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 Britt Crum-Cano, Economic Development Coordinator Toni Wheeler, Director of the Legal Department
Date:	October 4, 2011
RE:	Partial Tax Abatement and Forgivable Loan Request for Grandstand Sportswear and Glassware Project

Please place the following item on the October 11, 2011 City Commission agenda:

Consider the following items related to the Grandstand Sportswear and Glassware expansion project, if appropriate:   Adopt Resolution No. 6948, granting a ten-year 65% property tax abatement, adopt on first reading, Ordinance No. 8678 authorizing a $25,000 forgivable loan for the project, and approve an Agreement with 3840 Greenway Circle, LLC/Grandstand Sportswear setting forth the related performance requirements for the tax abatement and the forgivable loan. 

Background and Request for $25,000 Infrastructure Forgivable Loan:

At its meeting on September 20, 2011, the City Commission held a public hearing and considered a Resolution of Intent to issue industrial revenue bonds and provide a net 65% property tax abatement for the Grandstand Sportswear and Glassware expansion project.  Subsequent to this action, an opportunity for Grandstand to have a short-term lease for a portion of the new facility fell through.  This required Grandstand to reconsider the purchase of the former Sauer Danfoss building located at 3840 Greenway Circle in the East Hills Business Park.  Through a combination of means, Grandstand has closed the gap created by the loss of the leasing opportunity, with the exception of $25,000.  Grandstand is requesting that the City provide a $25,000 forgivable loan to be used for infrastructure improvements that are required as part of the project.  The loan would be provided in advance of Grandstand’s anticipated closing date, prior to October 25, 2011. Additionally, Grandstand has decided not to pursue industrial revenue bonds as they were only going to be needed in the event the facility was subleased.  Staff suggests that the $25,000 forgivable loan be forgiven over a two year period as long as the company’s performance targets were met for that year.  The same performance requirements would be applicable to the tax abatement for those years, as well. 

The performance agreement with Grandstand sets forth the performance requirements for both the tax abatement and the forgivable loan.  The City’s Overarching Economic Development Policy requires that the City establish performance requirements for the annual continuation of a company’s tax abatement.  The agreement sets forth annual targets in the following areas:  capital investment, job creation, wages and health insurance benefits.  The compliance with each target is measured and an overall compliance is established that determines the annual amount of the incentive to be received.  The following chart illustrates this:

This calculation of compliance creates an objective way of measurement and will be reported annually with the City’s tax abatement report. 

With the addition of the $25,000 forgivable loan, staff recalculated the benefit/cost model.  The loan reduced the City’s benefit/cost ratio from 1.43 to 1.40.  This is still above the 1.25 threshold outlined in the City’s policy.  Additionally, with the constraint of time before the anticipated closing on the real estate, the strong support indicated by the Public Incentive Review Committee for the tax abatement, and the minor reduction in the benefit/cost analysis related to the forgivable loan, staff did not believe that reassembling the Public Incentive Review Committee for this new portion of the request was necessary.  

Recommendation:

Staff recommends that the City Commission adopt Resolution No. 6948, granting a ten-year 65% property tax abatement, adopt on first reading, Ordinance No. 8678, authorizing a $25,000 forgivable loan, and approve an Agreement with 3840 Greenway Circle, LLC/Grandstand Sportswear setting forth the related performance requirements for the abatement and the forgivable loan.