Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
FROM:	Diane Stoddard, Assistant City Manager

Date: CC:	October 17, 2012 Cynthia Wagner, Assistant City Manager Britt Crum-Cano, Economic Development Coordinator
RE:	Ninth and New Hampshire Redevelopment Project Items: Tax Increment Financing (TIF) District Plan and Redevelopment Agreement for the South Project Area, Transportation Development District (TDD) and Industrial Revenue Bond (IRB) Financing

Please add the following on the agenda for the October 23, 2012 City Commission Meeting:

Consider the following items regarding the Ninth and New Hampshire Redevelopment Project:

Continue the public hearing on the Redevelopment Plan for the South Project Area Tax Increment Financing District (TIF);
Continue the public hearing on the creation of the Transportation Development District (TDD) for the project;
Consider first reading of Ordinance 8791 adopting the Redevelopment Plan and approving a Redevelopment Agreement for the South Project Area (requires 2/3 majority);
Consider first reading of Ordinance 8803 creating the Transportation Development District (TDD) for the project, and authorizing levying an additional 1% sales tax on property owned by the developer;
Consider first reading of Ordinance 8804 authorizing Industrial Revenue Bonds for the project.

Background:

In early August, the City Commission established the 9^th and New Hampshire Redevelopment District (TIF District). The next step in the process is consideration of the redevelopment plan and redevelopment agreement. As the Commission may recall, there are two project areas identified in the TIF district. The south project area will be completed ahead of the north project area. Therefore, the South Project Plan is ready to proceed. The project plan for the north area will come forward in the future and will go through the same process of adoption as the south project plan and approval of a separate redevelopment agreement for the north area.

South Project Plan Summary:

On August 13, 2012, the developer submitted the Redevelopment Plan for the South Project. The plan was been delivered to the School District and County and filed with the City Clerk. Additionally, the plan has been reviewed by the Planning Commission on August 20, and found to be in conformance with the City’s comprehensive plan, Horizon 2020. Based upon some revisions submitted by the developer in late September, the August plan has been modified. The new South Project Plan dated October 5, 2012 reflects the current project and also incorporates previously noted clarifications regarding interest reimbursement calculation and the correction of several typographical errors. This updated plan has also been distributed to the School District and Douglas County.

The plan generally outlines the authorization steps taken by the City Commission regarding the TIF District, a description of buildings, facilities and improvements, a summary of the feasibility study, and how TIF and TDD revenues will be distributed and shared. The provisions of the plan are then outlined in more detail in a redevelopment agreement between the City and the developer.

The South Project Plan sets forth the planned mixed-use hotel project on the southeast corner of 9^th and New Hampshire. Both the property tax increment and sales tax increment will be captured on the new development, with the base taxes continuing to be distributed to the taxing jurisdictions. The developer will front all of the funds to proceed with the project, with the exception of the Arts Commons portion of the project. The developer will then be reimbursed, over time on a pay as you go basis, for costs associated with the underground parking garage, public improvements and infrastructure, related to the construction of the mixed-use hotel building on the southeast corner of 9^th and New Hampshire, to the extent that revenue is captured by the TIF to reimburse these costs, subject to an overall cap of $3.5 million in project costs, not including interest. The plan also sets forth the possible Arts Commons project, which envisions the possible purchase of the Salvation Army tract for future Arts Center use. The funds for this portion of the project would be fronted by the City and reimbursed with 5% of the annual captured TIF revenue from the district, plus any increment remaining after the developer’s costs are reimbursed, up to a total of $900,000. Based upon incremental revenues projected, it is anticipated that the 5% allotment to the City would generate approximately $520,000 (updated projection) over the twenty year period, with revenues from the South and North Project areas combined. The City will also receive the first $850,000 from TDD revenues derived from the project to go toward the debt on the existing parking garage in the 900 block of New Hampshire. This issue is addressed more fully in the TDD section of the memo.

Based upon City Commission direction at the October 2, 2012 meeting, the updated plan also incorporates the following changes from the August version:

· Interest Reimbursement Rate: Section V clarifies that interest would be calculated based on the actual rate of borrowed funds at the time that permanent financing is put in place, not to exceed the Prime Rate plus 3% as published in the Wall Street Journal and not to exceed the actual rate the developer is paying on its Industrial Revenue Bond financing or other permanent financing mechanism for the entire project. The developer will need to certify the interest rate to the City. We believe that this language is fair to both parties and encourages the developer to seek the lowest interest costs.

· Internal Use Changes: The developer had submitted a letter dated September 20, 2012 indicating several changes to the interior uses within the hotel project. These changes include the elimination of the rooftop restaurant and pool area which are replaced with three condominium units on the top floor, the elimination of projected apartments replaced with 11 additional hotel rooms bringing the total project to 92 hotel rooms, and the conversion of approximately 350 square feet of the first floor lobby space to retain use, and the inclusion of a first floor pool area. On October 3, 2012, the developer submitted additional renderings to the City regarding these changes.

· Arts Commons Project Timeframe: The plan requires the City to initiate the Arts Commons project within a five-year time frame. If the project isn’t initiated within the five-year window, the plan calls for the TIF revenues allocated for that project be shifted to be applied to eligible developer reimbursements.

Transportation Development District (TDD):

In addition to the TIF request, the developer has requested that a new 1% Transportation Development District sales tax be added to sales on property owned by the developer within the TIF District. Original projections indicated this TDD sales tax would generate approximately $1.18 million over the maximum 22 year period. Due to some of the use changes internal to the Hotel project, the revised projections estimate $1.04 million in TDD sales tax revenue over the 22 year period. The developers have submitted a petition requesting the TDD and setting the maximum collection at $3 million, though this amount is not expected to be generated. Of the amount collected, the first $850,000 is proposed to be dedicated to the City toward repayment of the bonds issued by the City on the existing parking garage in the 900 block of New Hampshire. It should be noted that the total revenue to be collected by the TDD will be driven by actual sales at the facilities. Also, while the change to the TDD projections do not have a dramatic effect on projected revenue, the gap between the amount projected and the $850,000 to go to the City is narrowed. It should also be noted that there is no guarantee related to the $850,000 coming to the City from the TDD sales tax. The redevelopment agreement would require the developer to place the TDD signage at the locations the TDD sales tax is collected, in accordance with the City’s TDD policy.

Redevelopment Agreement:

The redevelopment agreement sets forth the details of the reimbursement of the TIF eligible expenses and TDD revenues for the South Project Area. The redevelopment agreement essentially mirrors the provisions of the South Project Area Redevelopment Plan. Gary Anderson, the City’s bond counsel, will be on hand at the meeting to walk the Commission through the major provisions of the redevelopment agreement.

Industrial Revenue Bond Financing:

Previously, the City Commission adopted a Resolution of Intent to issue up to $17.25 million in industrial revenue bonds for the development of the 9^th and New Hampshire project. As previously noted, industrial revenue bond financing is a conduit financing mechanism. The developer is responsible for all principal and interest payments on the bonds. The main benefit of industrial revenue bond financing for this project is a sales tax exemption on construction materials for the project. The next step is consideration of an ordinance authorizing the issuance of the bonds.

Action Requested:

Continue the public hearings on the Redevelopment Plan for the South Project Area Tax Increment Financing District (TIF) and the creation of the Transportation Development District (TDD) for the project;
Consider first reading of Ordinance No. 8791 adopting the Redevelopment Plan and approving a Redevelopment Agreement for the South Project Area (requires 2/3 majority);
Consider first reading of Ordinance No. 8803 creating the Transportation Development District (TDD) for the project, and authorizing levying an additional 1% sales tax on property owned by the developer;
Consider first reading of Ordinance No. 8804 authorizing Industrial Revenue Bonds for the project.