Memorandum

City of Lawrence

City Manager’s Office

TO:	Thomas M. Markus, City Manager
FROM:	Diane Stoddard, Assistant City Manager
DATE:	July 18, 2016
CC:	Casey Toomay, Assistant City Manager Britt Crum-Cano, Economic Development Coordinator Charles Soules, Director of Public Works Bryan Kidney, Director of Finance
RE:	Economic Development Audit

There is a section of the recent performance audit on economic development related to receipt of payments for economic development. This section is entitled “Other Issue” and is located on page 14 of the audit. This section has created several questions, so I thought that it would be appropriate to address it in more detail, which is the purpose of this memorandum.

In the section, the City Auditor discusses three instances where “payments have been received late and tracking hasn’t been adequate.” Subsequent media report and various commentaries seem to suggest that the payments related to the three items had been completely forgotten. I wanted to assure you, the City Commission, and the public that is not the case. In the instances of the IRB application fee for the Rock Chalk Park development for KU Athletics and the $75,000 payment to the City’s affordable housing fund related to the 800 New Hampshire (former Pachamamas) mixed use development, City staff was aware of these items and collected payment. In the case of the East Hills Business Park special assessments owed by the County, staff was actively aware of this issue and working with County officials on resolving it, though there are reasons why this is still in progress. I will address these three instances further below.

Rock Chalk Park IRB Application Fee:

In 2013, the City Commission approved a property tax abatement for the Rock Chalk Park development for KU Athletics undertaken by KU Endowment, RCP, LLC., and Bliss Sports. The facilities for KU Athletics would have been automatically 100% exempt for the duration of ownership had they been developed by the University on State of Kansas property. However, due to KU’s deal structure for development of its RCP facilities, the project required a property tax abatement be processed through the City, which was capped by State statute at 10 years. The $1000 application fee for the property tax abatement was not collected at the time of the application for the abatement. However, staff was in communication with the applicant prior to the application for the abatement being submitted to the State of Kansas agency responsible for granting such abatements. The correspondence informed the applicant that such application fee was due to the City, along with the State agency fee. Both of these items were received by the City and the City submitted the application for abatement. Had the items not been received by the City, the application would not have been submitted. The correspondence from staff is dated May 2014 and the State of Kansas application was submitted in November 2014.

800 New Hampshire Contribution to Affordable Housing Trust Fund:

In early December 2015, the City Commission approved a resolution of intent to issue industrial revenue bonds (IRBs) to the 800 New Hampshire mixed use project for the former Pachamamas’ site for the purpose of accessing a sales tax exemption on the materials used in construction of the project. As part of the consideration, the City Commission also required that the developer contribute $75,000 to the City of Lawrence Housing Trust Fund. The resolution of intent had a deadline for the contribution of March 1, 2016, which was an staff estimate of when the bonds would proceed. However, the bonds did not get finalized until May 2016. Staff had certainly not forgotten about the payment because the final action on the bonds had not occurred. In actuality, this arbitrary deadline created functional problems as the developer didn’t even have their bond financing in place by March 1, 2016. Rather than spell out a hard deadline, for future resolutions requiring contributions, staff would suggest the deadline be tied to a functional process (e.g. the contribution is received prior to bond issuance) to avoid the logistical problems hard deadlines can create. When staff realized the March 1, 2016 date had passed, the developers were invoiced for the payment on March 3, 2016. However, the payment would have been received prior to staff finalizing the bond issuance, which didn’t occur until May. Payment was received from the developers on March 8, 2015.

East Hills Business Park Special Assessment Deferral:

The audit refers to a payment of about $450,000 related to the development of East Hills Business Park due from the County in May 2014, which had not been received or waived. Some background on the issue is appropriate. The East Hills Business Park was developed through a partnership of the City of Lawrence, Douglas County and Douglas County Development, Inc. (DCDI), in the early 1990s. As part of the County’s contribution to the project, the County purchased and held the property and the City fronted the infrastructure through special assessment benefit district financing. The special assessments were deferred until such time the lots would be sold and the special assessments either paid or waived as part of an economic development incentive package for the project. In 2008, the City Commission approved an extension of the ongoing deferral of special assessments on the remaining undeveloped lots in East Hills owned by the County. The agreement deferred these assessments until May 2014, or such time the lots would be sold.

In 2014, the County had been in discussion with City staff regarding the status of this issue and, at the time, the City was working on the infrastructure for Lawrence Venture Park, an adjacent business park, which included three of the County-owned lots in East Hills. Those lots would eventually be assessed the long-standing East Hills assessments, and also new assessments related to Venture Park. Staff was working with Douglas County on the timing of this waiver request extension and staff preferred to have the waiver item considered at some time the Lawrence Venture Park special assessments were ready to be formally assessed. This was because the County would likely request deferral of those new Venture Park assessments on the two former East Hills lots - those costs have just recently be finalized, yet the formal assessments have not yet been levied. City and County staff have been in fairly frequent conversation on this matter. Staff has been operating under the assumption that the City Commission would likely continue to grant the waiver on the East Hills assessments. In fact, the City Commission did authorize the waiver of approximately $45,000 in special assessments on one of the County-owned lots in East Hills in order to accommodate the Prosoco expansion project in the fall of 2015. Finally, the majority of the vacant County-owned property with outstanding special assessments may never develop or be slow to develop due to them functioning as storm drainage detention for the park, several land-locked parcels and several parcels with challenging topography. Attached is a map showing the outstanding special assessments on the County-owned tracts in East Hills/Venture Park. The map does not include the Venture Park county-owned tracts that are not part of the East Hills benefit district.