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:               Update to Industrial Revenue Bond Policy

Background

Industrial Revenue Bonds (IRBs) are an increasingly important source of project financing in Kansas.  These bonds are issued by a city on behalf of an applicant for the purpose of purchasing, acquiring, constructing, or equipping a range of industrial, commercial, and other facilities.  The bonds are repaid entirely by the applicant.  The city has virtually no financial risk.  The applicant receives certain benefits from IRBs, including a sales tax exemption on construction-related material, and may receive lower interest rates as the interest payable is exempt from state and- in limited cases- federal income tax.  In many, but not all, cases a request for a property tax abatement accompanies a request to issue IRBs.

Why Update the City Policy?

The City of Lawrence has an IRB policy that was established in May of 1989.  For a number of reasons, Staff believes that the City should consider updating the IRB policy. 

First, the existing IRB policy pre-dates the stand-alone tax abatement law that was passed by Kansas in 1990.  The City’s policy provides for a public process consistent with a firm that is seeking both IRBs and a property tax abatement.  However, there is now a procedure for tax abatements in our overarching economic development policy (adopted on March 24^th, 2009), and the procedure for IRBs can be simplified if no property tax abatement is sought.

A simplified procedure may benefit firms who wish to obtain IRBs without a property tax abatement.  As noted, there are benefits to IRBs even without the abatement.  While these benefits need to be offset against the financing costs associated with IRBs, they may be attractive enough for certain organizations to pursue.

Additionally, IRBs can be issued for a broader range of firms than those that can receive stand-alone tax abatements.  Stand-alone abatements can only be awarded to manufacturing, distribution, or research and development companies, and can only be awarded to an applicant that owns the property being abated.  In contrast, IRBs can be issued to agricultural, commercial/office, multifamily, and hospital facilities among others, as well as firms that are leasing facilities to a secondary user.  This final criteria is important for firms that wish to minimize their real estate tax and asset exposure.  Some of the other uses, particularly retail and housing, may need further guidelines than those currently provided in the overarching policy.

Summary of Draft IRB Policy

A draft of a proposed revised IRB policy is attached.  This draft has been reviewed by bond counsel and incorporates their comments.  The policy provides a simplified application and review process for applicants requesting an IRB with no property tax abatement, and also offers guidelines for housing and retail IRBs.

The two key simplifications to a stand-alone IRB request are fewer application requirements and the elimination of the need to go to PIRC for review.  However, should an IRB applicant seek a tax abatement, the full review process would still be required. 

The housing guidelines note that multi-family and senior living are preferred over other types of housing, particularly those that are either located Downtown or have an affordable housing component.  The retail guidelines suggest that retail stores would be considered if they fill a missing gap in the local shopping choices or contribute to a mixed-use development or redevelopment.  Both the housing and retail IRBs would be discouraged if they primarily compete with other local businesses. 

In addition to the economic development guidelines in the overarching policy, some other principles are incorporated into potential IRB issuances.  These principles include whether the project enhances Downtown Lawrence, whether it promotes infill development, and whether it provides another type of public benefit to the community.

This draft policy, if approved, would be incorporated as a new section in the existing overarching policy. 

Action Requested:

Staff recommends adoption of Ordinance 8523 by the City Commission, if appropriate.