ACTION REQUESTED:
Title
Communication from the City Manager and Assistant City Manager with a Request for the Following:
A. APPROVE an INTERGOVERNMENTAL AGREEMENT (IGA) with TOWN OF NORMAL, Illinois, to Participate in a Mortgage Credit Certificate Program; and
B. ADOPT an ORDINANCE Authorizing the Town of Normal to Exercise the Powers of the City of Peoria in Connection with the MORTGAGE CREDIT CERTIFICATE PROGRAM and a LOAN FINANCE PROGRAM; and
C. ADOPT an ORDINANCE to Transfer $8,000,000.00 of PRIVATE ACTIVITY BOND CAP ALLOCATION to the Town of Normal, for the Mortgage Credit Certificate Program, and to Transfer $3,695,740.00 of Private Activity Bond Volume Cap to the Tri-County River Valley Development Authority for Private Activity Bonds.
Body
Background:
The Federal Tax Reform Act of 1986 (the “Code”) as amended, imposes a limit on the aggregate amount of “tax exempt private activity” bonds (also known as “Volume Cap”) that can be issued by a state. Every Municipality is allocated a certain amount of Volume Cap, $105 per resident of the Municipality in calendar year 2020. This Volume Cap may be allocated to certain tax-exempt private activity bonds (PAB). A tax-exempt PAB is issued by local governments for the purpose of extending special financing benefits for qualified projects. In general, PABs finance projects for a private user, which means the local government doesn’t usually pledge its credit. In this way, they are used to attracting private investments for projects that have public or common utility. PABs can be used for private infrastructure or facilities, or for certain mortgage bonds or redevelopment bonds.
The City of Peoria receives an annual Volume Cap allocation as a Home Rule Unit of government in Illinois. The Volume Cap allocation for 2020 is $11,695,740, based upon $105 per resident and 111,388 residents in Peoria.
Under the authority of the Statues above the City of Peoria has made Volume Cap allocation transfers to Illinois Assist Mortgage Credit Certificate Program (IAssist) and the Tri-county River Valley Development Authority (TRVDA) in the past. Both IAssist, as a mortgage-based program, and TRVDA, as a financier of private investments, qualify under the Federal Tax Code.
IAssist is sponsored by sixty (60) communities throughout the State. IAssist promotes individual home ownership. The home buyer assistance features of the IAssist program provide families with funds to pay all or most of their closing costs and down payment, enabling families with good credit but little capital to by their home. Additional benefits of the program include a mortgage credit certificate which reduces the homebuyers’ ongoing cost of borrowing in form of a credit that reduces the effective rate they pay on interest for the mortgage.
TRVDA is sponsored by communities in the Tri-County area. TRVDA issues bonds on behalf of the City of Peoria and our Private Activity allocation from the State of Illinois. These may also be referred to as Industrial Revenue Bonds (IRB). Interest to Bondholders on TRVDA Bonds is exempt from Federal and State income tax. Bonds issued by TRVDA promote and support Manufacturing projects and Multi-Family Housing Projects. Benefits of TRVDA are long-term financing of projects between 10-30 years, interest rates below conventional financing with rates m below prime rate in many cases, available financing for 100% of project.
The administrative function of IAssist requires each participating government to execute an Intergovernmental agreement (IGA) between each government. The Town of Normal in McLean County will be added as a participating government in 2020. This will require the execution of a new IGA adding the Town of Normal as part of the administrative function. The attached presentation provides utilization data on IAssist. This provides the basis for funding recommendations. See the attached table on utilization.
|
Year |
Number of Loans |
Total loan values |
Average loan size |
|
2017 |
91 |
$8,460,476 |
$92,972 |
|
2018 |
78 |
$7,173,418 |
$91,966 |
|
2019 |
89 |
$7,959,356 |
$89,430 |
Illinois Assist MCC Program using the 3 year average of $7,864,416 as a benchmark for the funding level for Illinois Assist MCC Program. 2020 Volume Cap allocation of $8,000,000 would sufficiently fund the demand for this program allowing for 1.7% increase. The balance of the Volume Cap of $3,695,740 will be allocated to Tri-County River Valley Development Authority for private activity bonds.
FINANCIAL IMPACT: If approved, the City will transfer the 2020 allocation to each of the programs based on the rationale presented. No further financial contribution is required.
NEIGHBORHOOD CONCERNS: Not applicable.
IMPACT IF APPROVED: First-time home buyers seeking homes will have a tool that will reduce the cost of home ownership within the City of Peoria. IAssist supports homeowners by reducing the cost associated with home purchase as well as reducing the ongoing costs associated with homeownership. TRVDA will provide the resources necessary to facilitate financing of a significant private development whether it is manufacturing or multi-family housing.
IMPACT IF DENIED: Home buyers in Peoria would need to find an alternative program to fill the void created by not funding IAssist. IAssist has been used to purchase on average 86 homes over the most recent 3-year period. The average loan size has been $91,456. Additionally, developers seeking to multi-family housing projects would have to rely on more conventional l financing which in most cases is more expensive. This would make the properties within the City less competitive with alternative sites.
Alternatives: The City could manage this program at considerable time and expense.
EEO CERTIFICATION NUMBER: Not applicable
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2014-2029 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Grow Peoria: Businesses, Jobs, and Population
2. Attractive Neighborhoods with Character: Safe and Livable
3. Vibrant Downtown: Riverfront/Central Business District/Warehouse District
WHICH CRITICAL SUCCESS FACTORS(S) FROM THE COMPREHENSIVE PALN DOES THIS RECOMMENDATION IMPLEMENT?
1. Reinvest in neighborhoods
Department: City Manager’s Office