The 6th session of the APUDG which took place last Thursday 14 May at the Houses of Parliament, made clear that alternative financing arrangements such as ADZ have been given the thumbs up by business leaders, property developers and key public sector players. Accelerated Development Zones (ADZs), adapted from the US Tax Increment Financing (TIF) model are “well worth exploring” in such challenging times, highlighted Professor Michael Parkinson, head of the European Institute for Urban Affairs at LJMU[i].
Times have seldom been more challenging for financing regeneration; this inquiry aimed at analysing the regeneration financing environment and solutions to jump start regeneration and development.
Four key fundamentals for financing regeneration have been pointed out by Prof Parkinson: new money needs to be brought into the system, the flow of resources needs to be increased and regeneration projects need to attract new investors; greater expectations are put on public sector and we have to move our way towards a new investment culture, where public sector invests and takes the lead; financing regeneration is complex and technical, and needs simplification. Finally, masterplanning is going to be more and more important to prepare the work for developers and help them invest in places they know.
“The financing schemes which would have been valuable two years ago are not anymore”, confirmed property developers (Peter Vernon, Chief Executive of Grosvenor Britain and Ireland; Peter Miller, Chief Operating Officer at Westfield Centre). Existing financing models (such as Section 106, Local Asset Backed Vehicles, and the proposed Community Infrastructure Levy) work far better in the good times than in the bad.
With this context and those fundamentals in mind, the new financial tool ADZ would help getting investors back in by sharing the risks of development with the public sector. The public sector, in stepping in financing regeneration, would offer value for money to projects, underlined Ray Mills, (partner, regional development group Pricewaterhouse Coopers). ADZs would help reduce the burden for the private sector by securing the finance, and would give the public sector the strength to negotiate with the private. For the developers, it is a “win-win” situation where nobody loses, where the money spent gets back, generating income that can be invested to create new infrastructures.
For the public sector however remains the question of timescale and risks taking. What type of guarantee do the local authorities have that the private sector will step in and deliver investment that increases local tax streams? Even if TIF attracts private sector investment, the revenue predicted will not likely be realised for several years. Such financing schemes require a long term commitment from the private and the public sector and are what has been called for by Prof Parkinson in his report. The risks to the public sector purse require that ADZ schemes are accompanied by a strong risk-analysis. Local authorities have to be very clear about what the public benefits are going to be in this investment, insisted Chris Brown, chief executive of Igloo Regeneration Fund. To gain full benefit from TIF schemes, new skills such as financial awareness, risk and change management are needed more than ever amongst public sector leaders.
[i] Parkinson, M et al (2009) The Credit Crunch and Regeneration: Impact and Implications London: Communities & Local Government (the full report can be found at www.communities.gov.uk/publications/citiesandregions/creditcrunchregeneration).
Written by Claire Cunin, Renaisi Graduate Consultant