63-20 Hike!

A Proven Play from the Public/Private Development Partnership Finance Playbook

By Courtney Dunbar

 

For even the most visionary communities, project financing can be difficult to obtain. Add to this the fact that many projects are speculative, such as industrial parks, or have little equity to cost of development, like conference centers, public parking structures, or mixed-use developments, and the process can leave the community feeling "sacked" in its efforts.

63-20 corporations provide an option to bring both private development funding and public financing together to allow automatic access to municipal bond financing, without volume cap allocation restrictions, for project finance via the public/private partnership.

Since 1963, 63-20 corporations have been authorized by the IRS and general state non-profit law as entities that can issue municipal bonds, which are treated as debt obligations funded on behalf of a political subdivision for public purposes. This allows municipalities to create an alter-ego, the 63-20 corporation, which can act in concert with the local government but holds separate ownership of the project. This also allows the municipality to own assets in an entity that is not a direct obligation of the municipality.

The following is an example of how to run the 63-20 play in your community:

1. A private developer owns a particular property or piece of land.
2. The developer has designed a project for consideration, and the municipality has a favorable opinion of the project.
3. The municipality forms a state-organized, non-profit, 63-20 corporation.
4. The land is then contributed, as equity, to the new not-for-profit.
5. The landowner or developer agrees to carry back a portion of the value of the land as subordinated debt but may receive cash for a portion of the value.
6. The 63-20 then obtains municipal bond financing, and the developer completes the project.
7. The municipal bond financing is not an obligation of the municipality, and the debt is repaid from project revenues.
8. Financing is typically offered as a 30-year amortization with level debt service requirements.
9. Ownership of the project reverts to the 63-20 upon debt repayment.

Examples of such developments would be multifamily housing, assisted living facilities, hotels and conference centers, industrial parks, public parking facilities, and ice arenas.

63-20 corporations must meet specific criteria, largely focused on ensuring that the 63-20 engages in activities that are generally public in nature and that are not inuring any private person. Proceeds of such funding may be used for planning, construction, and permanent financing; are offered as first mortgage revenue bonds; and are non-recourse to the borrower. One hundred percent of acquisition and development costs can be financed; project soft costs and entitlement costs are reimbursable. An added benefit is that construction and permanent financing are offered as one structure.

The minimum size of a typical project is $2 million, with no maximum.

We, at Olsson Associates, are ready to help you run your 63-20 play. We can help you identify potential projects and guide you in financing and developing your public/private partnership projects. Our goal is to become your partner in development, from visioning to implementation.

We look forward to helping our communities win the development finance game by 63-20.

Please contact Courtney Dunbar at 402.938.2432 or cdunbar@oaconsulting.com if you have any questions or would like to discuss.

 

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