocation Bonds (BeltLine Project), Series 2008 A, B and C and Series 2009 B and C” October 18, 2012, https://emma.msrb.org/ER626477-ER485530-ER888413.pdf
Atlanta BeltLine. 2013. Atlanta BeltLine 2030 Strategic Implementation Plan. Final Report. https://beltline.org/wp-content/uploads/2019/03/Beltline_Implementation-Plan_web.pdf.

³⁹City of Atlanta, GA Tax Allocation Bonds (BeltLine Project) Series 2008A, OS, 16.

⁴⁰Intergovernmental Agreement by and between the City of Atlanta, Georgia, the Atlanta Development Authority, and the Atlanta Independent School System. December 31, 2005.

⁴¹Resolution Consenting to the Inclusion of Certain Fulton County Taxes in the computation of the Tax Allocation Increment for the City of Atlanta Tax Allocation District Number Six-Beltline Redevelopment Area; and for Other Purposes. December 28, 2005.

⁴²Atlanta BeltLine. 2013. Atlanta BeltLine 2030 Strategic Implementation Plan.

⁴³FHWA, “Atlanta BeltLine Tax Allocation District,” https://www.fhwa.dot.gov/ipd/value_capture/case_studies/atlanta_beltline_tax_allocation_district.aspx.

⁴⁴Municap, “BeltLine Tax Allocation District Number 6 (BeltLine TAD) City of Atlanta: Tax Increment Report,” December 19, 2016, p. C-28, in City of Atlanta, GA Tax Allocation Bonds (BeltLine Project) Series 2016A, OS.

⁴⁵Municap, “BeltLine TAD Tax Increment Report,” December 19, 2016, p. C-28, in City of Atlanta, GA “Tax Allocation Bonds, Series 2016A,” OS.

⁴⁶Leslie, Katie. “Inside the Battle over the Beltline Debt to APS.” Atlanta Journal Constitution. July 5, 2014. https://www.ajc.com/news/inside-the-battle-over-the-beltline-debt-aps/eD0KyBMBiler8Iy9sdLjWK/

⁴⁷Second Amendment to the Intergovernmental Agreement among the City of Atlanta, Georgia, The Atlanta Development Authority, and the Atlanta Independent School System. November 9, 2009. Accessible here: https://beltlineorg-wpengine.netdna-ssl.com/wp-content/uploads/2012/03/APS-IGA-Second-Amendment.pdf

⁴⁸Atlanta BeltLine. 2013. Atlanta BeltLine 2030 Strategic Implementation Plan. Final Report. pp. 46-47. https://beltline.org/wp-content/uploads/2019/03/Beltline_Implementation-Plan_web.pdf.

⁴⁹Atlanta BeltLine. 2013. Atlanta BeltLine 2030 Strategic Implementation Plan. Final Report. pp. 46–47. https://beltline.org/wp-content/uploads/2019/03/Beltline_Implementation-Plan_web.pdf

⁵⁰Blau, Max. What happens now that the Atlanta Beltline Dispute is over? Atlanta Magazine. January 29, 2016.

⁵¹Second Amendment to the Intergovernmental Agreement among the City of Atlanta, Georgia, The Atlanta Development Authority, and the Atlanta Independent School System. November 9, 2009. Accessible here: https://beltlineorg-wpengine.netdna-ssl.com/wp-content/uploads/2012/03/APS-IGA-Second-Amendment.pdf

⁵²Third Amendment to the Intergovernmental Agreement among the City of Atlanta, Georgia, The Atlanta Development Authority, d/b/a Invest Atlanta, and the Atlanta Independent School System. February 8, 2016. Accessible here https://beltlineorg-wpengine.netdna-ssl.com/wp-content/uploads/2012/03/Third-Amendment-to-BeltLine-IGA-FINAL-Fully-executed-2-8-2016.pdf

⁵³FHWA. Atlanta BeltLine Tax Allocation District. https://www.fhwa.dot.gov/ipd/value_capture/case_studies/atlanta_beltline_tax_allocation_district.aspx.

⁵⁴Transportation Special Purpose Local Option Sales Tax and Metropolitan Atlanta Area Rapid Transit Authority Referenda, City of Atlanta 2016 Transportation Special Purpose Local Option Sales Tax Proposal, https://www.atlantaga.gov/government/mayor-s-office/projects-and-initiatives/tsplost-and-marta-referenda

⁵⁵OS City of Atlanta 2016 Tax Allocation Bonds, p23-24. These figures do not include original issue premiums.

⁵⁶21-O-0049. An ordinance by councilmembers Dustin Hillis, Carla Smith, Matt Westmoreland, Joyce Sheperd, Michael Julian Bond, and Cleta Winslow as substituted and amended (2) by Community Development/human services committee; an ordinance creating the Atlanta Beltline Special Service District; Designating the boundaries of such district; providing for definitions; and for other purposes.

⁵⁷“$65,650,000 Mosaic District Community Development Authority (Fairfax County, Virginia) Official Statement (OS),” May 26, 2011, https://emma.msrb.org/IssuerHomePage/Issuer?id=48AE1DDF15CE62F06868A80ABF2440AB, p. 36. “$55,650,000 Mosaic District Community Development Authority (Fairfax County, Virginia)” Official Statement (OS), October 20, 2020, https://emma.msrb.org/IssuerHomePage/Issuer?id=48AE1DDF15CE62F06868A80ABF2440AB,, p.2.

⁵⁸“Mosaic District OS,” 2020, p.34.

⁵⁹“Mosaic District OS,” 2011, p. 36; “Mosaic District OS,” 2020, p. 2.

⁶⁰“Mosaic District OS,” 2020, p. 34

⁶¹“Google maps analysis, September 21, 2021.

⁶²Rice, Alison “A Suburban Wasteland in Virginia Gets a Modern Urban Feel,” New York Times, December 18, 2012, hhttps://www.nytimes.com/2012/12/19/realestate/commercial/a-suburban-wasteland-in-virginia-gets-amodern-urban-feel.html.

⁶³Municap, “Mosaic District Official Statement (Fairfax County, Virginia) Revenue Refunding Bonds Series 2020A and 2020A-T, County Advanced Revenues and Special Assessment Report, October 20, 2020,” p. 22 in Mosaic District OS, 2020.

⁶⁴Fairfax County, “Staff Report for Plan Amendment 2018-I-1MS,” August 22, 2019, p.3.

⁶⁵Fairfax County, “Fairfax County Comprehensive Plan, 2017 Edition Area I, The Merrifield Suburban Center, Amended through 9-24-2019,”p. 4,https://www.fairfaxcounty.gov/planning-development/sites/planning-development/files/assets/compplan/area1/merrifield.pdf<

⁶⁶Fairfax County, “The Mosaic District,” accessed as of 10/5/2021, https://www.fcrevite.org/merrifield/mosaic-district

⁶⁷Municap, “County Advanced Revenues and Special Assessment Report,” 2020, p. 22 in Mosaic District OS, 2020.

⁶⁸ULI, “The Mosaic District: Urban Village Grows from Suburban Wasteland,” Development Magazine, Commercial Real Estate Development Association, Fall 2013.

⁶⁹“Mosaic District OS,” 2011, p. 6

⁷⁰Mosaic District OS, 2011, p. 11. Municap, “Case Studies: The Mosaic District, Fairfax, VA,” https://www.municap.com/case-study-mosiac.htm

⁷¹“Mosaic District OS,” 2011, p. 55.

⁷²Municap, “Tax Increment and Special Assessment Report, 2011,” p. 1 and pp. 65-68 in “Mosaic District OS,” 2011.

⁷³Municap, “Tax Increment and Special Assessment Report, 2011,” p. 5 in “Mosaic District OS,” 2011.

⁷⁴Ibid.

⁷⁵Id., p. 8.

⁷⁶Id., p. 80.

⁷⁷Mosaic District OS, 2011, pp. 20-21.

⁷⁸Id., p. 15.

⁷⁹Ibid.

⁸⁰Id, p.55.

⁸¹“Mosaic District OS,” 2020, p.34.

⁸²Municap, “County Advanced Revenues and Special Assessment Report,” 2020 p. 28 in Mosaic District OS, 2020.

⁸³Municap, “County Advanced Revenues and Special Assessment Report,” 2020 pp. 14 and 36, in Mosaic District OS. Municap, “Tax Increment and Special Assessment Report, 2011,” p. 80 in Mosaic District OS, 2011.

⁸⁴“Mosaic District OS,” 2020, p.13. Moody’s, “Special Assessment / Special Property Tax (Non-Ad Valorem) Debt,” November 23, 2016, https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1044931, p.8.

⁸⁵Municap, “County Advanced Revenues and Special Assessment Report,” 2020 p. 17 in “Mosaic District OS,” 2020.

⁸⁶Id., p. 7.

⁸⁷Id., p. 9.

⁸⁸Id., p. 10.

⁸⁹Id., p. 8.

⁹⁰Id., p. 3.

⁹¹Id., p. 20.

⁹²Mosaic District OS, 2020, p.24.

⁹³Id., p. 20.

⁹⁴Id., p. 30.

⁹⁵Id., cover.

⁹⁶“Moody's assigns initial A2 to Fairfax County, VA's Mosaic District TIF Bonds; outlook stable,” September 30, 2020, https://www.moodys.com/research/Moodys-assigns-initial-A2-to-Fairfax-County-VAs-Mosaic-District--PR_906727712

⁹⁷Municap, “Development Activity and Disclosure Report for the Fiscal Year Ended June 30, 2020, Mosaic District Community Development Authority, Fairfax County, Virginia, $37,765,000 Revenue Refunding Bonds, Series 2020A And $17,885,000, Revenue Refunding Bonds, Taxable Series 2020A-T,” March 31, 2021, p. 1.

⁹⁸Municap, “Development Activity and Disclosure Report,” p. 13.

⁹⁹Id., p. 1.

¹⁰⁰Id., p. 2.

¹⁰¹Municap, Mosaic District OS, 2020, p. 41.

¹⁰²Municap “Development Activity and Disclosure Report,” p. 26

« PreviousNext »