Memorandum

City of Lawrence

City Manager’s Office

 

TO:              David L. Corliss, City Manager

FROM:          Diane Stoddard, Assistant City Manager, Corey Mohn, former Economic Development Coordinator, and Britt Crum-Cano, Economic Development Coordinator

DATE:           August 31, 2011

RE:               Masonic Temple Incentive Request

 

Overview

Consolidated Properties, Inc., a Lawrence-based construction firm, is proposing the redevelopment of the historic Masonic Temple at the southwest corner of 10th and Massachusetts Streets.  The Masonic Temple was constructed in 1910 and used for both Masonic events as well as other community gatherings.  The structure has been vacant since 2003 when the property was sold by the Lawrence Scottish Rite.  The future proposed use is a banquet hall for events and meetings tied to an expansion by Maceli’s, a local catering business.

 

Property Value

The proposed redevelopment area will occur on one parcel of property (Plate #U01282).  The total appraised value of this parcel is $400,100 for 2011.  This is a slight increase from tax years 2009 and 2010 when the parcel had an appraised value of $400,000.

 

Incentive Request - NRA

On June 16, 2011, Paul Werner Architects (on behalf of Consolidated Properties Inc.) submitted a formal application to the City of Lawrence for consideration of incentives via the creation of a Neighborhood Revitalization Area through the Neighborhood Revitalization Act (NRA).  Consolidated Properties is seeking the approval of a revitalization plan via NRA that provides a tax rebate of incremental real property tax within the Area for 15 years.  The rebate requested is on a sliding scale, starting with a 95% rebate in year 1 and scaling down 5% each following year until year 15 when the rebate would be 25%.  This schedule is different from the previously approved NRA at 1040 Vermont as the percentage-of-payment scale is different and the payment of rebates extends for five additional years. 

 

According to the application letter provided by Paul Werner Architects, public assistance will be needed because “the interior will need more work to allow it to meet current building codes for occupancy.”  Additional information providing justification for the 15-year NRA request has also been submitted by the applicant, along with a suggestion to cap the total incentive at $390,000. 

 

Incentive Request – Sidewalk Improvements

Consolidated Properties Inc. is requesting the City provide ADA access in the right-of-way by reconstructing the sidewalk adjacent to the Masonic Temple.  Paul Werner Architects estimates that this work will cost $10,000 - $12,000 to complete.  For the purposes of the model, a $12,000 pre-operating cost has been included, paid for by the City.

 

Incentive Request – Sprinkler System/Water Meter/Tap Fees

Consolidated Properties Inc. is requesting the City explore helping with the installation of a new water meter, associated tap fees, and the sprinkler system.  The City used to administer the Downtown Sprinkler Program to support such requests, but the program currently lacks funding.  According to the program outline, the Downtown Sprinkler Program is a proactive safety program aimed at getting fire protection sprinkler systems into downtown buildings.  The Sprinkler Program was designed to encourage downtown building and business owners to install new sprinkler systems and/or upgrade existing systems through a combination of direct reimbursements and cost sharing mechanisms.  The Downtown Sprinkler Program allowed for a reimbursement of 75% of the overall cost of sprinkler work, up to maximum levels based on frontage:

 

·         $25,000 per building with up to 25’ of frontage;

·         $10,000 per additional 25’ of frontage ($400 per frontage foot);

·         $5,000 per additional story ($1,000 per mezzanine requiring separate sprinkling).

 

The estimated cost of the sprinkler system for the Masonic Temple is quoted in the request letter at $70,000.  Using the criteria set up by the City, this project would have been eligible for $36,000 based on the fact this building has 50 feet of frontage along Massachusetts Street and one mezzanine eligible for sprinkler assistance.  This amount is divided out in the model as an incentive payment of $3,600 per year over 10 years.

 

NRA Statutory Requirements

According to the Kansas NRA statute, an NRA must qualify under one of the following three findings:

 

(1) An area in which there is a predominance of buildings or improvements which by reason of dilapidation, deterioration, obsolescence, inadequate provision for ventilation, light, air, sanitation, or open spaces, high density of population and overcrowding, the existence of conditions which endanger life or property by fire and other causes or a combination of such factors, is conducive to ill health, transmission of disease, infant mortality, juvenile delinquency or crime and which is detrimental to the public health, safety or welfare;

 

(2) an area which by reason of the presence of a substantial number of deteriorated or deteriorating structures, defective or inadequate streets, incompatible land use relationships, faulty lot layout in relation to size, adequacy, accessibility or usefulness, unsanitary or unsafe conditions, deterioration of site or other improvements, diversity of ownership, tax or special assessment delinquency exceeding the actual value of the land, defective or unusual conditions of title, or the existence of conditions which endanger life or property by fire and other causes, or a combination of such factors, substantially impairs or arrests the sound growth of a municipality, retards the provision of housing accommodations or constitutes an economic or social liability and is detrimental to the public health, safety or welfare in its present condition and use; or

 

(3) an area in which there is a predominance of buildings or improvements which by reason of age, history, architecture or significance should be preserved or restored to productive use.

 

In addition, there must be an overall finding that “the rehabilitation, conservation or redevelopment of the area is necessary to protect the public health, safety or welfare of the residents of the municipality.”

 

Analysis

As part of the application for City assistance, Consolidated Properties, Inc. provided City staff with the Application Form for Economic Incentives and Tax Abatements. 

 

As mentioned above, the property currently appraises for approximately $400,000.  Consolidated Properties, Inc. estimates the value of new construction to be $800,000.  For the purposes of this analysis, it is assumed that the current value plus the value of new construction will equal the future appraised value of the property ($1,200,000).  This analysis also assumes the current appraised value will hold as the base value for the purposes of NRA.  Of the $1.2 million of future appraised value, the base appraised value of approximately $400,000 would not be subject to property tax rebates.  Only the incremental portion of the property value would be subject to rebates.

 

Maceli’s currently employs seven full-time staff and 31 part-time staff.  Maceli’s estimates this project will generate a need for three additional full-time employees:  one sales position, one chef position, and one custodial position.  There will also be additional part-time hires, adding the work hours of approximately seven full-time equivalents (FTEs).  These staff would be paid at a lower rate, and the schedule of those hires is contingent on the business cycle.  For the purpose of this analysis, staff considered three additional full-time staff at an average salary of $25,000.  Additional part-time positions were excluded from the calculations as there is minimal impact to local taxing districts. 

 

Staff conducted an analysis of the benefits and costs associated with the project.  The analysis assumed that the incremental benefit to the City, Douglas County, the School District and the State derives primarily from increases in real property taxes and additional sales taxes from increased company expenditures.  Secondarily, there will be an increase in sales taxes related to catering and event space rentals.  Maceli’s estimates a potential increase in sales of $700,000 per year resulting from the project.  As a large portion of this business will come from  Lawrence and Douglas County, incremental sales tax dollars for additional catering jobs and event hall rentals were not included as a benefit in the analysis.  There would also be some sales taxes resulting from the purchase of construction-related material for construction on the property.  The model does not account for benefits from temporary construction jobs resulting from the redevelopment.

 

The benefit-cost model assumes that there are some capital costs for the City and the County whenever there is new construction in the community.  The model does not take into account the property taxes being collected on the property as it currently stands.  Those would be collected regardless of the redevelopment, and they are not subject to rebate.  As a result, these property taxes are excluded from the analysis.

 

Results

A copy of the results consistent with the request is attached.  In total, over 15 years the model estimates that there will be approximately $630,000 in discounted (present value) dollars of additional revenue for the City, County, School District, and State.  There will be about $85,000 in costs for the City and County, and no costs to the School District and State. 

 

The tax rebate would reduce property taxes to all taxing jurisdictions by about $250,000 in discounted dollars.  Overall, the City’s benefit-cost ratio is 2.69.  This means that for every dollar of additional costs and tax rebates, the City will receive $2.69 of revenue.  After taking into account the tax rebates and additional costs, the City will receive about $75,000 in discounted dollars.

 

The County has a benefit-cost ratio of 3.42 after accounting for the tax rebate.  The County will receive about $48,000 in present value after accounting for costs and tax rebates. 

 

The School District and the State do not have benefit-cost ratios as there are no costs involved.   The School District will receive about $50,000 in discounted dollars, and the State will likely get around $460,000 in discounted dollars after the project is completed.

 

The City conducted two scenarios to analyze this project.  Scenario 1 considered a 10-year NRA term with rebate amounts starting at 95% and reducing 5% per year, down to 50% in Year 10.  Scenario 2 also considered a 10-year NRA term, but with a rebate schedule as follows:

 

·         Year 1 – 75%

·         Year 2 – 70%

·         Year 3 – 65%

·         Year 4 – 60%

·         Year 5 – 55%

·         Year 6 – 45%

·         Year 7 – 35%

·         Year 8 – 25%

·         Year 9 – 15%

·         Year 10 – 5%

 

Both Scenario 1 and Scenario 2 include $12,000 up from the City for an ADA-compatible sidewalk outside the Masonic Temple, and $3,600 per year for 10 years ($36,000 total) for sprinkler-improvement reimbursements.

 

Scenario 1 Results (95% Declining Schedule, 10 Years)

A copy of Scenario 1 results is attached.  In total, over 15 years the model estimates that there will be approximately $660,000 in discounted (present value) dollars of additional revenue for the City, County, School District, and State.  There will be about $85,000 in costs for the City and County, and no costs to the School District and State.  

 

The tax rebate would reduce property taxes to all taxing jurisdictions by about $225,000 in discounted dollars.  Overall, the City’s benefit-cost ratio is 2.82.  This means that for every dollar of additional costs and tax rebates, the City will receive $2.82 of revenue.  After taking into account the tax rebates and additional costs, the City will receive about $80,000 in discounted dollars.

 

The County has a benefit-cost ratio of 3.78 after accounting for the tax rebate.  The County will receive about $55,000 in present value after accounting for costs and tax rebates. 

 

The School District and the State do not have benefit-cost ratios as there are no costs involved.   The School District will receive about $60,000 in discounted dollars, and the State will likely get around $460,000 in discounted dollars after the project is completed.

 

Scenario 2 Results (75% Declining Schedule, 10 Years)

A copy of Scenario 2 results is attached.  In total, over 15 years the model estimates that there will be approximately $725,000 in discounted (present value) dollars of additional revenue for the City, County, School District, and State.  There will be about $85,000 in costs for the City and County, and no costs to the School District and State. 

 

The tax rebate would reduce property taxes to all taxing jurisdictions by about $160,000 in discounted dollars.  Overall, the City’s benefit-cost ratio is 3.14.  This means that for every dollar of additional costs and tax rebates, the City will receive $3.14 of revenue.  After taking into account the tax rebates and additional costs, the City will receive about $95,000 in discounted dollars.

 

The County has a benefit-cost ratio of 4.75 after accounting for the tax rebate.  The County will receive about $75,000 in present value after accounting for costs and tax rebates. 

 

The School District and the State do not have benefit-cost ratios as there are no costs involved.   The School District will receive about $80,000 in discounted dollars, and the State will likely get around $475,000 in discounted dollars after the project is completed.

 

Consideration – NRA Term

There is no maximum term for an NRA, though it is common for NRA projects in Kansas to be structured with 10 year terms.  The previously-referenced NRA for 1040 Vermont was structured with a 10 year rebate term.  The other NRA previously approved by the City Commission was for 8th and Pennsylvania.  In that plan, applicants could file for up to 20 years of rebates but only up to the point of reaching 100% reimbursement for eligible expenses per the 8th and Pennsylvania NRA Plan.  The application for the Masonic Temple project requests a  rebate for 15 years. 

 

Consideration – Downtown Redevelopment

This project is located on Massachusetts Street in the heart of downtown Lawrence.  Resolution 6921 lays out the existing NRA policy.  One of the criteria listed for approving NRAs in the City is “the opportunity to promote redevelopment activities which enhance Downtown Lawrence.”  The redevelopment of the Masonic Temple would qualify under this criterion, meeting this goal of the City.    

 

Recommendation

City staff recommends formation of an NRA for the Masonic Temple project on a 10 year schedule.  A longer term is not consistent with the previously approved NRA at 1040 Vermont.  Additionally, the number and quality of jobs related to the project is not the same as the 1040 Vermont project.  City staff further recommends an allocation of $36,000 over 10 years to reimburse the developer for about half of the costs associated with sprinkler work, consistent with eligibility under the Downtown Sprinkler Program, and a commitment by the City to install an ADA-compliant sidewalk adjacent to the Masonic Temple (at an approximate cost of $12,000).  The percentage of the annual incremental rebate is an issue for the Public Incentive Review Committee and the City Commission to consider. 

 

Staff also recommends that the annual tax rebate and payments be conditioned upon the use of the building as a caterer/dinning facility or another use subject to tax entity (City/County/USD) approval.  Staff does not believe that the incentives should automatically continue if the use of the building is changed from what is currently proposed (i.e. catering and dinning facility).

 

Next Steps:

There are several statutory steps that are required for an NRA.  The attached calendar sets forth the steps necessary to process this request.  The applicant prepared a draft NRA plan for the property based on the applicant’s request. This draft may require adjustment, depending upon the recommendation of the Public Incentive Review Committee and action by the City Commission. 

 

If appropriate, the City Commission should refer the item to the Public Incentive Review Committee for review and recommendation at a meeting to be set for Tuesday, September 13 at 4 pm, and set September 20, 2011 as a date for a public hearing to consider the establishment of an NRA on the Masonic Temple property.