Since 2008, many state and local governments around the country have faced budget challenges. As lawmakers struggle to produce balanced budgets in the face of declining revenues, investment in public improvements, such as schools, transportation, public buildings, water and sewer facilities and other key services, through traditional methods may be challenging. In West Virginia, alternative financing structures, such as tax increment financing (“TIF”) and public private partnerships (“PPP”), have provided flexibility to finance public improvements despite declining revenues. While both TIF and PPP are authorized in many states, the following discussion highlights the use of these tools in West Virginia.
 
Tax Increment Financing
 
TIF uses future increases in tax revenue to finance current public improvements. In West Virginia, TIF districts utilizing increases in property tax revenues or sales tax revenues are permitted and typically assist with financing costs related to public infrastructure, land acquisition, demolition, utilities, and other public improvements. Because projects utilizing TIF funds are “public improvements,” they must comply with West Virginia laws pertaining to (1) use of local labor and (2) either competitive bidding or design-build methods of construction. Prior to July 1, 2016, projects financed with TIF funds required payment of prevailing wages. However, the West Virginia legislature repealed prevailing wage for public projects during the 2016 legislative session. 
 
Under the West Virginia Tax Increment Financing Act, a county commission or a governing body of an eligible municipality, upon its own initiative or upon application of a project developer, may propose the creation of a TIF district and designate its boundaries. Prior to creation of a TIF district, the West Virginia Development Office must approve a TIF application regarding the proposed TIF district. Each TIF application must demonstrate that “but for” the use of TIF, the proposed development would not occur. When the TIF district boundaries are established, the county assessor certifies the assessed value of property subject to ad valorem taxation within the boundaries. Increases in property tax revenues gained from development within the boundaries of the TIF district are then available to repay TIF obligations or to fund public improvements on a pay-as-you-go basis.
 
Similarly, county commissions are permitted, upon their own initiative or upon application of a project developer, to create economic opportunity development districts under the County Economic Opportunity Development Districts Act. Economic opportunity development districts capture increases in sales taxes within such a district to finance public improvements within its boundaries. In addition to approval from the West Virginia Development Office, the West Virginia legislature must authorize the county commission to levy the special district excise tax on the privilege of selling tangible personal property and rendering select services within the proposed district. 
 
More than 30 TIF districts and three economic opportunity development districts have been established in West Virginia and have funded a variety of public improvements. One of the most successful TIF districts in West Virginia is University Town Centre, which is a partnership between a private developer and the Monongalia County Commission. The County Commission has issued bonds payable from a combination of property tax revenues and sales tax revenues. These bonds have funded a new interstate interchange, road, water and sewer improvements and a new community baseball park that is used by West Virginia University and the West Virginia Black Bears, an affiliate of the Pittsburgh Pirates. 
 
Public Private Partnerships
 
More than 30 states, including West Virginia, have statutory authority to utilize PPP for transportation projects. The West Virginia Public-Private Transportation Facilities Act (the “PPP Act”) authorizes the Department of Transportation to utilize PPP to acquire, construct and improve transportation facilities, including roads, bridges, tunnels, overpasses, existing airports, public waterways and port facilities. The PPP Act was authorized as a pilot program and was extended by the West Virginia legislature to remain in effect until June 30, 2023.
 
PPP has been used in West Virginia to fund a three-mile portion of the Coalfields Expressway, the final segment of U.S. Route 35 and a portion of Corridor H. The Department of Transportation utilized design-build-finance PPP structures for these projects. The design-build-finance structure allows the state to avoid underbidding, achieve cost savings from the coordination by the private party of the design and building of each project and eliminate the need to issue public debt to finance projects. Under the design-build-finance structure, the private party is responsible for financing the project, and the state uses available future revenues to repay the private party over time. To date, the Department of Transportation has not utilized its powers under the PPP Act to contract with private parties for the operation and/or maintenance of any transportation facility. In light of the broad powers given to the Department of Transportation under the PPP Act and the continuing funding challenges facing the Department of Transportation, it will likely pursue additional projects using the broad powers provided under the PPP Act.
 
Throughout Spilman’s footprint, alternative financing tools, such as TIF and PPP, are available. 
 
Please contact us for information related to TIF and PPP in your state.