Farmland Acquisition Frequently Asked Questions

Why is the City acquiring the former Farmland facility?

There are two major reasons the City is acquiring this property.

1)  The Lawrence community needs additional space for industrial and business park expansion.  Growing our local economy to provide additional employment opportunities and increased community tax base are among the top community goals. Existing places for larger businesses to expand or relocate to Lawrence are limited.  One of Lawrence’s strongest needs is to grow jobs located in our community.  The former Farmland facility is adjacent to K-10, the existing East Hills Business Park and BNSF rail service, has contiguous acreage for larger businesses and sites, and has relative close proximity to utilities and infrastructure.  City land use plans call for the use of this property as an industrial/business park.

2)  If the City does not acquire this property and manage the remediation efforts it appears unlikely that another business or entity will take on this responsibility in the near future leaving this property a continued eyesore on an important gateway into Lawrence and leaving this potentially productive property in the idle condition it has been in recent years.

What are the risks of the City acquiring the property?

The major risk is that the costs for remediation will exceed the amount of funds the City is receiving to perform the necessary work.  Other risks are those associated with the development of property and the likely lengthy time of selling tracts for economic development purposes.  City staff believes that these risks can be effectively managed and instead produce a positive outcome for the Lawrence community.

First, the former Farmland facility has been extensively investigated to determine the possible costs for remediation of the site.  The Kansas Department of Health and Environment (KDHE) and the Environmental Protection Agency (EPA) – the two regulatory bodies which will dictate the necessary environmental remediation requirements – have both estimated the costs for the work over the next 30 years.  The KDHE estimate for the remediation over a 30 year time period is $11.2 million with an additional $2.1 million contingency.  The EPA produced an estimate of $11.8 million (see attachment).  While all of these estimates are more than the City will receive at closing, the City will benefit from three elements which still make the proposed acquisition attractive to the City:

· The City estimates that the $8.5 million, invested similarly to other City investments in recent years, will generate the $11.1 million necessary over the 30 year clean up timeframe.  Essentially, the time value of money and the extended period of time for the various clean up administration (30 years) works toward the City’s favor in managing the remediation costs to funds provided. See analysis attached.

· The proximity of the site and several of the required remediation efforts allow the City to use City resources and personnel for a number of the required remediation efforts thereby reducing costs; including the management of the various groundwater pumping systems, soil excavation, stormwater management, etc.

· Because the City is receiving the land without paying a purchase price, concurrent with the remediation and infrastructure work the City will seek to sell or lease portions of the property for industrial and business.  This will provide additional income to the City for use in the remediation and infrastructure installation on the property.  The City has had the property recently appraised, and assuming satisfactory environmental compliance and infrastructure installation, the appraisal indicates that the site has positive value. For example, property adjacent to 23^rd Street is appraised at $2.50 per square foot, with a 10 acre site appraised at $1,100,000; and a possible 50 acre site appraised at $0.75 per square foot or $1,650,000.

In summary, while there are risks in every property acquisition – and there are more risks in this acquisition because of the environmental remediation requirements – these risks can be minimized.   Additionally, these risks are off set by the potential advantages to the Lawrence community of increased employment opportunities from new jobs locating in the business park site and the increased tax base from any new businesses.

Isn’t this property contaminated? Are the environmental conditions of the site dangerous for workers, employees and visitors to the site?

The groundwater, soil, sediments and surface and storm waters contain nitrate and ammonia levels that exceed the levels environmental regulators find acceptable.  Farmland Industries produced fertilizer, and essentially, the property has an overabundance of fertilizer compounds in it.  The environmental regulators have collected and analyzed samples from all areas of the property and believe its environmental issues are known and well-accounted for.

While there will likely be restrictions on the redevelopment of the land that will likely prevent homes to be built on the site, and buildings with basements to be constructed there, the site conditions do not pose a danger to people visiting or working at the site.

How is the City going to pay for this environmental remediation?

When the title of the property transfers to the City, the City will receive $8.5 million from the Trust.  While KDHE estimates that the cost for the remediation will total approximately $11.2 million over the 30 years, the present value of this amount roughly equals the $8.5 million the City will receive at closing. The City will invest the trust funds received at closing and use interest proceeds for future remediation costs.  Additionally, sale and/or lease of the property will provide additional income that can be used for future remediation costs.

When must the remediation work be completed?

KDHE and EPA anticipate it will take 30 years or longer to meet all of the obligations on all of the portions of the site; this is primarily the case because the least expensive remediation option is to pump the groundwater and land apply the groundwater as fertilizer.  This option is not as expensive as other options but takes longer.

What if the $8.5 million is not enough to clean up the site as KDHE requires?

The City will be responsible for using its other funds and revenue sources to fully fund the remediation. 

Why isn’t the City receiving all of the trust funds from the Farmland Bankruptcy proceedings?

When the former Farmland Industries went into bankruptcy, KDHE intervened in the bankruptcy proceedings to have funds set aside to cover environmental liabilities and expenses for contaminated Kansas Farmland Industries property, including the Lawrence plant site.  As a part of the bankruptcy, the Lawrence Farmland property and the clean up funds were placed into a Trust.  The Trust owns the property and holds funds for the site in two separate accounts, one for administrative and one for remediation costs.  As of today, the combined Trust funds for the Lawrence property total approximately $10.8 million.  During the bankruptcy proceeding, an investment group (Capitana LLC) purchased the rights to the residual interest from the Trust for all of the former Farmland Industries sites within Kansas (3 locations other than Lawrence).  Therefore, after the City receives the $8.5 million at closing, Capitana as owner of the residual interest in the Trust will receive the remaining site Trust funds.

Will the City have to hire specialists to perform the remediation?

Much of the remediation work involves maintaining the water pumping systems and tanks that remove the contaminated water from the site and applying the water to farm fields.  The City has staff that is familiar with this type of work.  Other remediation work will involve moving dirt and debris from the site.  Again, we have staff and equipment that can perform this type of work. For several other remediation activities, the City will use funds it receives at closing to retain specialized environmental remediation firms for the work that can not be performed by City personnel. 

If this property is such a “good deal,” why didn’t someone in the private sector step up to acquire it?

Because of the environmental remediation that is necessary on the site and the length of time to conduct the remediation, it is unlikely that a private firm would seek to take on the environmental responsibilities for the property and establish the financial assurances which environmental regulators require.  Because the property can not be used for residential home construction and City long term land use plans do not envision extensive retail commercial uses, the appropriate land use is viewed as industrial and business park uses.   Industrial and business park uses historically have taken longer to absorb into our local economy than residential and retail – thus a private investor’s return is not as immediate with these types of land uses.

Does the City know how much the land is worth?

The City retained Aul & Hatfield Appraisals to appraise the value of the property.  A copy of the appraisal is attached.

When will the City remove all the ugly tanks and other structures?

Soon after the sale is final, we anticipate mobilizing city staff and other contractors to begin removing some of the structures.  Other demolition work will occur as remediation activity is undertaken and infrastructure installation occurs in the years after the City acquires the site.

What are the City’s plans for this property?

The Lawrence City Commission adopted the Farmland Industries Redevelopment Plan on March 11, 2008.  The Douglas County Commission adopted the same plan on March 31, 2008.  This 26 page plan sets out the desired land uses for the redeveloped property including industrial and business park uses.  Additionally, the plan sets out proposed utility, street and other infrastructure plans for the property.  A web link to the plan is below:

http://www.lawrenceplanning.org/documents/Plan_Farmland.pdf

Additionally, the City has conducted reviews of possible industrial and business park uses of the property, including development of a bioscience business park. A conceptual layout of the property as a business park has also been produced:

After acquisition of the property and concurrent with the initiation of remediation activities, the City would begin the finalization of plans for industrial and business park uses on the property, including appropriate infrastructure planning and land use planning.

What needs to be done to the site to make it ready for redevelopment?

While the property is adjacent to City utilities and infrastructure, substantial infrastructure work will be necessary in order to maximize the use of the property, including road, water, sanitary sewer, stormwater, installation, etc.  Additionally, the installation of bike paths, walking paths, open space areas will also be part of this planning process.  The platting of the property during this land use planning process will also be accomplished.

How will the City pay for infrastructure installation?  How much will the infrastructure cost?

The City and Douglas County successfully installed infrastructure in the East Hills Business Park over the years during the development of that business center, primarily through the use of special assessment benefit districts.  The City assesses the cost of the infrastructure (streets, roads, waterlines, sanitary sewer lines) on the property and the property owner pays those costs over time.  The special assessment benefit district process may be the preferred manner for infrastructure financing for the Farmland property, because the City plans to sell or lease portions of the property to private industries and business parks which would pay these assessments on the property they own or lease.  If only the City owns the assessed property, then the City must budget for the special assessment payments.  The timing and financing mechanisms for future infrastructure on the Farmland site will be a decision of the City Commission as it weighs the potential for re-sale of the property to potential end users, the need for the installation and the needs for other infrastructure installation within the community. 

As an example of the cost of infrastructure installation on the site, the City has estimated the cost of installing an extension of O’Connell road north to 19^th Street; this road cost is approximately $2 million, including waterlines adjacent to the road.