Memorandum

City of Lawrence

City Manager’s Office

TO:	City Commission
FROM:	Kevyn Gero, Management Assistant
DATE:	December 21, 2015
CC:	Britt Crum-Cano, Economic Development Coordinator Toni Wheeler, City Attorney
RE:	Bond Ordinance for Pioneer Ridge Project Industrial Revenue Bond Issuance

Background:

On February 10, 2015, the City Commission approved a Resolution of Intent to issue Industrial Revenue Bonds (IRBs) for the Pioneer Ridge project.   The resolution of intent is a strong signal that the city intends to eventually issue the bonds for the project.  Additionally, it enables a sales tax exemption certificate to be provided for the project.  The next step in the process is the authorization of the issuance of the bonds.  This is accomplished with the bond ordinance.  Additionally, the Mayor will need to sign various bond documents for the bond closing.  The ordinance also authorizes the Mayor to sign these documents.

IRBs are a form of conduit financing and City of Lawrence is not responsible in any way for repayment of these bonds nor is it exposed to any financial liability of any kind.  In this case, the Pioneer Ridge project is utilizing this mechanism to access a project sales tax exemption certificate, which will enable the project’s construction materials to be exempt from sales tax.  The estimated range of savings to the project will be around $544,000, depending upon the actual cost of construction materials. 

Staff recently updated the projections for sales tax savings on the construction materials based upon 2015 sales tax rates.  Below is a chart showing the savings broken out by jurisdiction.  The State of Kansas by far is the largest factor in the overall sales tax savings because it has the highest sales tax rate.

Pioneer Ridge Sales Tax IRB
Total Construction Costs	Materials	Estimated Materials Cost
$12,037,727	0.4499%	$5,416,977
Pioneer Ridge: Construction Sales Tax Exemption
Taxing Jurisdiction	Tax Rate (2H-2015)	Est Sales Tax Amount
City	1.55%	$83,963
County	1.00%	$54,170
City Portion (0.575): Countywide Sales Tax (1%)		$31,148
County Portion (0.36): Countywide Sales Tax (1%)		$19,501
Other County Municipalities Portion (0.065): Countywide Sales Tax (1%)		$3,521
State	6.50%	$352,104
Total	9.05%	$544,407
City Total		$115,111
County Total		$19,501

IRB Ordinance consideration: 

As previously noted, the next step in the process is consideration of an ordinance to approve the bonds and finalize the transaction.  After the February approval of the Resolution of Intent, a sales tax exemption certificate was issued by the Kansas Department of Revenue at the request of the city and the applicant.  However, formally, the ordinance must be approved to complete the transaction and enable the use of the sales tax exemption for the project.  If the ordinance is not approved, it will require the Pioneer Ridge to pay back any sales tax savings that may have accrued by the use of the exemption certificate to date.    

Requested Action:

Approve first reading of Ordinance No. 9184 authorizing the issuance of up to $14.5 million in industrial revenue bonds (IRBs) and authorize the Mayor to execute the necessary bond documents for the Pioneer Ridge project.