Memorandum

City of Lawrence

City Manager’s Office

 

TO:              David L. Corliss, City Manager

CC:               Diane Stoddard, Assistant City Manager

FROM:          Corey Mohn, former Economic Development Coordinator

Britt Crum-Cano, Economic Development Coordinator

DATE:           August 23, 2011

RE:               ED Policy Considerations – CID, NRA, and TDD

 

 

Overview

 

At a study session on May 17, the City Commission requested that City staff compile a summary of economic development policies in order to review the criteria for utilizing these programs.

 

During the June 14, 2011 City Commission meeting, the City Commission received a staff memo and presentation summarizing economic development policies the City of Lawrence currently has in place.  After a discussion of these programs, the City Commission directed City staff to provide additional information regarding Community Improvement Districts (CID), Neighborhood Revitalization Areas (NRA), and Transportation Development Districts (TDD).  Specifically, this memo will provide information on the utilization of these programs in other municipalities in Kansas and compare the City of Lawrence criteria to other municipal criteria documents.  City staff is providing this information in order to aid the City Commission in determining next steps regarding the structure of future economic development policies and the form future redevelopment areas should take.

 

Community Improvement Districts (CID)

 

Summary

 

CIDs are funded by implementing either a special assessment on real property or a sales tax in a designated district.  A sales tax can be imposed in increments of 0.1% or 0.25% up to a total of 2.0%.  The maximum term for a CID sales tax is 22 years.  Eligible expenses include both public and private improvements, though public improvements are the priority.  No CID projects have occurred in the City of Lawrence.  The City’s CID policy was adopted in 2010.

 

CIDs in Other Communities

 

According to the Kansas Department of Revenue, there were 13 active CID districts in Kansas as of July 1, 2011.  Of those, six (46%) are located in Johnson and Wyandotte Counties.  There are currently two active and three proposed CIDs in Wichita.  There are no active CIDs in Topeka.

 

The CID tax in these 13 districts ranges from 1% to 2%.  Total tax rates after the addition of CID tax rates range from a low of 9.3% (Wichita) to a high of 11.3% (Junction City). 

 

A full list of these 13 CIDs is below, including sales tax rates and a description of the types of improvements and projects the CIDs are funding.

 

CIDs*

#

Description

Tax %

Total Rate

 

Bonner Springs

1

New restaurant, façade improvements to existing center

1.00%

10.05%

 

Fort Scott

1

Renovations to existing building and new retail development

1.00%

9.80%

 

Hays

1

New hotel and restaurant

2.00%

10.55%

 

Hoisington

1

New hotel 

2.00%

9.80%

 

Junction City

1

Strip mall

1.75%

11.30%

 

Kansas City

1

Sporting KC soccer stadium

1.10%

10.025%

 

Lenexa

1

Strip center tenant improvements and traffic lane

1.00%

9.90%

 

Olathe

1

Mall redevelopment project

1.50%

10.15%

 

Prairie Village

2

Shopping center redevelopments

1.00%

9.525%

 

 

 

Shopping center redevelopments

1.00%

9.525%

 

Waubansee County

1

Gas station and travel store improvements/expansion

2.00%

9.80%

 

Wichita

2

Historic hotel rehabilitation

2.00%

9.30%

 

 

 

New hotel construction

2.00%

9.30%

 

TOTAL

13

 

 

 

 

 

*  Includes all projects effective 7/1/11 per KS Department of Revenue.

 

 

CID Policy Comparison

 

Implementing a CID policy allows a municipality to restrict the use of CID further than is required by the Kansas statute.  A number of communities allow all the uses that are outlined in the Kansas statute, including the use of CID to pay for private funds.  Some examples of those communities include Wichita, Shawnee, and Salina.  Olathe is an example of a community that limits the use of CID funds to public improvements.  Wichita requires 100% of property owners to agree before a project can commence.  By contrast, state law only requires 55%.


Currently the City of Lawrence policy requires 100% of property owners in the proposed CID area to agree to the project, and further requires that one of the following five broad economic development criteria be met:

 

1.       Promote and support efforts to redevelop sites within the City;

2.       Attract unique commercial, office, industrial, and/or mixed use development which will enhance the economic climate of the City and diversify the economic base;

 

3.       Encourage retail projects that enhance the retail base by either attracting new sales or capturing sales that are leaking to other markets.

 

4.       Create facilities which promote the cultural, historical, or artistic elements of the region and enhance tourism and the quality of life.

 

5.        Assist in the building of infrastructure or new real property beyond what the City can require to be built or would otherwise be built.   

 

Neighborhood Revitalization Areas (NRA)

 

Summary

 

NRAs are designated areas that qualify for up to a 100% rebate of real property tax increment.  Rebates are only provided for tax payments that are in addition to the base payment made by the property owner prior to the redevelopment project commencing.  There is no maximum term for an NRA, though it is common for NRA projects in Kansas to be structured with 10 year terms.  Any public or private improvements in the area are eligible to be financed by NRA rebates, subject to an NRA plan.  The City of Lawrence has two active NRA areas:  8th and Pennsylvania (2007) and 1040 Vermont (2011).  A new NRA policy was adopted in 2011.

 

NRAs in Other Communities

 

Unlike CIDs and TDDs, NRAs are not centrally tracked by a state agency, and it is therefore difficult to gauge the level of use across the state.  In order to provide some context, City staff researched the top 10 most populous municipalities in Kansas to determine their use of NRA.  Of these 10 communities, eight currently utilize the NRA program.  (Evidence for utilization by Manhattan and Overland Park was not found.)  All comparison municipalities extend the boundaries of their NRA areas beyond a single parcel or project.  Nearly all communities include their entire downtown area in an NRA, and many provide additional rebate amounts and extended terms for individual projects within a NRA that rehabilitate historic structures.

 

Rebate percentages range from 50% - 100%.  Most of these municipalities offer one standard percentage based on the type of project undertaken (i.e. renovated commercial, renovated residential, new commercial, new residential, etc.) and keep that amount constant over the term of the rebate. 

 

In Lawrence, the 8th and Pennsylvania NRA set a flat rebate amount of 95%.  The 1040 Vermont NRA used a sliding scale rebate, starting at 95% in year 1 and reducing to 20% in year 10.

 

Rebate terms range from a low of five years in Wichita and for certain projects in Kansas City to up to 20 years in the 8th and Pennsylvania NRA in Lawrence.  The most standard rebate term is 10 years.

 

The full comparison chart is below.

 

 

NRAs

#

Area Descriptions

Rebate

Term

Wichita

3

One large area including downtown and surrounding properties, two smaller neighborhood areas

95%-100%

5 years

Overland Park

0

 

 

 

Kansas City KS

2

Two large areas covering the entire municipality

50%-100%

5-10 years

Topeka

1

One large area including downtown and surrounding properties

95%-100%

10-15 years

Olathe

1

One large area around "Original Town" boundary

80%-90%

10 years

Lawrence

2 (1 Pending)

One small neighborhood area (8th and Pennsylvania); one one-parcel area (1040 Vermont); Pending: one one-parcel area (Masonic Temple at 1001 Massachusetts)

95% declining

10-20 years

Shawnee

1

One large area including downtown and surrounding properties

50%-90%

10 years

Manhattan

0

 

 

 

Lenexa

3

Three neighborhood areas

75%-85%

10 years

Salina

1

One large area including downtown and surrounding properties (has been extended once)

75%-100% declining

10 years

 

 

NRA Policy Comparison

 

Unlike with other incentive programs, other municipalities do not appear to have hard and fast policies on NRAs.  All of these municipalities established an NRA plan at the time of adopting their areas, and all have application processes in place for property owners residing within the NRA Area boundaries that would like to participate in the rebate program.  NRA policies are likely not deemed necessary as these multi-parcel areas were vetted when going through the NRA Plan approval process, with properties selected based on the condition of existing property.  In Lawrence, the current approach is to create NRAs on a project-by-project basis for one or a few parcels only, thus the rationale for having a separate policy. 

 

 

 

Transportation Development Districts (TDD)

 

Summary

 

TDDs are in many ways similar to CIDs, as both allow for special assessments on real property or sales taxes within the confines of a district.  Like CIDs, TDD sales taxes can be issued in increments of 0.1% or 0.25%, but TDDs can only be issued for a maximum of 1.0%.  There is no maximum term on a TDD sales tax, other than a TDD cannot extend past the point where all project costs have been paid, nor past the date of bond maturity.  Proceeds from TDDs must go to paying for transportation related projects in the district.  The City of Lawrence currently has two TDDs:  Lawrence Free State (Bauer Farms) and the Oread, both established in 2008.  The City’s TDD policy was established in 2008.

 

TDDs in Other Communities

 

TDDs are more prevalent in Kansas than CIDs.  As of July 1, 2011, the Kansas Department of Revenue recognized 31 TDD districts.  All of these districts must use the additional sales tax generated to fund transportation-related expenses.

 

Of those, 25 (81%) are located in northeast Kansas (including Kansas City, Lawrence, and surrounding areas).  There are currently two active TDDs in Lawrence – Free State/Bauer Farms (2008) and the Oread Hotel Project (2008).

 

The TDD tax in these 31 districts ranges from 0.1% to 1%.  Total tax rates after the addition of TDD tax rates range from a low of 8.85% (Pittsburg) to a high of 9.925% (Kansas City). 

 

 

TDDs

#

Tax %

Total Rate

Basehor

1

0.75%

9.05%

Ellsworth

1

1.00%

9.55%

Hays

1

0.75%

9.30%

Kansas City

8

0.60%

9.525%

  Kansas City (rate #2) 

 

1.00%

9.925%

  Kansas City (rate #3)

 

0.10%

9.025%

Lansing

1

1.00%

9.30%

Lawrence

2

1.00%

9.85%

Leawood

2

1.00%

9.85%

Manhattan

3

0.50%

9.05%

Mission

1

1.00%

9.775%

Olathe

5

1.00%

9.65%

Ottawa

1

1.00%

9.90%

Overland Park

2

1.00%

9.65%

   Overland Park (rate #2)

 

0.50%

9.15%

Pittsburg

1

0.30%

8.85%

Roeland Park

2

1.00%

9.775%

 

 

0.50%

9.275%

TOTAL

31

 

 

*  Includes all projects effective 7/1/11 per KS Department of Revenue.

 

 

TDD Policy Comparison

 

TDD policies generally reassert the limitation on TDD funds for transportation expenses as outlined in Kansas state statutes.  The City of Lawrence TDD policy was created in 2008, modeled after policies that were in place in Lenexa, Overland Park, and Olathe.  Examples of criteria for selecting TDD projects that are used by other communities include:

 

 

Options Regarding Criteria

 

As stated in the earlier memo on economic development policies, the City Commission may wish to discuss providing clarification regarding criteria for the utilization of one or more of these incentive programs.  Tightening criteria will likely provide more clarification for prospective applicants regarding what projects the City is likely to consider, but will also likely reduce the flexibility the City has to accommodate development requests.  Conversely, loosening criteria would provide more flexibility but less clarification. 

 

The City Commission has the option of repealing policies on certain economic development programs and dealing with potential developments on a case-by-case basis.  The only programs that require a policy be in place are those that involve tax abatements.  The Commission can also instruct City staff to develop a more regional approach to creating redevelopment districts such as NRAs based on geographic areas where there is a desire to support preservation and redevelopment activities. 

 

Recommended Actions

 

City staff recommends the City Commission have a discussion on potential next steps related to economic development incentive policies and criteria.  This will provide additional direction to City staff regarding how to approach future development activity.

 

 

 

City of Lawrence Economic Development Policy Matrix – CID, NRA, and TDD

 

 

Incentive Program

Project Examples

Criteria

Community Improvement Program (CID)

None to date.

Project must meet one of the following five criteria:  1) Promote and support efforts to redevelop sites within the City; 2) attract unique commercial, office, industrial, and/or mixed use development which will enhance the economic climate of the City and diversify the economic base; 3) encourage retail projects that enhance the retail base by either attracting new sales or capturing sales that are leaking to other markets; 4) create facilities which promote the cultural, historical, or artistic elements of the region and enhance tourism and quality of life; or 5) assist in the building of infrastructure or new real property beyond what the City can require to be built or would otherwise be built.

Neighborhood Revitalization Act (NRA)

8th and Pennsylvania (2007); 1040 Vermont (2011); 1001 Massachusetts (pending)

Project must meet statutory requirements.  Additionally, the following five criteria will be considered:  1) the opportunity to promote redevelopment activities which enhance Downtown Lawrence; 2) the opportunity to promote redevelopment activities for properties which have been vacant or significantly underutilized on sites around Lawrence; 3) the opportunity to attract unique retail and/or mixed use development which will enhance the economic climate of the City and diversify the economic base; 4) the opportunity to enhance the vitality of a neighborhood within the City as supported by the City's Comprehensive Plan and/or other sector planning documents; or 5) the opportunity to enhance the community's sustainability by supporting project which embrace energy efficiency, multi-modal transportation options, or other elements of sustainable design.  The project must result in a positive benefit/cost ratio of 1.25 or greater over a 15 year period.

Transportation Development Districts (TDD)

Lawrence Free State - Bauer Farm (2008), Oread Project (2008).

Project must meet one of the following three criteria:  1) promote and support efforts to redevelop sites within the City; 2) attract unique retail and/or mixed use development which will enhance the economic climate of the City and diversify the economic base; or 3) result in the building of transportation related infrastructure beyond what the City can require to be built or would otherwise build.