Memorandum

City of Lawrence

City Manager’s Office

 

TO:              David L. Corliss, City Manager

CC:               Diane Stoddard, Assistant City Manager

FROM:          Roger Zalneraitis, Economic Development Coordinator/Planner

DATE:           March 2, 2010

RE:               CID Policy for Lawrence

 

The following memo provides an overview of the new Community Improvement Districts (“CIDs”) legislation enacted by Kansas, as well as key items for consideration if the Commission wishes to develop a local CID policy.  A draft policy is provided for discussion and the potential review of the Public Incentives Review Committee.

 

Overview of CIDs

 

CIDs were established by the Kansas legislature in 2009.  The legislation permits local jurisdictions to create CIDs pending a request from property owners within the proposed district.  Once established, a CID allows the owner/s to repay all or a portion of both public and private improvements through the imposition of special assessments and/or a sales tax within the district.  The assessments and sales taxes can be in place for up to 22 years.  A copy of the Act is attached.

 

The CID has been described by some as a “super TDD”, or Transportation Development District.  In reality, the CID combines elements of both TDDs and Tax Increment Finance Districts (“TIFs”).  The following table shows the similarities and differences between these three instruments:

 

Comparing TIF, TDD, and CID

 

TIF

TDD

CID

Public improvements?

Yes

Yes

Yes

Private improvements?

No

No

Yes

Public Hearing?

            Yes

Yes

Yes- Sales Tax

No- Special Assessment

Methods of Financing:

 

 

 

Pay-as-you-go

Yes

Yes

Yes

Special Obligation Bonds

Yes

Yes

Yes

General Obligation Bonds

 

Yes

 

No

 

Yes

Repayment:

 

 

 

Incremental Property and Sales Taxes

 

Yes

 

No

 

No

Special Assessments

No

Yes

Yes

District Sales Tax

No

Yes- up to 1%

Yes- up to 2%

 

The CID offers advantages for an applicant over both the TDD and the TIF.  First, unlike either a TIF or a TDD, a CID can be used to pay for private improvements within a district as well as public improvements.  A complete list of the projects that can be funded in a CID is provided as an appendix.  Second, certain CID requests do not require public hearings.  If 100% of the property owners request a CID financed solely through special assessments, the City Commission may approve the district but does not need to schedule a public hearing.  Additionally, only 55% of the property owners need to sign a petition for a special sales tax CID; in contrast, 100% of the property owners in a TDD must sign a petition for a special sales tax.  A CID may also, unlike a TDD, use general obligation bonds for financing.  Finally, the CID allows a larger special sales tax for repayment of debt than does a TDD- up to two percent instead of one percent. 

 

It should be noted that incremental taxes resulting from higher sales or property values go to the local taxing jurisdictions.  This is true of TDDs as well.  Thus TDDs and CIDs are economic development tools that do not encumber local sales or property taxes.

 

Other CID Policies in Kansas

 

Four cities in Kansas appear to have established CID policies.  These are Olathe, Hays, Salina, and Shawnee.  While the policies generally adhere closely to state law, there are several key issues that each city has addressed in more detail.  These issues are: the projects that CID money can be applied toward; the types of bonds that can be used in a CID; the size of reimbursable expenses; and fees. 

 

CID Projects

As noted, CID financing can be used to cover an extensive list of improvements, including both public and private improvements as well as the provision of services within a CID.  In both Olathe and Hays, there have been restrictions placed on the types of projects that can be funded by CIDs.  Olathe does not allow for CID funding for any private improvements or private provision of services, while Hays does not allow for funding of the provision of services or certain improvements that could be large tourist attractions, such as waterways.  Neither Salina nor Shawnee restricts the types of projects for which a CID can pay.

 

Project Financing

The CID allows for municipalities to establish pay-as-you-go financing, special obligation revenue bonds (“SO Bonds”), and general obligation bonds (“GO Bonds”).  All four cities allow pay-as-you-go financing.

 

To-date, there appears to be reservation among most cities in using GO Bonds.  Only Salina allows for GO Bonds to be used on any CID project in the district.  However, Salina also emphasizes the petition process as set forth in the state legislation.  This petition can force the use of GO Bonds onto the ballot for public approval.  Olathe allows GO Bonds only for public infrastructure improvements.  Neither Hays nor Shawnee allows GO Bonds.

 

The use of SO Bonds is likewise restricted in two of the cities reviewed.  Hays only allows SO Bonds to be used for public improvements, and Shawnee requires SO Bonds to be financed by special assessments only.  Since Olathe does not allow for private improvements to be considered as a CID expense, this means that only one city- Salina- allows for the unrestricted use of SO Bonds to finance CID projects.

 

Minimum Size of Project Costs

Three of the four cities have set a minimum size for project costs within a CID.  Hays is the lowest with a $250,000 threshold for consideration to establish a CID.  Salina has two different thresholds depending on whether a district is requested within targeted development and redevelopment areas, or outside these targeted areas.  CID requests from within the targeted areas have a threshold one-half that of those outside the targeted areas.  Finally, Shawnee sets a $3 million threshold for projects.

 

Reimbursable Expenses

Jurisdictions as well as the State government are becoming increasingly aware of the costs of monitoring special taxing districts.  As such, the fees associated with CIDs appear to be higher than fees with either TIFs or TDDs.

 

In general, the application fee appears to be close to $5,000.  Hays has a lower application fee, as $4,750 of the $5,000 fee can be reimbursed if the city does not incur expenses in processing the application.  The cities also make an effort to recover the bond issuance costs for each project.  Shawnee and Salina set levels of about $20,000 while Olathe sets a fee schedule for bond issuances.  Finally, all four cities have established an administrative fee to be collected annually in order to cover ongoing monitoring of the districts.  The fee is typically set as either a percentage of the project costs reimbursable through special assessments or special sales taxes, or as a percentage of the special taxes and assessments collected in the district.

 

 

Discussion of Key Issues for Lawrence

 

In general, staff believes that a CID should be reserved only for developments that provide an exceptional opportunity to meet a community need or objective.  If a CID is created, staff does not believe that there is a need to restrict the types of projects that can be financed within a CID.  However, it may be prudent to prohibit full financing of some improvements.  The reason is two-fold.  First, special assessments and special sales taxes can be politically contentious.  By providing a less-than-full funding of certain improvements, this may help keep these special district fees lower than they would otherwise be.  Second, by requiring some non-CID funding, this makes it more likely that another organization- such as a bank or equity partner- has reviewed the project and is comfortable of its likely success.  Staff recommends that with only one exception, City policy should discourage full financing of private improvements (the one exception would be projects where the private improvements are largely related to the arts).

 

A more important consideration is the type of bond funding.  The recession has left several regional cities highly exposed to debt associated with economic development projects.  To minimize this risk, staff recommends that GO Bonds should not be used to finance a CID.  Therefore, the draft policy recommends that SO Bonds issued for a CID be funded at a minimum in part by special assessments, and possibly entirely by special assessments.  Over the life of a CID, sales tax revenues will almost certainly fall short of projections in one or multiple years.  Financing the repayment of SO Bonds entirely or partially through special assessments should help to reduce the risk of a sales tax shortfall.

 

Staff does not believe that there is a need to set a minimum reimbursable expense level for CIDs.  This is because the fees themselves will render smaller projects unlikely to benefit from any special assessments or sales taxes.

 

Finally, staff recommends establishing an application fee of $2,500.  This will be lower than other cities but still cover expenses incurred by the City.  If this proves inadequate for additional legal and consulting fees, the language from the TIF and TDD statutes should be used, stating that the City may require an agreement for the applicant to reimburse additional expenses.  Staff also believes that the annual administrative fee should be a set to .5% of the CID revenues collected.  This is consistent with Hays and Shawnee and likely lower than the administrative fees in Olathe and Salina.

 

Lawrence Policy

 

A draft CID policy for the City of Lawrence is attached.  This draft was reviewed by bond counsel and includes their recommendations.  The policy as written incorporates the recommendations set forth in the discussion above and provides general guidelines for where and when a CID will be considered by the City.  These guidelines include: promoting culture and tourism, as these are key sectors in Lawrence and were specifically highlighted in the state legislation; attracting unique new opportunities to the City; redevelopment; and infrastructure and private improvements that exceed building code requirements.  The policy establishes application and administrative fees to cover City expenses.  It also requires the applicant to demonstrate the financial capacity to complete the proposed project, and encourages an equity contribution of 15% or more by the applicant.  Finally, the policy encourages public participation and transparency.  This serves to promote- but not require- public hearings for any type of CID request.

 

Action Requested:

 

Staff requests that the Commission consider the draft policy and, if it is satisfactory, to forward the draft CID policy to PIRC for review and public comment.  After PIRC review, it will return to the City Commission for final hearing.

Appendix

CID Projects in the Kansas Legislation

 

By state law, any of the following facilities can be financed by special assessments or sales taxes within a CID:

 

The acquisition, improvement, construction, demolition, removal, renovation, reconstruction, rehabilitation, maintenance, restoration, replacement, renewal, repair, installation, relocation, furnishment, equipment or extension of:

 

1) Buildings, structures and facilities;

2) Sidewalks, streets, roads, interchanges, highway access roads, intersections, alleys, parking lots, bridges, ramps, tunnels, overpasses and underpasses, traffic signs and signals, utilities, pedestrian amenities, abandoned cemeteries, drainage systems, water systems, storm systems, sewer systems, lift stations, underground gas, heating and electrical services and connections located within or without the public right-of-way, water mains and extensions and other site improvements;

3) Parking garages;

4) Streetscape, lighting, street light fixtures, street light connections, street light facilities, benches or other seating furniture, trash receptacles, marquees, awnings, canopies, walls and barriers;

5) Parks, lawns, trees and other landscape;

6) Communication and information booths, bus stops and other shelters, stations, terminals, hangers, rest rooms and kiosks;

7) Paintings, murals, display cases, sculptures, fountains and other cultural amenities;

8) Airports, railroads, light rail and other mass transit facilities; and

9) Lakes, dams, docks, wharfs, lakes or river ports, channels and levies, waterways and drainage conduits.

 

In addition, the following services can be financed by special assessments or sales taxes within a CID:

 

1) To operate or to contract for the provision of music, news, child-care, or parking lots or garages, and buses, minibuses or other modes of transportation;

2) To provide or contract for the provision of security personnel, equipment or facilities for the protection of property and persons;

3) To provide or contract for cleaning, maintenance and other services to public or private property;

4) To produce and promote any tourism, recreational or cultural activity or special event, including, but not limited to, advertising, decoration of any public place in the district, promotion of such activity and special events and furnishing music in any public place;

5) To support business activity and economic development, including, but not limited to, the promotion of business activity, development and retention and the recruitment of developers and business;

6) To provide or support training programs for employees of businesses; and

7) To contract for or conduct economic impact, planning, marketing or other studies.