Memorandum

City of Lawrence

City Manager’s Office

 

TO:

David L. Corliss, City Manager

 

FROM:

Diane Stoddard, Assistant City Manager

 

CC:

Cynthia Wagner, Assistant City Manager

Corey Mohn, Economic Development Coordinator

 

Date:

 

March 30, 2011

RE:

Proposed Neighborhood Revitalization Act Policy and Proposal for Neighborhood Revitalization Area at 1040 Vermont Street

 

Please place the following item on the agenda for April 5, 2011:

 

 

 

Background:

Kansas Law enables cities to establish neighborhood revitalization areas in order to encourage redevelopment under the Neighborhood Revitalization Act (NRA).  The establishment of a revitalization area enables a property owner to receive a rebate on a portion of the incremental increase of property taxes associated with an improvement project within the area.  Staff has drafted a Neighborhood Revitalization Act policy for City Commission consideration, to include the update suggested by the Public Incentives Review Committee, further discussed in this memo. 

 

Treanor Architects wishes to relocate its Lawrence office to 1040 Vermont.  Plans include remodeling the interior and exterior of the existing building, and adding a second story. Treanor estimates these costs at $2.1 to $2.2 million. Treanor is requesting a 10 year declining scale rebate program be established for the incremental increase in a portion of the property taxes on the property in accordance with the chart below:

 

Year

Rebate % to be refunded to property owner

2012

95% of increment

2013

95% of increment

2014

95% of increment

2015

95% of increment

2016

85% of increment

2017

85% of increment

2018

70% of increment

2019

50% of increment

2020

30% of increment

2021

20% of increment

 

Treanor is requesting that the City, Douglas County and USD 497 all participate in the revitalization program.  Douglas County and USD 497 will need to determine its level of participation and information has been forwarded to the County Administrator and Superintendent of Schools regarding the request.

 

In January 2011, the City Commission received the Treanor request.  At its March 15, 2011 City Commission meeting, the City Commission referred the policy and the Treanor request to the Public Incentives Review Committee (PIRC) for its recommendations. 

 

Parking Pass Request:

Part of Treanor’s proposal is to request 50 parking passes for 10 hour lots.  Treanor would pay the City $195 per year for each parking pass for the next 10 years.  The presumed incentive regarding this portion of the request is holding the cost steady with no increase for the 10 year period.  Mr. Zalneraitis took this into account with his analysis, which is referenced in his memo, discussed in the next section. 

 

Benefit Cost Analysis

Prior to leaving the City, Economic Development Coordinator/Planner Roger Zalneraitis completed a benefit/cost analysis for the proposal. The benefit/cost analysis concludes that the project would yield a net positive benefit for the City, Douglas County, and USD 497, as proposed.  Over a 15 year period, the project generates a $660,000 (present value/discounted) increase in revenue for the City, County, School District and State of Kansas.  Specifically, he concluded a cost-benefit ratio of 2.09 for the City, meaning that for every dollar of additional costs and tax rebates, the City will receive $2.09 of new revenue.  Total discounted revenue to the City would be about $40,000.  The cost/benefit ratio for Douglas County would be 3.71, with $60,000 in present value increase in revenue.   The School District would not incur any costs related to the project, but would anticipate approximately $85,000 in discounted increased revenue.  These figures are shown on the chart below:

 

Taxing Jurisdiction

Cost/Benefit Ratio

Present Value of Increased Revenues Over 15 years

City of Lawrence

2.09

$40,000

Douglas County

3.71

$60,000

USD 497

Not applicable (no costs)

$85,000

 

Draft Neighborhood Revitalization Plan

Staff has prepared a draft Neighborhood Revitalization Plan, which is required by State statute, which mirrors the Treanor request.  This plan should be reviewed by the City Commission, the Public Incentive Review Committee, and the taxing jurisdictions.  The plan includes the rebate schedule referenced earlier in this memo.  The plan also includes provisions for Douglas County to retain 5% of the incremental increase in property taxes as an administrative fee over the 10 year period. 

 

Public Incentives Review Committee:

The Public Incentives Review Committee met on March 29, 2011 for the purpose of discussing the Neighborhood Revitalization Act policy and also the Treanor request.  The draft minutes of the meeting are attached.  At the meeting, the Public Incentives Review Committee voted to recommend to add an element to the policy to establish a criteria of a benefit/cost ratio of at least 1.25 and to add an examination of the policy in the Spring of 2012 for the purpose of discussing whether any threshold of the size of a project needed to be added to the policy.  Additionally, they unanimously voted to recommend the approval of the Treanor request. 

 

Follow Up to Questions and Updates to Documents Since the Last City Commission Discussion

 

Proposed administrative Fees for Douglas County:

The original documents included a proposed administrative fee for Douglas County equivalent to 5% annually of the new incremental taxes to go to the County to defray administrative expenses associated with the handling of appraisal responsibilities for the 10 year period.  Projections indicate that would have been approximately $25,000 over the 10 year period.  In discussions with the City of Olathe, it appears that a standard within Johnson County is for the County to receive a fee equal to 2.5% of the new incremental taxes in the first year only.  The documents have been updated to revise the County fee to this level.  Assuming a total increment of approximately $63,000 in the first year, this one-time administrative fee would be approximately $1500 that would go to Douglas County. 

 

County Benefit/Cost Ratio:

The City Commission had some questions related to the level of the return on investment for Douglas County as compared with the City of Lawrence.  Specifically, the City Commissioned inquired why the return was so much higher for Douglas County than the City.  In reviewing the economic analysis completed by Mr. Zalneraitis, staff has concluded that the reason for this is the higher mill levy assessed by Douglas County relative to the City.  The County mill levy is 35.813 and City’s is 26.647.  This means the County mill levy is approximately 34% greater than the City’s, which is the annual difference in benefits accrued on the cash flow statement.  The County’s benefits are higher because more property tax are collected over time.  It should be noted that Mr. Zalneraitis did not assume any fluctuations in the mill levy for the purpose of his analysis.  Also, Mr. Zalneraitis did not take into account any administrative fees accruing to the County with the analysis. 

 

Impact of Changing Mill Levies During 10 year period: 

The City Commission also had some questions about what the impact would be if the mill levy increased or decreased over the 10 year period and its affect on the increment.  The increment is set based upon the total amount of taxes collected by all taxing jurisdictions in the base year.  Thus, the 2011 base is $26,263.12, excluding the special tax related to parking lot improvements.  Any increase in the mill levy by any of the taxing jurisdictions during the 10 year period will result in a larger increment being generated, thus improving the benefit cost ratio for the taxing jurisdictions and increasing the amount of rebate returning to the property owner.  Any decrease in the mill levy will have the converse effect.  Again, it should be noted that Mr. Zalneraitis did not assume any fluctuations in the mill levy for the purpose of his analysis.  Fluctuations would have an impact on the benefit/cost ratio.  

 

General Clarifications:

At the advice of the City’s legal staff, various wording changes were made to better coincide with state statute.  Those changes are reflected in the revisions to the draft plan.  Also, staff added additional clarifications regarding how the rebate and the increment is calculated. 

 

Additional information:

 

County and School District Action on Request:

Upon further research, staff believes that Douglas County and USD 497 should formally consider their individual participation in this Neighborhood Revitalization area by considering adoption of cooperation agreement.  This action would formally indicate the participation of the entities in the plan as outlined. The proposed cooperation agreement is in the process of being drafted.  This agreement would reference the Plan concerning the 1040 Vermont property specifically.

 

Performance Agreement:

City staff is recommending that a performance agreement be executed between the City and Treanor concerning this project to ensure that project will proceed as envisioned and to require an annual reporting of employment levels and associated wages.

 

 

Action Requested: