Staff analyzed the benefits and costs from the LWC Partners job credit incentive and contributions to certain site and public improvements

Memorandum

City of Lawrence

City Manager’s Office

TO: David Corliss, City Manager

CC: Diane Stoddard, Assistant City Manager

FROM: Roger Zalneraitis, Economic Development Coordinator/Planner

DATE: January 8, 2010

RE: Benefit-cost analysis of LWC Partners/Hawkeye Helicopter

Staff prepared a benefit-cost analysis for the LWC Partners/Hawkeye Helicopter construction at Lawrence Municipal Airport. As noted elsewhere, there are four financial items concerning the City regarding this project. These are:

1) A job-creation credit equal to 98% of the ground lease for the first five years and 50% of the ground lease for the next five years, assuming up to 8 full-time equivalent jobs are created or retained at Lawrence airport; The City leases other property at the airport currently at 11 cents per square foot. The LWC Partners/Hawkeye Helicopter lease is at 15 cents per square foot, which is consistent with what other airports with sewer and water offer for lease rates. The City has previously provided a reduced lease rate for other airport related businesses.

2) The extension of a public taxiway estimated to cost $50,000;

3) Certain improvements to their parcel of land, including site improvements as well as assistance with construction of publicly-available parking spaces, worth $85,000; and

4) Installation of a water meter and a temporary septic holding tank, estimated to cost together approximately $14,500.

Some of these contributions directly benefit the project, while some of these contributions primarily benefit the public at large and should not be counted against the project. The first benefit is a job-creation incentive available exclusively to LWC Partners. The second benefit- the airplane taxiway- is primarily beneficial to the public over time, but a portion is beneficial to this specific project. The third benefit depends on how much of the $85,000 is allocated to site improvements and how much is allocated to parking for the public. The final benefit is, like the first benefit, exclusive to LWC Partners.

For the purposes of this analysis, staff assumed that 20% of the taxiway costs would primarily benefit LWC Partners, while half of the site improvements would benefit the public and the other half would benefit this project. As stated above, the first and fourth City contribution- the job creation credit and the septic/water installation- benefit LWC Partners exclusively. Staff also assumed that LWC Partners fully meets its job creation targets. If they did not, the resulting benefit-cost ratio would actually be higher rather than lower, as the additional immediate lease rent received by the City would compensate for the reduction in new jobs.

As a result, LWC Partners and Hawkeye will receive about $148,000 of the City contributions. This includes $42,500 of site improvements and parking that will primarily benefit this project, $10,000 of taxiway costs, $14,500 of septic and water benefits, and $81,000 of job creation credits paid over 10 years (this analysis assumes that LWC Partners meets the job creation targets in the incentive). The analysis assumes that the public improvements, water, and septic benefits are paid as a cash contribution upfront before operations begin at the new facility. This analysis also does not allocate any of the costs and benefits of the current City capital improvements to improve water and sewer service to the airport.

Based on a target of 10 employees making approximately $36,000 per year in wages, and a $700,000 construction project, the model estimates that over 15 years a total of $480,000 of revenues will be generated for the City. The City will also incur an additional $230,000 of costs in these 15 years. This results in benefits of $250,000 or, discounted to present dollars, $160,000 over the time period.

Including the incentive, the discounted benefits are about $31,000 over this 15 year period. The benefit-cost ratio for this project is approximately 1.11. The City begins to earn a positive benefit from this firm in the third year of operations, and recovers all of its costs after the firm has been at the airport for 13 years.