Memorandum
City of Lawrence
City Manager’s Office
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TO: |
Tom Markus, City Manager |
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CC: |
Diane Stoddard, Assistant City Manager Casey Toomay, Assistant City Manager |
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FROM: |
Britt Crum-Cano, Economic Development Coordinator |
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DATE: |
November 21, 2017 |
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RE: |
Boys and Girls Club of Lawrence request for an IRB sales tax exemption on construction materials for the Center for Great Futures project |
Please See List of Attachments at end of memo.
Project Overview
The Boys & Girls Club of Lawrence is planning an addition to the College and Career Center at 2910 Haskell Avenue to expand services for middle- and high-school level students. This new teen facility, the Center for Great Futures, will provide an additional 17,433 square feet for the Club to expand age-appropriate supervision and programming services. To accommodate, the school district has offered the land. Project construction is expected to start at the end of 2017 and be finished in time for the 2018 academic year. See project brochure for additional details.
Incentive Request
Staff received an application from the Boys & Girls Club of Lawrence on November 2, 2017, requesting Industrial Revenue Bond (IRB) financing to access a sales tax exemption on project construction materials. The applicant is requesting approximately $4,520,000 in industrial revenue bonds to cover total project costs. Of that amount, approximately $2,000,000 is estimated to be spent on construction materials.
Note this IRB request is not affiliated with a property tax abatement. (State statutes require a benefit-cost analysis be performed for a tax abatement, but not for a sales tax exemption IRB.)
About Industrial Revenue Bonds
Industrial Revenue Bonds (IRBs) are an incentive established by the State of Kansas to enhance economic development and improve the quality of life. Considered a “conduit financing mechanism” whereby the City can assist companies in acquiring facilities, renovating structures, and purchasing machinery and equipment through bond issuance, IRBs can be useful to companies in obtaining favorable rate financing for their project, as well as providing a sales tax exemption on project construction materials.
IRBs are repayable solely by the company and place no financial risk on the City. When IRBs have been issued, the municipality owns the underlying asset and the debt is repaid through revenues earned on the property that have been financed by the bonds. If the company defaults, the bond owners cannot look to the City for payment.
IRB Eligibility
According to City policy (Resolution No. 7184, dated January 15, 2017), the City may consider, and from time to time issue IRBs when a proposed project furthers the economic goals and objectives of the City, as outlined in Horizon 2020 (the City’s Comprehensive Plan).
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Economic goals of the City as set forth in policy and Horizon 2020 (Comprehensive Plan of Lawrence and Douglas County): |
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Horizon 2020 Goals |
Project Notes |
Qualifies (Y/N) |
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Place high priority on retention and expansion of existing businesses. |
Expansion of local Boys & Girls Club services. 4 new full time and 4 new part time jobs are created with this project. BGCLK will have the capacity to serve 5 times as many teens. |
Yes |
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Encourage existing industry to expand. |
Expansion of local Boys & Girls Club services. 4 new full time and 4 new part time jobs are created with this project. BGCLK will have the capacity to serve 5 times as many teens. |
Yes |
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Assist new business start-ups |
Does not apply |
No |
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Recruit new companies from out-of-state and internationally |
Indirectly: May assist companies by providing additional services to working parents. Workforce development programming offered by BGCLK may also be a draw to companies. |
Yes |
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Encourage high technology and research based businesses. |
Indirectly: May assist companies by providing additional services to working parents. Workforce development programming offered by BGCLK may also be a draw to companies. |
Yes |
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Encourage training and development of Lawrence area employees |
Substantial employee training provided by Boys and Girls Club, highlighted by a strong partnership with USD 497’s College & Career Center and Peaslee Tech Vocational Training Center. Indirectly: higher earning power for parents and future employees. |
Yes |
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Encourage location and retention of businesses which are good "corporate citizens" that will add to the quality of life in Lawrence through their leadership and support of local civic and philanthropic organizations. |
Indirectly: Businesses considered to be good “corporate citizens” may be more willing to stay in our community if the workforce is skilled appropriately. It is also a draw to businesses if their parent employees have trustworthy child care which allows them to work. |
Yes |
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The below table outlines additional IRB eligibility criteria and provides notes on project qualifications:
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2.5 |
IRBs REVIEW CRITERIA |
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Public Benefits |
Project Notes |
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2.5.1 |
In considering whether to approve an application for an IRB, the Governing Body shall determine if the proposed project achieves one or more of the following public benefits: |
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(a): The project meets the economic development goals and objectives of the City, as outlined in this policy and in Horizon 2020, the Comprehensive Plan for the City of Lawrence and Unincorporated Douglas County; |
Yes, 1. higher earning power for parents and future employees, 2. lower societal costs, 3. more jobs |
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(b): The project enhances Downtown Lawrence; |
No: Project not located in Downtown |
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(c): The project promotes infill through the development of vacant lots, the rehabilitation of deteriorated properties, or the adaptive reuse of historic properties; |
Yes: In-fill development on site next to existing College and Career Center |
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(d): The project incorporates environmentally sustainable elements into the design and operation of the facility; |
Yes |
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(e): The project provides other benefits to the City or meets other goals of the City, particularly those set forth in Horizon 2020, the Comprehensive Plan for the City of Lawrence and Unincorporated Douglas County. |
Yes: See H2020 Table |
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Benefit/Cost Threshold |
Project Notes |
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2.5.2 |
When considered in conjunction with a property tax abatement, it is the policy of the City to view more favorably those applications requesting the City to issue IRBs where the proposed project is projected to result in a positive benefit/cost ratio of 1.25 or greater, over a 15-year period, as determined by application of the benefit/cost model described in more detail in Section 1.8.1, above. |
n/a: No property tax abatement requested |
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Competitive Advantage |
Project Notes |
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2.5.3 |
It is the policy of the City to view more favorably those applications requesting the City to issue IRBs, where the project generates revenues from outside this community and enhances the quality of life for residents of this community. The City does not favor those applications requesting the City to issue IRBs, where the project primarily will compete with existing businesses. See also Section 1.8.8: |
No competitive advantage: BGC is non-profit organization with a unique mission in serving the local community. New project is anticipated to provide many intangible benefits, including enhancing the quality of life for residents. |
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1.8.8 |
No Unfair Advantage: It is the policy of the City to deny any application or petition requesting economic development incentives where, in the judgment of the Governing Body, the economic development incentive, if granted, will provide a business with an unfair competitive advantage over another existing business that competes in the same local market for the same consumers. |
No unfair advantage since BGC is non-profit with a unique mission for serving the community |
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Targeted Businesses |
Project Notes |
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2.5.4 |
It is the policy of the City to view more favorably proposed projects involving targeted business as set forth at Section 1.3.3: |
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1.3.3 (a): Life Sciences/Research |
No |
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1.3.3 (b): Information Technology |
No |
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1.3.3 (c): Aviation and Aerospace |
No |
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1.3.3 (d): Value-added Agriculture |
No |
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1.3.3 (e): Light Manufacturing and Distribution |
No |
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Retail and Residential Projects |
Project Notes |
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2.5.5 |
It is the policy of the City to decline to issue IRBs for projects that are largely retail or residential in nature, except that: |
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(a): City may consider the issuance of IRBs for proposed projects that are primarily retail in nature, if the applicant demonstrates that the proposed project is exceptional and that it is likely to add to the City’s retail base by attracting additional retail sales to the community or by capturing retail sales that are leaking from the community to other markets. |
n/a: No retail |
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(b): City may consider the issuance of IRBs for proposed projects that are primarily residential in nature, if the primary purpose of the proposed project is to provide affordable housing, multi-family dwellings, senior living, or a mixed-use development. |
n/a: No residential |
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2.5.6 |
If the proposed project requesting the City to issue IRBs includes any residential dwelling units, then the proposed project must comply with the City’s policy regarding economic development incentives and affordable housing as set forth in Section 1.8.3. |
n/a: No residential |
City policy also mentions other project qualities that are favored or preferred when issuing IRBs. Those aspects are outlined below, along with project notes.
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Other Policy Considerations |
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1.8.1.2 In addition to the foregoing nonexclusive factors, in performing the benefit/cost analysis the City may also consider one or more of the following nonexclusive factors: |
Project Notes |
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(a) the degree to which the proposed project improves the diversification of the City’s economy; |
No direct impact |
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(b) the kinds of job the proposed project will create in relation to the kinds of skills available in the local labor market |
No direct impact |
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(c) the degree to which the ultimate market for the proposed project’s products or services reside outside the community, recognizing that outside markets bring “new money” to the local economy; |
No: BGC is a service provider only |
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(d) the potential of the proposed project to expand and create additional jobs in the future; |
Yes: Indirectly aids job creation by providing services to accommodate working parents. |
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(e) the beneficial impact the proposed project may have on the City, resulting from its creation of other new jobs and businesses, from its use of local products or other materials and substances in manufacturing, or from its creation of niche businesses, such as those in the bioscience arena; |
Yes: Indirectly supports local jobs |
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(f) the beneficial impact the proposed project may have on the environmental quality of the region or, through its products or services, nationally, as well any efforts the proposed project makes to promote sustainability or to mitigate environmental harm. |
No significant impact anticipated. Some environmentally friendly features incorporated. |
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(g) the beneficial impact the proposed project will have on a particular area of the City, including designated enterprise zones and areas of needed revitalization or redevelopment; or |
No: Not in enterprise zone or area designated for revitalization |
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(h) the compatibility of the location of the proposed project with land use and development plans of the City and the availability of existing infrastructure facilities and essential public services. |
Yes: Will use existing infrastructure/existing public services. In-fill on existing school district site. Project will be directly attached to district’s College and Career Center. |
As indicated above, the proposed project appears to meet City eligibility criteria for support.
Previously Authorized IRBs
The City has provided support for organizations seeking bond financing for projects not directly related to economic development, including non-profits such as Lawrence Presbyterian Manor.
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Historical Bond Support |
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Ord |
Ord Date |
Project |
Bond Series |
Bonds |
Amount Authorized (up to) |
Purpose |
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Ord 4948 |
7/25/1978 |
Prairie- Ridge |
Series July 1, 1978 |
Revenue Bonds (Housing Development) |
$2,310,800 |
Senior Apartments, low income housing. Some HUD subsidized. |
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Ord 5045 |
5/15/1979 |
Vermont Towers |
Series May 1, 1979 |
Revenue Bonds (Housing Development) |
$1,757,000 |
Apartments. Low-rent, subsidized |
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Ord 6553 |
5/31/1994 |
Drury Place at Alvamar |
Series 1994 |
Revenue Bonds (Elderly Housing) |
$2,880,000 |
Aquiring, constructing, installing and equipping an Elderly Housing Apartment Project |
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Ord 6395 |
12/22/1992 |
Brandon Woods |
Series 1993 |
Revenue Refunding Bonds (Multi-Family Housing Development) |
$6,000,000 |
Refund Multi-Family Housing development variable rate demand revenue bonds, Series 1987 Multi-Family Housing Development |
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Ord 5739 |
3/31/1987 |
Brandon Woods |
Series 1987 |
Variable Rate Demand Revenue Bonds |
$6,000,000 |
Acquire, purchase, construct and install a Commercial Multi-Family Housing Project. |
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Ord 4627 |
11/11/1975 |
Lawrence Presbyterian Manor |
Series 11-1-1975 |
IRB |
$2,000,000 |
Elderly Housing |
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Ord 5706 |
7/1/1986 |
Lawrence Presbyterian Manor |
Series 1986 |
IRB |
$3,500,000 |
Purchase, construct and equip certain additions and improvements to an existing Nursing Home Facility. |
The below table summarizes more recent support for IRBs that have been authorized previously for economic development related purposes, either in conjunction with a tax abatement or for purposes of accessing a sales tax exemption on project construction materials.
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2017 IRBs: Outstanding |
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Company |
Date of Issue |
Issuing Ord. # |
Year Matures |
Amount Authorized |
Project |
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Bowersock: Series 2011B & 2011C |
2010/2011 |
8607 & 8620 |
2037 |
$27,000,000 |
Hydro-Electric Facility |
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Rock Chalk Park |
Oct. 2013 |
8862 |
2023 |
$40,000,000 |
Commercial Recreational Facility |
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1101 Indiana Street (HERE KS)* |
Nov. 2014 |
9053 |
2017 |
$76,000,000 |
Mixed-Use, Retail and Student Housing |
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100 East 9th Street LLC (888 New Hampshire, North Project): Series 2015* |
Mar. 2015 |
9093 |
2017 |
$23,000,000 |
Mixed-Use Commercial/Residential |
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Dwayne Peaslee Technical Training Center, Inc.: Series 2015* |
May 2015 |
9111 |
2017 |
$1,600,000 |
Technical Training Center |
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800 New Hampshire: Series 2016* |
April 2016 |
9210 |
2018 |
$7,800,00 |
Mixed-Use Commercial/Multi-Family Residential |
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826 Pennsylvania Street* |
Dec. 2016 |
9316 |
2018 |
$3,200,000 |
Mixed-Use Commercial/Multi-Family Residential |
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Dwayne Peaslee Technical Training Center, Inc.: Series 2016* |
Dec. 2016 |
9321 |
2019 |
$2,000,000 |
Technical Training Center |
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Vermont Place |
See Note[1] |
Mixed-Use Commercial/Residential |
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* Stand-Alone IRB used for a Sales Tax Exemption on Construction Materials |
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2017 IRBs: Matured (no longer outstanding) |
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Company |
Date of Issue |
Issuing Ord # |
Matured |
Amount Authorized |
Project |
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DST Systems, Inc: Series 2001 |
2001 |
7331 |
2012 |
$9,000, 000 |
Acquisition & Renovation of Existing Office Building |
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Neuvant House II* |
2013 |
8901 |
2014 |
$2,500,000 |
Specialty Healthcare Facility |
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9th & New Hampshire LLC: Series 2012 (South Project)* |
2012 |
8804 |
2015 |
$17,250,000 |
Mixed Use Hotel (900 New Hampshire Street: South Project) |
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PROSOCO, Inc: Series 1998A ($5,800,000) & Series 1998B ($2,240,000) |
1999 |
7060 |
2019 |
$8,040,000 |
Manufacturing Facility |
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Pioneer Ridge* |
Feb. 2016 |
9184 |
2017 |
$14,500,000 |
Commercial, Independent Living Facility |
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* Stand-Alone IRB used for a Sales Tax Exemption on Construction Materials |
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Estimated Sales Tax Savings
The costs of incentives are restricted to a sales tax exemption on construction materials for the project. Assuming a total project cost of $4,520,000 and using the most recent (July 2017) Kansas Department of Revenue countywide sales tax ratios, staff estimates the total value of exempted sales taxes to be $181,000.
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Total Construction Costs |
Materials % |
Estimated Materials Cost |
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$4,520,000 |
44.25% |
$2,000,000 |
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Center for Great Futures: Estimated Sales Tax Savings |
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Taxing Jurisdiction |
Tax Rate (Jul 2017) |
Est Sales Tax Amount |
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City |
1.55% |
$31,000 |
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County |
1.00% |
$20,000 |
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City Portion of 1% Countywide Sales Tax |
$11,372 |
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County Portion of 1% Countywide Sales Tax |
$7,304 |
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Other County Municipalities Portion of 1% Countywide Sales Tax |
$1,324 |
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State |
6.50% |
$130,000 |
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Total |
9.05% |
$181,000 |
Of this total exemption, the City is estimated to forego a little over $42,000 in sales tax revenues and the County is estimated to forego a little over $7,000 in sales tax revenues. The State would forego approximately $130,000 in sales tax revenues.
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Summary of Estimated Sales Tax Savings: Boys & Girls Club |
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City |
Tax Rate |
Est Sales Tax Amount |
Total |
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City Sales Tax |
1.55% |
$31,000 |
$42,372 |
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City Portion of Countywide 1% Sales Tax |
0.57% |
$11,372 |
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County |
Tax Rate |
Est Sales Tax Amount |
Total |
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County Portion of Countywide 1% Sales Tax |
0.37% |
$7,304 |
$7,304 |
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State |
Tax Rate |
Est Sales Tax Amount |
Total |
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State |
6.50% |
$130,000 |
$130,000 |
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Other |
Tax Rate |
Est Sales Tax Amount |
Total |
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*Other County Municipalities Portion of Countywide 1% Sales Tax |
0.07% |
$1,324 |
$1,324 |
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Total |
9.05% |
$285,728 |
$181,000 |
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Actions To-Date:
City Commission Receipt of Request:
The City Commission received the request at their November 7, 2017 meeting and referred it to the Public Incentives Review Committee (PIRC) for review and recommendation.
PIRC Recommendation:
During the November 14, 2017 PIRC meeting, a motion was made to recommend the City authorize Industrial Revenue Bond Financing (IRB) for the project to access a sales tax exemption on construction materials. Motion passed 5-0.
Draft minutes of the November 14, 2017 PIRC meeting are attached.
City Commission Requested Action
Receive recommendation from the Public Incentive Advisory Committee on Industrial Revenue Bond financing for a construction project at 2910 Haskell Avenue.
Adopt Resolution 7230, if appropriate, authorizing the issuance of up to $5,000,000 in industrial revenue bonds for the Center for Great Futures project to obtain a sales tax exemption on project construction materials.
List of Attachments