Jose Ometeotl, Willdan Financial

Nontraditional Development Finance
and the Rise of Public Private
Partnerships
November 16, 2015
1
Objectives
● Nontraditional Development Finance
❖New Markets Tax Credit
❖Public Private Partnerships
❖Social Impact Bonds
How NMTC program works
A world of acronyms
● LIC “Low Income Communities”
● QALICB “Qualified Active Low Income Community
Business”
● CDE “Community Development Entity”
● CDFI Fund “Community Development Financial
Institution” Fund of the US Department of
Treasury
● QEI “Qualified Equity Investment”
● QLICI “Qualified Low Income Community
Investment”
How the NMTC Works
● Credits are earned on a “Qualified Equity Investment”
(QEI) in a “Community Development Entity” (CDE) which
subsequently uses substantially all of the QEI proceeds to
make “Qualified Low-Income Community Investments”
(QLICIs) in “qualified Active Low-Income Community
Businesses” (QALICBs) located in Low-Income
Communities (LICs)
● Everybody got that?
CHS ELEVATOR PROJECT
FINANCIAL FORECAST
ENTITY FLOW CHART AT CLOSE
Bridge Loan (CHS Parcels)
FCEDA/ City Cash
CHS Cash
$3,000,000
$4,859,000
$1,500,000
Loan
Loan
Equity
$4,641,000
NMTC Equity
Loan
100.00%
Member
NMTC Investor
Interest Rate
$9,359,000
1.0000%
TBD Investment Fund,
LLC
$5,460,000NMTC
$
14,000,000
QEI
FCEDA
99.99%
Member
$1,000Equity
0.01%Member
Interest Rate
CDE TBD, LLC
Loan A
1.0000%
Loan B
1.0000%
Total
Amount
9,359,000
4,641,000
$14,000,000
$146,000
Capitalization
Acquisition Cost
Construction Costs
CDE Fees
Closing Costs
Reserves
Total
12,500,000
1,050,000
486,000
110,000
$14,146,000
$0
Glacier Rail Park LLC - QALICB
CHS Kalispell - Tenant
Lease and Lease Payments
146,000
17
Role of a QALCIB
❖ Making interest payments
❖ Monitoring tenant obligations
❖ Collecting rent from tenant
❖ Maintaining accurate books and records
❖ Conducting annual audit
❖ Submitting compliance documents to Investor and
CDE
Issues
● Getting comfortable with the collateral
● Complicated deal structure
● Seven-year lockout
● Potential for recapture
Public Private Partnerships (PPP)
● Public private partnerships (PPPs) are agreements
between government and the private sector for the
purpose of providing public infrastructure, community
facilities and related services.
● The private sector enter into a contract with
government for the design, delivery, and operation of
the facility or infrastructure and the services provided.
● The private sector finance the capital investment and
recover the investment over the course of the contract.
● The asset transfers back to the public sector at the end
of the contract
Public Private Partnerships (PPP)
Output based
specification
Long-term contractual
arrangements
Value for money
Transfer of risk
Market competition
Whole life costing
• Contracting Authority defines the service required
• Design of the works to deliver that service lies with the private sector
•The contract can be for 25/30 years plus
• Cost measured against conventional procurement.
• Whole life costs and quality are combined to gauge FMV
• Transfer of design and construction risk
• Risk of ownership transferred to the private sector
• Competition will drive best value
• Gives public sector access to innovation
• Long term responsibility for building operation and maintenance
• Focus on reducing cost
Why use PPP?
What makes a successful PPP?
● Political will
● Government commitment
● PPP Champion
● Clear output specification
● Appropriate risk sharing
● Value for money
● Performance management
What are Social Impact Bonds?
● Social impact bonds are a subset of payment by results
● They provide upfront investment to finance working capital
or development projects
Why might you want to do this?
● All the advantages of payment by results
● New up-front money available for projects/programs
Social Impact Bonds
Thank You!
Jose Ometeotl
Willdan Financial Services
(o) 951.587.3552
(c) 951.219.3022
(e) jometeotl@willdan.com