Diffusion and Scaling Mixed Public Income Development
The role of intermediaries is key in setting up and administering these complex structures. The nonprofit Center for Public Enterprise (CPE), focused on public sector economic development tools, has taken a leading role. The Local Initiatives Support Coalition (LISC) also works directly with localities on financial and operating structures. Here we highlight CPE’s role and strategy for impact.
Center for Public Enterprise works with states, cities and counties to implement mixed-income public development models. CPE has been the leading nonprofit think tank providing technical assistance to public sector organizations exploring the mixed-income public development model, which consists of the following six stages:
1. Market Testing: Before launching a new program, it is important to test the market for the targeted location through a high-level financial model. This involves inputting various data points related to the local market, such as rental rates, construction costs, potential subsidies, and demand for mixed-income housing. CPE and similar entities can identify and define the initial assumptions that underpin the model. These assumptions are crucial, as they directly impact the model’s output and the feasibility assessment.
The model tests different scenarios and helps determine the potential return on investment, the level of subsidies needed, and the types of projects that align with the mixed-income public development model.
2. Pipeline Development: The next stage of program launch is identifying potential development opportunities. This includes looking at stalled local developments to identify projects that have stalled due to financing, regulatory, or other issues and assessing if they can be revived as mixed-income projects, analyzing Publicly Owned Parcels, reviewing the Existing Pipeline of projects that are already in the local jurisdiction’s pipeline or that have previously applied for funding to see if they fit the mixed-income program, and Socializing the Program by with developers, community organizations, and other stakeholders to explain the program and encourage participation.
The objective is to create a robust pipeline of potential mixed-income development projects. This ensures that the program has a steady flow of opportunities and increases the likelihood of successful implementation.
3. Institutional Framework and Governance Design: While there are similarities across existing programs that have established these tools, each jurisdiction should consider optimal ways to structure and manage the mixed-income program. This involves creating a Program Framework to decide where the program is best housed and how the benefits of the model can be maximized, designing the Project/Deal Flow process for how projects will be identified,
reviewed, approved, and financed, and facilitating Stakeholder Meetings with staff, city officials, developers, and community groups to gather input and build consensus. Creating a clear and effective governance structure for the program ensures accountability, transparency, and efficient decision-making.
4. Financial Structure Design: Jurisdictions should explore various financing for mixed-income projects and develop a plan for a Revolving Construction Loan Fund that provides short-term loans for construction, including identifying different funding sources (senior debt, mezzanine debt, equity), how they can be combined to fit the Capital Stack Arrangements to finance projects, exploring Senior Debt Options like Section 542 Risk-share/FFB, recycled volume cap, and essential function bonds, working on Statewide Organization Coordination with statewide organizations to explore a potential “passthrough” senior debt pathway, and investigating Mezzanine/Subordinated Debt Options like partnerships with CDFIs (Community Development Financial Institutions), philanthropic organizations, and regional banks. Taken together, this would be a comprehensive and flexible financial strategy that can attract investment and maximize financial viability.
5. Project-Level Financial Modeling: Next, local jurisdiction create detailed financial models for specific projects, including: Project-Level Pro Formas for a particular project, including construction costs, operating expenses, rental income, and financing costs, creating Term Sheets that outline the key terms of a financing agreement, such as loan amount, interest rate, and repayment schedule, and working on Sample/Pilot Projects by creating pro-formas and term sheets for a few initial projects to test the program’s feasibility and refine the process.
6. Capacity Development: As jurisdictions launch new programs, it is important for managing entities to build internal capacity to manage mixed-income programs. This includes identifying Staffing Needs for local jurisdictions, such as underwriters, project managers, and financial analysts, and sources of Training and Technical Assistance that can provide guidance and support to staff on financial modeling, project management, and other relevant skills. This ensures that jurisdictions have the necessary skills and resources to successfully implement and manage programs over the long term.