Memorandum
City of Lawrence
City Manager’s Office
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TO: |
David L. Corliss, City Manager
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FROM: |
Diane Stoddard, Assistant City Manager
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CC: |
Cynthia Wagner, Assistant City Manager
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Date:
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June 19, 2012 |
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RE: |
Initial Steps to Consider Proposed Tax Increment Financing (TIF) District for the 9th and New Hampshire Project |
Please place the following item on the June 26, 2012 City Commission agenda:
Consider the following items related to a request to establish a tax increment financing district for proposed mixed-use projects on the southeast and northeast corners of 9th and New Hampshire:
Consider first reading of an ordinance to remove the property on the east side of the 900 block of New Hampshire from the current Downtown 2000 redevelopment TIF (tax increment finance) district, and set a date and time for the Public Incentive Review Committee to consider the proposed project.
Background:
At the March 6, 2012 City Commission Meeting, the Commission approved a funding agreement to initiate the tax increment financing and transportation development district process for the proposed project at 900 New Hampshire. Additionally, the City Commission approved a contract with Springsted to complete the statutorily required feasibility study.
The developer has been working to process the 900 New Hampshire portion of the project through the Historic Resources Commission. This process is the subject of another agenda item on this agenda.
At the June 19, 2012 City Commission Meeting, the Commission approved a resolution making a finding that the proposed new TIF district was within an Enterprise Zone, and a resolution setting the date for a public hearing on the proposed TIF district for July 24, 2012. The resolution establishes the legal boundaries of the proposed district as illustrated by the attached map.
Discussion:
The previous request from the developer included a tax increment financing (TIF) district, transportation development district (TDD) and industrial revenue bonds for a mixed-used hotel project on the southeast corner of 9th and New Hampshire. An updated request also provides for this previously indicated project, as well as another proposed mixed-use project on the northeast corner of 9th and New Hampshire. Specifically, the project descriptions for these two mixed use developments are:
North Project Area
Planned mixed-use apartment and banking center with between 90 to 120 apartment units, and bank and apartment amenity space located on the first floor, underground parking, water line improvements along New Hampshire Street, and related public and private infrastructure.
South Project Area
Planned mixed-use 81 unit hotel with retail space and hotel lobby on the first floor, underground parking and related public and private infrastructure.
This area will also include a proposed project related to the Lawrence Arts Center, an Arts Commons space. This Arts Commons is intended to serve as a public arts space, managed and curated by the Arts Center, featuring a park-like setting and perhaps a built structure. This space would be located on the Salvation Army tract located directly south of the Arts Center. The space could be a venue for public art exhibitions, theatrical productions, music, film and art-making activities. The green space would also provide space for children attending the arts-based preschool and other educational programs the opportunity to work and play outside. The building, paid for and constructed by the Arts Center through a future capital campaign could help define the public green space and add classroom, preschool, studio and exhibition space. The project includes funding for site acquisition and preparation.
Impact of new TIF on Existing TIF District:
The properties along the east side of the 900 block of New Hampshire, including 900 New Hampshire, the Arts Center property and the Salvation Army property, are all within a current TIF district established to construct the city-owned parking garage in the 900 block of New Hampshire and provide for the Arts Center project. In order to have these properties be included within a new TIF district, they will need to be removed from the current TIF district. This will require the City Commission consider an ordinance to remove the properties prior to the new TIF being formally established. One of the items on this agenda is consideration of first reading of an ordinance removing the property from the current TIF district. Second reading will be scheduled for a future meeting.
Staff has completed a separate study, as requested by bond counsel, to examine the impact of removing the 900 New Hampshire parcel from the existing TIF district and creating a new TIF district solely for that property. Analysis shows that if the parcel remains unimproved, there is little impact on revenues generated from property tax regardless if the property stays within the current TIF district or is removed to another TIF district. Although projections were not made for parcel improvements within this study, it was noted that improvements to the parcel would likely have a substantial impact on the TIF district where the parcel is located. Improved projections are anticipated to be presented within the statutorily required feasibility study being prepared by Springsted. Additionally, with the lack of development on the site since the adoption of the first TIF district and the time elapsed on that district, it is likely reasonable to assume that the parcel may not develop without incentives in the future. The proposed new project includes a contribution to general city revenues, from the project’s sources, representing the fair share contribution from the 900 New Hampshire parcel to the debt associated with the existing parking garage. This contribution is discussed later in this memo.
Financial Summary and Feasibility Analysis:
Springsted, a firm specializing in advising public entities regarding financial matters, was hired by the City of Lawrence to provide the statutory feasibility analysis for the project. These items include the TIF feasibility study, the 4-story 900 New Hampshire need for assistance analysis and the north project need for assistance analysis. Springsted also prepared a 3-story feasibility analysis related to the 900 New Hampshire site. David MacGillivray and Tony Schertler with Springsted will be on hand at the City Commission to provide an overview of these reports and answer any questions the City Commission may have.
The developer is specifically requesting a TIF that captures both the full property tax increment and the sales tax increment (both City and County share) associated with the new development. Additionally, a TDD sales tax of 1% of sales would also be added within the district. The attached table summarizes the sources and uses of TIF and TDD revenue. The TDD and TIF revenues are designated for eligible costs. These include items such as the parking garage, infrastructure, purchase of the Salvation Army property for the Arts Commons project (should negotiations for such purpose be successful), interest costs related to the eligible items, and the contribution back to the existing parking garage within the 900 block of New Hampshire. The costs are estimated to total just under $13 million. The total projected TIF and TDD revenue is estimated at approximately $11.8 million. The TIF and TDD is proposed to be a pay-as-you-go project with the developer fronting all of the development costs and being reimbursed over time for the eligible reimbursable expenses. Any shortfall in expected revenue will result in less reimbursement for eligible project costs.
Arts Commons Project: The Lawrence Arts Center has recently been visiting with City officials about a proposal to establish a Lawrence Arts Commons on the property south of the Lawrence Arts Center. This property is currently the site of the Salvation Army and is located at 946 New Hampshire. The Arts Center has submitted a white paper that outlines a general proposal for the project.
Briefly, the plan calls for acquisition of the property, razing the current structure and establishing a green space that would be a park-like setting that would be a public arts space, managed and curated by the Arts Center. Future plans may include a capital campaign to build a building on the site for classroom, preschool, studio and exhibition space. The project would be paid for by the Lawrence Arts Center. However, the Arts Center has requested assistance from the City of Lawrence regarding the acquisition of the property and preparing the site (razing the current building).
The City contribution to this Arts Center project is proposed to be placed in the proposed TIF project for the 9th and New Hampshire intersection. $900,000 is included in the proposed TIF project for the purchase of the Salvation Army building and razing the current structure. It should be noted that City officials have had initial discussion with Salvation Army officials concerning this potential project. While Salvation Army officials have been open to the discussions, it is important to note that the Salvation Army has not yet agreed to sell the property, nor has an agreed-upon purchase price been established, nor a time for the acquisition. Discussions about the possible acquisition are still underway.
Staff and the developer are proposing that 5% of the annual TIF revenue be dedicated toward the Arts Commons project. Given TIF revenue projections, this would generate approximately $27,000 annually or a total of approximately $530,000 over 20 years. It is proposed that the development agreement establish that any additional TIF revenue generated above the current projections, after the obligations are reimbursed, would be dedicated fully for the repayment of the Arts Commons project up to a total of $900,000. The Arts Commons project also presumes that the City would front the costs related to that portion of the project; it would not be a developer responsibility.
TDD Project: The TDD is projected to generate $1.18 million in revenue over the course of the 22 year timeframe. Staff and the developer are recommending that $850,000 of the revenue first be obligated to the City for the contribution toward the existing parking garage. To the extent that additional revenues are generated through the TDD, those revenues will be allocated toward other eligible TDD costs incurred by the developer. Staff has written a memo outlining the rationale behind establishing the $850,000 amount as a fair share contribution of the 900 New Hampshire parcel toward the existing parking garage in the 900 block of New Hampshire.
It should also be noted that the proposed project will generate a projected $75,000 annually in guest tax revenue, along with additional franchise fee revenue for the City. Both of these revenues are not being captured by the TIF and will come to the City annually upon completion of the project.
Calendar and Steps:
The establishment of a TIF and a TDD are process intensive. There are many steps related to establishing these districts, along with many public input opportunities. A draft project calendar outlines the timeline for establishment of the proposed tax increment finance (TIF) and transportation development district (TDD).
The request for the new TIF district for this project requires that the property be removed from the existing TIF district established for the 900 block of New Hampshire. The action to remove the property from the current district is required to come before any action to establish a new district, as indicated on the draft calendar. Removal of the property from the current district is accomplished by ordinance, requiring a first and second reading. Again, the actions on these items are the first step in consideration of establishing a new TIF district, but there is significant process involved with the establishment of a TIF district, as reflected on the draft calendar.
Gary Anderson, the City’s bond counsel from Gilmore & Bell, will be at the meeting to address any questions about the process.
Action Requested:
Consider, and if appropriate, authorize the following actions: