Memorandum

City of Lawrence

City Manager’s Office

 

TO:

Mayor and City Commissioners

 

FROM:

David L. Corliss, City Manager

 

CC:

Diane Stoddard, Assistant City Manager

Cynthia Boecker, Assistant City Manager

Scott McCullough, Director of Planning and Development Services

 

DATE:

February 7, 2008

 

RE:

February 12 City  Commission Items:  The 12th and Oread Redevelopment District

 

 

At Tuesday’s meeting, David MacGillivray with Springsted financial advisors will present the feasibility study and subsidy feasibility analysis.   This feasibility study is one of the requirements for proceeding with tax increment financing (TIF).  Additionally, the feasibility study and the analysis of public subsidies were requested for both the TIF proceedings and the financial feasibility of the project (6 stories versus 7 stories) in relation to historic review findings.   The subsidy analysis indicates that a 6 story hotel is unlikely to provide a market rate of return even with the estimated TIF subsidy, and that a 7 story hotel only provides a market rate of return with the estimated TIF subsidy.

 

Staff recommends that the Springsted studies be presented first at Tuesday’s meeting because those studies relate to the land use/historic preservation issues and also the TIF proceedings.  Staff further recommends that after the study is received and discussed, that the Commission consider the land use items related to this project:  the appeal from the determination of the Historic Resources Commission, the rezoning requests and the preliminary development plan.  Staff has prepared a draft resolution for Commission consideration related to the HRC appeal.

 

After conclusion of the land use issues, the Commission will then open a public hearing regarding the establishment of a redevelopment district pursuant to K.S.A. 12-1770 et seq. for the 12th and Oread Redevelopment District.  If the Commission believes that it is appropriate at this time to close the hearing, the Commission may do so Tuesday evening.  It can then adopt an ordinance creating the TIF district or it could defer the creation of the TIF district.   Closing the hearing begins the 30 day period for either Douglas County or USD #497 to either take no action on the proposed TIF district or take action to stop the TIF district from being formed.   The Commission may wish to open the hearing, receive comments, and continue the hearing to a certain future date to allow for additional comments and inquiry into the project.  It is important to note that the creation of the TIF district is a necessary but not the final part of the TIF proceedings:  the Planning Commission must still review the draft redevelopment plan, to determine that it is consistent with the City’s comprehensive plan, the City Commission must still conduct a hearing on the redevelopment plan, and approve it if appropriate, and the City Commission must also execute a redevelopment agreement with the developer for the project.  Two TIF calendars are attached, one outlining the process should the public hearing be continued, and one outlining the process if the public hearing concludes Tuesday evening.

 

The TIF law allows the cost of certain eligible public and private improvements to be reimbursed to the developer with TIF revenue.  The feasibility study projects approximately $3.5 million in property tax increment and approximately $1.5 million in sales tax increment, resulting in $5 million total tax increment created over 20 years.  The developer is proposing that $5 million of eligible public improvements and $6 million of private improvements (parking garage) be eligible for reimbursement.  The developer disagrees with the property tax estimates put forward by Springsted, and instead forecasts that the property tax increment will be  $ 5.5 million over 20years (versus the Springsted forecast of $3.5 million in property tax increment.)  Thus, the developer believes that the total tax increment will be $7.1 million over 20years.

 

The developer is not seeking any public debt financing for this project.  All of the initial costs for both the $5 million of public improvements and the hotel and parking garage will be privately financed.  There will be no City debt liability for this project.

 

Staff recommends that all TIF revenues collected are paid to the developer for reimbursement of actual redevelopment project costs up to the $7.1 million amount (plus market rate interest).  If TIF revenues exceed the $7.1 million amount (plus market rate interest on the $7.1 million) during the 20 year period, then those TIF revenues in excess of that amount will be shared 50% with the developer and 50% with the taxing jurisdictions (Douglas County, School District, City) up to a maximum of the estimated total of $11 million (plus interest) of actual redevelopment project costs.  In other words:  50% of the TIF revenue would reimburse the developer for actual costs; and 50% of the TIF revenue would go to the taxing jurisdictions (sales tax to the sales tax entities; property tax to the property tax entities, all per their respective tax rates).   The time period for TIF revenue reimbursement would be 20 years from the City’s approval of the redevelopment plan.  As noted above, there will be no City debt financing required by this project.                

 

Additionally, the developer is proposing a transportation development district (TDD).  A 1% sales tax is imposed – with the property owner’s consent – on only their property for up to 22 years.  The Springsted study also projects $917,000 in TDD revenues over 22 years.  These revenues will pay for actual costs of the parking garage construction.

 

An aggregate cap for TIF and TDD utilization is $11 million plus market rate interest less TDD revenues.

 

There are strong public advantages to this recommendation.  The subsidy analysis indicates that this project would not likely proceed without the TIF revenue.  The amount of the TIF revenue to be reimbursed appears to be appropriate: only actual costs will be eligible for reimbursement, only actual revenue will be reimbursed (no City financial exposure), and the sharing of the revenue beyond the $7.1 million amount means that the taxing entities will receive tax revenue sooner than if all of the $11 million eligible expenses were reimbursed.  This infill project can be viewed as a significant enhancement to the neighborhood and the community, including the addition of a quality hotel and conference facilities.  The hotel construction does not require most of the public improvements.  Rather these public improvements (street realignment, sidewalks, stairway improvements down to Mississippi, landscaping and beautification) benefit the new hotel, the neighborhood, and the entire community.  The opportunities for this new facility to be used by the University of Kansas, and related entities, will benefit both KU and the community.  There are significant other revenues that the City and other taxing entities will receive from the project:   20 mills of the USD 497 property tax levy is not subject to the TIF law and will go to school finance.  The City will receive transient guest tax, liquor tax, and franchise fee revenue from the facility.  These revenues will not be shared with the development.  The likelihood of visitors and patrons of the hotel and conference facilities spending money in other venues in the community should also be viewed as a positive in evaluating the proposal.