a new era of development - Government Finance Officers Association

NEW
A NEW
ERA
ERA
OF
DEVELOPMENT
Rock Hill’s
Brownfield
Renovation
Project
BY DAVID VEHAUN

Along the banks of the Catawba River, a new era of opment partner was able to complete the investigation
commerce is in the works. A joint effort between the and cleanup process efficiently. Demolition and asbestos
City of Rock Hill, South Carolina, and a development abatement of the facility coincided with the environmental
partner will provide a unique development opportunity. This
his partnership grew from a vision of a group of entrepreneurs
cleanup and started in October 2005. All site work was substantially
completed 18 months later, in December 2007.
who saw vast potential beyond the obstacle of a substantial
The site currently operates under a RCRA Part B closure
brownfield site. The city’s development partner — which
permit. The part B permit includes the conditions setting forth
specializes in remediating and redeveloping brownfield
the development partner’s duty to comply with the permit
sites, but also provides environmental services and real
terms and the effect of such compliance, all reporting and
estate development — purchased the 1,008-acre property in
record-keeping requirements, and any conditions regarding
October 2005 from a major industrial firm. At that time, the
the duration of the permit and its renewal. The permit also
site was occupied by what was once the largest cellulose
provides an overview of the corrective action process, including
a general description of each phase, and sets forth the
acetate manufacturing facility in the United States. The plant
began operations in 1948 and, at its peak, employed 2,500
specific conditions governing corrective action obligations.
people. The facility closed in 2005 after 57 years of continuous
operation.
Because of agreements made regarding land use restrictions,
operations, and maintenance, Rock Hill’s development
ENVIRONMENTAL ISSUES
partner will maintain the ability to monitor and perform
maintenance on any remedial systems
In addition to the 2.5 million square
This partnership grew from the to ensure the ongoing protection of
foot manufacturing facility, there
were significant problems with the vision of a group of entrepreneurs
human health and the environment
well into the future.
site because of environmental issues who saw vast potential beyond the
caused by operations at the plant. As
obstacle of a substantial brownfield DEVELOPING A VISION
a result, cleanup of the site fell under
regulations of the U.S. Environmental site.
Once demolition and abatement
Protection Agency’s Resource
was underway, the developer began
Conservation and Recovery Act
intensive negotiations with city officials
(RCRA). RCRA was enacted for the primary
purpose of creating a program to regulate, “from cradle
to grave,” the storage, transportation, treatment, and disposal
of all types of hazardous wastes from all significant sources.
The RCRA covers sites that are one step from receiving a
Superfund designation. The industrial firm that originally ran
the site estimated that the cleanup would cost approximately
$45 million. In spite of these obstacles, the city’s development
partner purchased the property and provided indemnification
to the manufacturing firm for all known and unknown
environmental liabilities, on and off the site. The development
partner also self-insured the site.
Under the RCRA, a thorough environmental investigation
of the property was required before any development
could begin. Through a partnership with the South Carolina
Department of Environmental Control, Rock Hill’s devel-
regarding future development on the
site. Since the site was located outside the city limits, the
process resulted in annexing the property and rezoning the
land to suit the needs of the developer. The developer was
motivated to agree to annexation since this would open the
opportunity for a tax increment financing (TIF) arrangement
with the city (something the county was not familiar with, but
the city had extensive experience with TIFs).
The developer hosted an intensive, two-day multidisciplinary
design workshop in August 2006 to begin developing
a plan for development on the site, facilitating an open
discussion among project stakeholders. A team of design
experts met with members of the City of Rock Hill, York
County, representatives of the business community, other
developers, and members of the education community, gathering
information on issues related to the development. The
October 2010 | Government Finance Review 9

workshop team then offered solutions that resulted in a clear,
detailed, realistic vision for future development.
The results centered on the need for a mixed-use development
that would include residential, commercial, and light
industrial elements (see Exhibit 1). The vision included a
river village concept, distinguished by more than three miles
of waterfront, intended to produce a development plan like
no other in the Charlotte metropolitan area. The ultimate
development proposal, called Riverwalk, would create a
mixed-use, pedestrian-friendly community that emphasized
employment, connectivity, recreation, and open space uses.
The plan would incorporate industrial, commercial, and a
diversity of residential products, all connected by greenway
trails and parks to link the Catawba River to the various neighborhoods
and public centers within the property. The project
would also include the East Coast’s only oval bicycle racing
track, a BMX (bicycle motocross) course, and other sports
tourism-related attractions. Upon completion, the project
is expected to produce $600 million in private investment,
increase property taxes by $4 million annually, and generate
4,000 new jobs for Rock Hill. The project is also expected to
act as a catalyst for additional development in the surrounding
area that will ultimately produce additional tax revenues
and jobs.
Exhibit 1: Riverwalk Master Plan
10 Government Finance Review | October 2010

CREATING THE FRAMEWORK
The city entered into a memorandum of understanding
in March 2007 with its development partner to provide a
framework under which both parties agreed to a set of goals
before a final agreement. The obvious goal was to bring
about a high-quality development on a very unusual and
important site for the Rock Hill area and to take advantage
of the unique opportunities the site affords, with three miles
of frontage on the Catawba River and a large area of undisturbed
woodlands.
The memorandum of understanding stated that the development
would ultimately be annexed into the City of Rock
Hill and would include a mixed-use development of commercial,
residential, industrial and recreational components.
The memorandum of understanding also stated that both
the developer and the city intended to proceed with the
development under a public-private
partnership to ensure the public financial
assistance required for the public
infrastructure — including roadway
improvements, trails, utilities, storm
water, and recreational facilities. Both
parties also agreed to create a land use
plan that would provide design and
planning flexibility based on the size,
complexity, and projected absorption
rates (the ability of the area to absorb
or sell all of the real estate for sale in
The city had never used a land
development agreement, and the
Riverwalk development provided
an excellent opportunity to test
the viability of this latest addition
to the city’s zoning code.
Rock Hill. The land development agreement provides the
developer with greater certainty in the development process
and creates a mechanism to tie development to the provision
of adequate public facilities. It also encourages more efficient
implementation of comprehensive planning through large
or complex projects such as the Riverwalk project. In general,
the land development agreement parallels a rezoning
application for the proposed project and gives the city and
developer the maximum latitude for creative and flexible
design and the ability to condition development on the provision
of specific improvements or other phasing requirements.
In addition, the land development agreement provides a
mechanism to address incentives that might be agreed to
due to a project’s economic development impacts. This tool
ensures that the developer only receives certain development
concessions if the quality of the development reaches the
city’s expectations.
The completion of the land development
agreement requires two steps. The
zoning component is accomplished
through action of the planning commission,
and the financing component
is accomplished through a financing
agreement. Both documents must be
considered and approved by the city
council.
GAP FINANCING MODEL
a given amount of time) associated with the project. This At about the same time the memorandum of understanding
was worked out, the city and the developer began
land use plan would minimize the cost of public services, be
environmentally sensitive, seek efficient design of roadways negotiations regarding the possibility of public participation
and trails, and preserve and dedicate land for adequate in financing the project. The most commonly discussed
public facilities and rights of way. Most importantly, the method of public financing involved using tax increment
memorandum of understanding obligated the city and the financing. The city had previously created and funded three
developer to enter into a land development agreement under TIF districts for redevelopment of publicly owned land and
the laws of the State of South Carolina and the City of Rock for public improvements, but this would be a first: financing
Hill. The city had never used this new development tool, and public infrastructure on private property to benefit a private
the Riverwalk development provided an excellent opportunity
to test the viability of this latest addition to the city’s
development.
In evaluating Rock Hill’s willingness to participate as
zoning code.
a partner in this venture, the city’s Economic and Urban
The unique nature of the land development agreement Development Department began to investigate the use of
is that it combines zoning and financial commitments into what came to be known as a gap financing model. Urban
a single agreement between the developer and the City of Development Department staff developed this model to
October 2010 | Government Finance Review 11

For the Riverwalk project, a gap analysis was undertaken in
the fourth quarter of 2008 to elucidate the sources and uses of
cash on the project so a determination could be made about
the potential funding gap. This confidential analysis determined
that a $12 million to $15 million gap existed for the
early phases of the project. Almost all public improvements
on the first phase of the project were identified as roadway
infrastructure that would benefit the project as a whole.
OVERCOMING THE FINANCIAL
AND LEGAL CHALLENGES
evaluate the developer’s financial ability to complete a
project solely with private capital. If a developer is able to
profitably develop and finance the entire project without
public financing, then public participation is not appropriate.
The gap analysis for the Riverwalk project demonstrated
that the development would not be feasible without the
city’s involvement.
An important component of the gap financing model is the
evaluation of the private developer’s annual financial reports.
As part of the process, the Riverwalk developer agreed to provide
year-end financial statements (personal and business)
for the previous three fiscal years. To maintain confidentiality,
the city agreed to employ a third party to review the information
and provide an analysis of the developer’s financial
position. Once this evaluation was complete, the city could
decide whether it was necessary to financially participate in
the project.
For large development projects that include multiple
phases over a period of years, gap analysis might require an
iterative approach in which the gap analysis is revised and
amended with each phase of the project. In this case, the
final financing gap might not be known until years into the
project. The city then works with the developer to provide
gap funding in early phases of a development project, with
the understanding that adjustments to the overall level of
public funding may be made in later phases of the project, if
warranted by subsequent gap analysis.
Once an agreement was in place regarding the use of a gap
financing model, the city and the developer began more serious
discussions regarding the financing agreement and the
use of tax increment financing. To accommodate the use of
TIF financing, the city rolled the Riverwalk development into
an adjacent TIF district and extended the term of the district
until 2029. The revised TIF district would allow for the use of
existing city-generated TIF revenues on the project (the use
of county and school district tax revenues were not allowed
by previous agreements).
In 2007, the preferred guarantee for a TIF bond issued by
the city was an irrevocable stand-by letter of credit issued by
a bank that the developer would provide to the city. Through
this letter of credit, the developer and the bank would
assume the financing and construction risks associated with
the project. These guarantees would allow the city to begin
the issuance of TIF debt risk free. The first phase of debt for
these “dirt bonds” was projected to be $10.5 million, with
total TIF debt on the site expected to eventually reach almost
$50 million.
However, by late 2008, changes in the financial markets
made it impossible for the developer to secure a bank letter
of credit for the project. In response, the city began to
research alternative means for securing a TIF bond. The most
likely solution was for the developer to commit to making
up any difference between incremental taxes in the district
and the annual TIF debt service payments. Unfortunately,
the city’s attorney indicated that would have constituted an
impermissible agreement under Internal Revenue Service
regulations. Such an agreement would have resulted in a taxable
bond issue — something both the city and the developer
wanted to avoid. This situation left the future of the project
12 Government Finance Review | October 2010

very much in doubt, as the city was in no position to issue
unsecured debt.
Fortunately, the developer had started work in early 2008
with a public finance consulting firm to develop an assessment
district on the site. The consulting firm, which had
extensive experience in establishing improvement districts
and the fee structures to support them, was also a good
fit because it had specialized experience in public-private
partnerships, brownfield redevelopment, and tax increment
financing. Since there were legal restrictions on any guarantees
the developer could make, a creative solution was
needed both to secure the debt and to make sure this security
would not be so onerous as to hinder the marketability of the
site. The consulting firm suggested establishing a municipal
improvement district (MID) to support the TIF bond that
could both guarantee the debt and maintain the non-taxable
status of the bonds. By overlaying a tax increment district
with a MID, the property owner would be assessed annually
for any shortfall in revenues needed to pay debt service on
the 2009 TIF bonds.
LAND DEVELOPMENT AGREEMENT
Once these legal issues were resolved, the city and the
developer began work in earnest on the land development
agreement. In November 2008, the Rock Hill City Council
approved a zoning component that changed the property
from industrial development to three separate and distinct
categories of property: planned development-residential
district, planned development-commercial district, and
planned development-major employment center district.
The residential district will include 950 residential units
and up to 30,000 square feet of neighborhood commercial
uses on more than 400 acres The district will also include a
civic site, neighborhood amenities, and more than 150 acres
Exhibit 2: Riverwalk Residential District
October 2010 | Government Finance Review 13

of recreational space, including parks, open space, and recreational
assembly areas. (See Exhibit 2 for a mockup of the
residential district.)
The commercial district will comprise approximately 286
acres that will provide mixed-use commercial development.
The area, adjacent to a major thoroughfare, will include a
mix of uses, including up to 1 million square feet of retail and
office and up to 1,100 multifamily residential units. Additional
multifamily units may be constructed in the mixed-use area
over or immediately adjacent to retail office uses. A civic site
and additional open space are also envisioned for this area.
The major employment center district will comprise approximately
315 acres and will provide a mix of development
opportunities, including manufacturing, assembly, and warehouse,
along with office development.
This area, which is adjacent to a road
with highway access, is programmed
for approximately 3.5 million square
feet of industrial space that transitions
to flex office (flexible office buildings
that can house several types of business
tenants).
In summer 2009, the planning commission
reviewed and approved the
land development agreement for the
Riverwalk site, and the city council
approved it in July 2009. In August
2009, the city council approved the creation
of the Riverwalk Municipal Improvement District. The
developer agreed to dedicate certain portions of the property
for public use upon the city’s satisfaction with environmental
mitigation.
The plans for the development, which are included in the
land development agreement, includes significant infrastructure
improvements. One of the first is a roadway infrastructure.
More than 15 miles of collector roads are planned for
the development, although the primary roads will be constructed
first. These initial roadway improvements include
the industrial park access road; the extension of a road
through the development to connect to US 21, the primary
connector road through the commercial district; and a river
district loop road. The balance of the roadway infrastructure
comprises the remaining commercial and residential roads.
By late 2008, changes in the financial
markets made it impossible
for the developer to secure a
bank letter of credit for the project.
In response, the city began
to research alternative means for
securing a TIF bond.
These roadway improvements also include the costs associated
with the engineering, right-of-way acquisition, and
widening of an existing two-lane farm-to-market road that
is undersized for both the existing traffic and the planned
development. Other public improvements on site include
streetscaping of US 21, utility relocations to remove existing
power transmission and distribution lines on the property,
and recreational amenities that will offer an unparalleled
number of public amenities.
Finally, the Riverwalk trail, which is being constructed by
the developer and will become part of the Carolina Thread
Trail network, will be multi-use and open to the public. The
trail will pass several sites on the National Historic Register
and provide unique opportunities for wildlife viewing, including
bald eagle nesting areas.
PUBLIC AMENITIES PLAN
In addition to the land development
agreement, the city and the developer
established a public amenities plan.
This is an important part of the overall
plan, since the vision of Riverwalk is
to provide a dynamic riverfront community
with a distinctive and active
outdoor lifestyle. The plan provides
a summary of the proposed public
amenities, the plan for how the city
would finance certain amenities, and a
description of related commitments by the developer.
The public amenities plan dedicates 250 acres for the creation
of a major riverfront amenity system, significant sports
and nature-based tourism, and new athletic fields and other
sports opportunities. The total estimated market value of all
the land to be dedicated for public amenities is $8.1 million.
The public amenities plan is separated into several phases.
Phase I, projected at $1.7 million, will include the construction
of the Riverwalk Trail, pedestrian and bike trails, canoe
and kayak access areas, environmental and historical sites,
and mountain biking trails. This phase is expected to begin
within thee months of the city’s initial TIF bond issue and to
be completed within 24 months. Phase II, projected at $4.5
million, will include the construction of an Olympic-quality
14 Government Finance Review | October 2010

Exhibit 3: Riverwalk Velodrome and Urban Village
bicycle track (known as a velodrome) that is built to standards
for international competition and a BMX supercross
course designed to similar standards. Future phases, currently
projected at $4.5 million, will include construction of community
recreational facilities and related training activities.
Other amenities will include athletic fields, a closed bicycle
road course, playgrounds, public parks and gardens, and city
and regional trail connections. (See Exhibit 3 for a mockup
of the velodrome and urban village.)
The city’s financial commitments to the public amenities
plan are provided within the financing agreement and are
conditioned on private funding commitments by the developer
or other private parties. The city anticipates that public
funding for these facilities will come from three principal
sources:
n TIF/MID bonds, which will be used for the construction of
both Phase I and Phase II public amenities
n hospitality tax certificates of participation (supported and
backed by hospitality tax revenues), which will be used
to provide up to $3 million of funding for both Phase I
and Phase II projects
n MID bonds, which will provide the developer with up to
$3.5 million to fund community health and wellness facilities
and up to $5.1 million to fund other publicly owned
improvements and amenities.
Future TIF and municipal district agreement bond financing
of Riverwalk public amenities depends on the financial
success of the initial phases of the development.
FINANCING AGREEMENT
The City of Rock Hill was able to incorporate the terms
of the TIF and MID agreements into the land development
agreement and ultimately the financing agreement. The city
would realize significant financial protections, since the city
October 2010 | Government Finance Review 15

council had to approve the financing agreement and incorporate
it into the land development agreement before the latter
could be approved.
The financing agreement included strong security and
payment guarantees by the developer and its parent company.
The main protection the city sought — and the developer
agreed to — was a security interest in the Riverwalk
site through creating the Riverwalk Municipal Improvement
District. Should the developer fail to fulfill its financial obligations
to the city, the city would have the right to foreclose on
the Riverwalk site — which has an appraised market value of
approximately $40 million — and to sell it to repay the bond
debt. In allocating the assessments for debt on the site, the
city considered two principles: how the property will use the
improvements, and how the property will benefit from the
improvements. For example, certain bonds are intended pay
for improvements that will benefit all of the property. As a
result, a corresponding assessment is imposed on the entire
development to secure these bonds. Certain other bonds are
intended to pay for only improvements to a specific portion
of the development, and only these specific areas would be
assessed and responsible for this debt service.
These arrangements and the corresponding guarantees
were particularly important, since the city agreed to enhance
the marketability of the TIF bonds and provide a pledge of
more than $900,000 annually in TIF revenues that are currently
generated in other parts of the Red River Tax Increment
District. Specifically, the city would pledge these TIF revenues
to make payments on the TIF bond, should tax revenues
be insufficient to make the payments on the bonds. This
structure, unlike the original bank letter of credit proposal,
imposes significant financial risks on the city. In a worst case,
the city’s taxpayers might have to pay higher taxes to cover
costs associated with the development of the Riverwalk site
— an outcome the city must avoid. The collateral of the land
on the site essentially removed the risk, since the city could
now take ownership of the property and sell it to generate
sufficient revenues to retire the debt.
On June 22, 2009, the Rock Hill City Council approved a resolution
in support of the improvement plan for the Riverwalk
Municipal Improvement District. The plan describes the
improvement district boundaries and the anticipated time
schedule, costs, and funding sources for public improvements
to be constructed in the improvement district (see
Exhibit 4). Further, the resolution set forth the date and time
for the next step in the process, a public hearing to be held by
the city on establishing the improvement district.
To enhance the marketability of both land in the development
and the bonds used to fund improvements in the development,
the city and the developer worked with the consulting
firm to create three types of bonds. The main advantage
to this approach is allowing the developer to focus the debt
in specific areas of the development and specify which segments
of the development would be responsible for repay-
Exhibit 4: Riverwalk Sources and Uses of Funds (in millions)
TIF/MID MID Permanent MID Pay Down Total
Sources of Funds
Bond Proceeds $24.485 $19.200 $24.299 $67.984
Interest Income 0.149 0.103 0.13 0.383
Total $24.634 $19.303 $24.429 $68.367
Uses of Funds
Public Improvements $18.518 $12.843 $16.166 $47.528
Bond Issuance Costs 0.65 0.5 0.5 1.65
Underwriter’s Discount 0.244 0.192 0.485 0.922
Capitalized Interest 2.881 3.847 4.846 11.575
Reserve Fund 2.338 1.92 2.429 6.688
Total $24.634 $19.303 $24.429 $68.367
16 Government Finance Review | October 2010

not sufficient to pay the debt service on the TIF/MID bonds,
then the developer pays added special assessments.
The MID permanent bonds are paid off over 30 years. These
bonds provide improvements that benefit all properties in the
district, and all property owners in the district repay these
bonds through annual assessments. Industrial property is
specifically exempted from these assessments because the
developer needed to keep the obligations of the industrial
property at a minimum to make that property as marketable
as possible. In addition, no special assessments are levied on
the industrial property, since the permanent bonds will not
finance any improvements that benefit it.
ment. TIF/MID bonds are used to finance public improvements
such as roadways, water, sewer, and infrastructure the
city would own. MID permanent bonds are used to finance
public amenities that benefit the entire development, such
as neighborhood parks and publicly owned recreation and
wellness facilities. MID paydown bonds are used for actual
development of the residential infrastructure in the residential
subdivisions and are paid for as the lots are sold to future
developers and builders.
With each of the three types of bonds, the only property
that pays these assessments is the property specified within
the district. The city has no responsibility to repay these
assessments or the bonds secured by these assessments, other
than the tax increment revenue that is pledged to the bonds.
No other property owner in the city has any obligation to pay
for these improvements.
The TIF/MID bonds are repaid through the increment in real
property taxes that the development produces. If taxes are not
sufficient to pay the annual debt on the bonds, they are paid
through special MID assessments on the property. These special
assessments are often referred to as a means of securing
a minimum tax agreement. This means that when the TIF/MID
bonds are issued, the developer must agree to pay whatever
the normal property taxes are or whatever is necessary to
repay the bonds, whichever is greater. If the tax revenues are
The MID paydown bonds are paid off as property is sold.
These bonds finance improvements for only the residential
areas, so only the residential areas are assessed. These
improvements include buffer trees and internal streets. Since
these assessments are paid off as the property is sold to future
builders, no homeowners will ever pay an assessment for the
MID paydown bonds.
The city would issue bonds in one or more series and
use the proceeds to defray the costs of constructing public
improvements, fund a debt service reserve fund, pay bond
issuance costs, and pay interest coming due on the bonds
during construction. Interest income on the bond proceeds
will act as a supplement to the bond proceeds before they are
fully expended. Exhibit 5 shows the estimated sources and
uses of funds for the bonds.
Exhibit 5: Estimated Costs
of Public Improvements
Public Improvement
Estimated Cost
(in millions)
Onsite public roads, including $35.268
paving, grading, engineering,
utilities, landscaping
Improvements to Cherry Road 1.25
and Celriver Road
General utility 0.914
Trails, parks, recreational facilities 7.501
Publicly owned buildings 3.5
Total public improvements $48.433
October 2010 | Government Finance Review 17

The developer committed to issue TIF/MID bonds to up to
$5 million to fund additional Phase I infrastructure improvements,
which would provide additional access to the public
amenities, and to issue additional TIF/MID bonds subject to
the city’s review of gap analysis. The developer also committed
at least $1 million of new equity investment to the
site (in addition to the more than $10 million in existing
equity investments) and committed to issuing MID bonds of
up to $3.5 million to fund the development of community
health and wellness facilities, and up
to $5.1 million to fund other publicly
owned improvements and amenities.
The developer also agreed to complete
all environmental assessment, remediation,
permitting, and rough site grading
as required to develop landfill areas for
future public athletic fields.
The financing agreement anticipates
the use of approximately $19.4 million
in tax increment bonds for public
improvements and approximately
$29 million in MID bonds. The process
of creating a municipal improvement
district, setting assessment levels, and
apportioning those assessments across
different uses and different parts of the
property is a relatively intensive task.
The assessments obviously need to be
set at levels the market can bear.
The ultimate development proposal,
called Riverwalk, would
create a mixed-use, pedestrianfriendly
community that emphasized
employment, connectivity,
recreation, and open space uses.
The plan would incorporate industrial,
commercial, and a diversity of
residential products, all connected
by greenway trails and parks to
link the Catawba River to the
various neighborhoods and public
centers within the property.
These assessments help create the capacity, but not the
authorization, for bond issuances. The city council must
ultimately approve a bond issuance for these assessments to
be used. Additionally, the city and other Rock Hill property
owners have no obligation to pay the assessments or debt
service on the proposed borrowings. All debt within the
improvement district is supported by those who live and work
in the district.
ASSESSMENT METHODOLOGY
Implementing a municipal improvement
district involves developing several
documents that are necessary to
outline the parameters under which
the district will operate. These documents
are typically — and in some
cases statutorily — provided by a third
party to assure the city, potential lenders,
and future land owners that the
assessments established in the district
are reasonable and commensurate
with the district improvements.
The special assessment report
explains the special benefits the property
receives from the assessments.
The main purpose of the document
is to explain the method of allocating
the assessments, and thereby the costs
of the public improvements, to the
18 Government Finance Review | October 2010

property within the improvement district as provided for in
the assessment roll. These assessments are not a general tax
under the laws of the state, but all properties in the district are
required to pay the assessment. Since these assessments must
be based on the benefits received, the document provides
findings that the property in the district does receive benefit
from the special assessments and then explains those benefits.
These benefits can be explained as follows:
1) the property received a special benefit from these
improvements, and the benefit is greater than the
amount of the special assessment;
2) special assessments are collected only to the extent necessary
to pay for these improvements and the associated
bond issues; and
3) the method that has been used to allocate the special
assessments reasonably reflects the benefit that has been
received.
The assessment roll identifies the tax parcels assessed as
part of the project and quantifies the amount of the assessments
on each one. Schedules attached to the assessment
roll are updated annually, as parcels are subdivided, to
revise the amounts on each parcel. As a result, homeowners
and businesses that purchase property in the district can
access a schedule showing the assessment on their property.
Ultimately, a parcel that represents a single family home is
responsible for TIF/MID assessments of not more than $860
and MID permanent assessments of not more than $813 per
year, and these amounts cannot be increased. These assessments
are imposed to cover three specific three costs: the
principal and the interest required on the TIF/MID and MID
permanent bonds, and annual administrative costs incurred
by the city related to this district — mainly the annual update
to the assessment report.
The rate and method of apportionment of assessments
(RMA) is incorporated into the assessment roll and includes
all terms and provisions regarding how assessments are
collected over time. The intent is to specify all terms at the
outset so all participants (the city, developer, future property
owners, and bondholders) know exactly how all assessments
are designed. The RMA includes terms related to total assessments
collected each year, how they are paid over time, and
how they are reallocated as property is subdivided. The RMA
also defines how assessments are reduced if improvements
in the district cost less than expected and how these assessments
are then reduced for each one of the different parcels,
and it provides guidance on how assessments can be prepaid
if the property owner chooses to make payments over the life
of the bonds.
OVERVIEW OF PROJECT
COSTS AND ASSESSMENTS
Bonds will be issued to finance all or a part of the costs of
the public improvements (see Exhibit 5). Each of the three
bonds previously mentioned and the assessments imposed
on those bonds represent three “zones” on the property:
the TIF/MID bonds (all of the property); the MID permanent
bonds (all property except the industrial area); and the MID
paydown bonds (only the residential area). There are multiple
property types within each one of these zones, since
the property in the improvement district is proposed to be a
mixed-use development, including various residential types,
retail, office, hospitality, and industrial uses. As a result, in
addition to determining the assessments within the three
zones, the assessments paid by the properties within each
of those zones must also be differentiated by identifying the
classes of property within the development. The city’s consultant
worked with the developer to identify seven classes of
property and the approximate footprint each class one would
leave on the development (see Exhibit 6). The city formally
approved the uses of the property as a part of the land development
agreement.
Assessments are based on a combination of two factors.
First, certain improvements primarily benefit specific areas of
the property within the district. For example, roads interior to
Exhibit 6: Classes of Property Use
within the Improvement District
Class Description Proposed Development
1 Single-Family Homes 737 units
2 Town Homes 310 units
3 Apartments 500 units
4 Hotel 120 rooms
5 Office 135,000 square feet
6 Retail 407,500 square feet
7 Industrial 2,820,000 square feet
October 2010 | Government Finance Review 19

the industrial area primarily benefit only
the industrial area. Improvements that
primarily benefit only certain areas are
allocated to the property within these
areas. Four benefit areas are defined for
purposes of allocating improvements
within areas of the district, as further
described below. Second, within these
benefit areas, assessments are based
on the estimated assessed value for the intended use of the
property. Seven land use classes were identified for allocating
assessments to types of property.
Four areas of benefit are defined in the development, and
at least one of the seven land use classes is found in each
An important component of the
gap financing model is the evaluation
of the private developer’s
annual financial reports.
area of benefit. Benefit Area 1 — the
entire development site — includes
improvements that benefit all of the
property within the district, and the
cost of these benefits are allocated to
all of the property in the development
area. Benefit Area 2 includes only the
industrial area, and the improvements
that primarily benefit the industrial area
are allocated to property in this benefit area. Benefit Area 3
includes all the property in the district except the industrial
area. Benefit Area 4, which includes the residential property
(excluding the town center area), is the area proposed to be
developed as single-family homes and townhomes. A break-
Exhibit 7: Improvements Allocated to Each Development Benefit Area (in millions)
Public Improvement Area 1- Area 2- Area 3- Area 4- Total
Entire Industrial Only Entire District Residential Only
Development
Excluding industrial
Collector Roads
Main Street – Phase 1 $0 $0 $1.876 $0 $1.876
Main Street – Phase 2 $0 $0 $2.126 $0 $2.126
River District – Phase 1 $0 $0 $2.57 $0 $2.57
River District – Phase 2 $0 $0 $0.25 $0 $0.25
Eden Terrace – Phase 1 $0 $0 $2.425 $0 $2.425
Eden Terrace – Phase 2 $0 $0 $3.769 $0 $3.769
Industrial Park Road – Phase 2 $0 $3.367 $0 $0 $3.367
Industrial Park Road – Phase 3 $0 $3.369 $0 $0 $3.369
Cherry Road $0 $0 $0.57 $0 $0.57
Celriver Road Design & R/W $0.68 $0 $0 $0 $0.68
Residential Roads
Phase 1 $0 $0 $0 $7.074 $7.074
Phase 2 $0 $0 $0 $8.443 $8.443
General Utility
Utility Relocation $0 $0 $0.55 $0 $0.55
Utilities Relocation/Right of Way $0 $0 $0.364 $0 $0.364
Other
Riverwalk Trail – Paved $0 $0 $1.777 $0 $1.777
Parks, Recreation Facilities $0 $0 $5.075 $0.649 $5.724
Publicly Owned Civic Buildings $0 $0 $3.5 $0 $3.5
Total $0.68 $6.736 $24.850 $16.166 $48.433
20 Government Finance Review | October 2010

Exhibit 8: Equivalent Unit Factors for Each Class of Property
Part A Part B Part C
Class Description Equivalent Unit Equivalent Unit Equivalent Unit
1 Single-Family House 1.00 per unit 1.00 per unit 1.00 per unit
2 Town homes 0.62 per unit 0.62 per unit 0.62 per unit
3 Apartments 0.39 per unit 0.39 per unit 0.39 per unit
4 Hotel 0.33 per room 0.33 per room 0.33 per room
5 Office 0.64 per 1,000 square feet 0.64 per 1,000 square feet 0.62 per 1,000 square feet
6 Retail 0.60 per 1,000 square feet 0.60 per 1,000 square feet 0.56 per 1,000 square feet
7 Industrial 0.00 per 1,000 square feet* 0.29 per 1,000 square feet 0.29 per 1,000 square feet
*The equivalent unit factor for Class 7 property for Assessment Part A is zero, since the MID-only permanent bonds
will not be used to finance any of the improvements allocated to the industrial area.
down of the improvements allocated to each benefit area is
included in Exhibit 7.
The assessments within each class are the same per
expected unit, room, or 1,000 square feet. That is, each single
family home is assessed the same amount, as is each town
home unit, each apartment unit, each hotel room, each
1,000 square feet of office space, each 1,000 square feet of
retail, and each 1,000 square feet of industrial and distribution
space. The assessment on each parcel is based on the
expected number of units, rooms, or thousands of square feet
of space to be developed on that parcel.
Future estimated assessed value reasonably reflects the
increase in value to property that will result from the proposed
development. The future estimated assessed value of
property in each class is used to calculate an equivalent unit
factor. The assessments are then allocated on the basis of the
equivalent units of each parcel. Exhibit 8 shows the equivalent
unit factors for each class of property and each part of
the assessment.
For example, a single-family home related to the MID permanent
bonds represents one equivalent unit. Townhomes represent
0.62 equivalent units because the estimated assessed
value of townhomes is 62 percent of the estimated value of a
single-family home. The assessments vary for the properties in
each class to reflect the difference in assessed value. Exhibit 9
shows the annual special assessments for the MID permanent
bonds. For example, a single-family home would pay $813
per unit per year, and townhomes would pay an assessment
of $501 per unit. Apartments would be assessed $317 per
Exhibit 9: Annual Special Assessments —
MID Permanent Bonds
Class Description Annual Assessment
1 Single-Family House $813 per unit
2 Town Homes $501 per unit
3 Apartments $317 per unit
4 Hotel $264 per room
5 Office $522 per 1,000 square feet
6 Retail $489 per 1,000 square feet
7 Industrial $0.00 per 1,000 square feet
unit. Office space would pay an assessment of $522 per 1,000
square feet, or about 52 cents per square foot. Retail would
pay about 49 cents per square foot.
The annual installments of the assessments will be collected
from developed property at the full level and from undeveloped
property at the level required to pay debt service
on the bonds actually issued. This method fairly represents
the benefit to be received at any time by property within the
improvement district. Each parcel will pay only the assessment
allocated to that parcel, regardless of when it is classified
as developed property.
LOOKING FORWARD
As grading and infrastructure improvements begin on the
site, the developer and the city continue to work together on
an appropriate marketing strategy for the development. The
developer is focused on creating a brand with a sustainable
active outdoor component, realizing that the Catawba River is
October 2010 | Government Finance Review 21

Important Milestones in the Riverwalk Project
October
Demolition
and abatement
of the manufacturing
site
begins
March 26
Memorandum
of understanding
approved
November 24
Property rezoned
and approved by
the city council
August 10
Ordinance establishes
a municipal
improvement district
October 12
General bond
ordinance for TIF
bonds approved
First TIF bond
for $10.5 million
approved
2005 2006 2007 2008 2009
August
Negotiations
between the
developer and city
officials begins
December
Demolition and
abatement substantially
completed
May 26
Reimbursement
resolution for initial
public improvements
August 24
Public amenities
plan approved
Assessment report
completed
Assessment roll
rate and method
of apportionment
approved
Land development
agreement
approved
Financing agreement
approved
About Rock Hill
The City of Rock Hill, South Carolina, covers an area
of more than 36 square miles, and more than 100,000
people live in the city and the surrounding area. The city
is the fourth largest in the state of South Carolina and is
located only 20 minutes south of fast growing Charlotte,
North Carolina. Rock Hill is considered to be one of
the most progressive municipalities in the State of South
Carolina and has become a planning prototype for the
entire Charlotte region.
likely to be attractive to those interested in an active outdoor
lifestyle. The first single-family homes are scheduled to begin
construction in spring 2011, and the first retail and mixed-use
will follow (with residential anticipated to be above retail).
The velodrome is scheduled for completion in early 2012,
and the second phase of commercial construction would
begin at that time.
In these difficult times, both the city and the developer
realize that certain risks are necessary to accomplish a
challenging project like the Riverwalk development. Publicprivate
partnerships do take time and a significant amount
of work. Establishing trust is paramount to a successful project.
However, the long-term benefits to the community are
immeasurable. y
DAVID VEHAUN is assistant city manager for the City of Rock Hill,
South Carolina. He is a member of the GFOA Executive Board.
Vehaun is past president of the GFOA of South Carolina and past
president of the Municipal Finance Officers Association of South
Carolina.
22 Government Finance Review | October 2010