Memorandum

City of Lawrence

City Manager’s Office

 

TO:

Public Incentives Review Committee (PIRC)

 

FROM:

Britt Crum-Cano, Economic Development Coordinator

 

 

Date:

 

CC:

 

February 19, 2013

 

David L. Corliss, City Manager

Diane Stoddard, Assistant City Manager

 

RE:

Tax Abatement Request: Kansas Athletic facilities at Rock Chalk Park

 

 

Background:

 

Rock Chalk Park is a proposed sports campus to be located near the northeast corner of the 6th Street and K-10 intersection, off of George Williams Way.  KU Endowment has announced plans for KU Athletics to proceed with developing a new seated competition track and field stadium for KU Track & Field, new competition outdoor soccer facilities for KU Women’s Soccer, and a softball facility for KU Softball.  KU has also invited the City to locate its new recreation facility on the site, creating unique synergies between the City and the University of Kansas athletics.  The possible City portion of the project is the subject of a February 19, 2013 City Commission agenda item.

 

If the City proceeds, the City portion of the project will automatically be exempt from sales taxes on construction materials as well as property taxes.  Current Kansas Athletic facilities also enjoy a property tax abatement by right.  These facilities when constructed by the University are also exempt from sales tax on construction materials.  However, the proposed structure of construction and lease of the new Kansas Athletic facilities at Rock Chalk Park by Bliss Sports LC may not carry an automatic property tax exemption. 

 

For this reason, the applicant (Bliss Sports LC) is requesting a 10-year, 100% tax abatement for the KU portion of the project. 

 

Analysis:

 

State statutes require a cost-benefit analysis for consideration of a tax abatement.  Bliss Sports, LC submitted a preliminary application for incentives on January 15, 2013.  The company subsequently provided updates to the application, which refined estimates.  The final application requests a 10-year, 100% tax abatement.   Based on revised information as provided on the updated application, analysis shows the request meets or exceeds the 1:1.25 cost-benefit ratio as preferred by the City and County.

 

 

Rock Chalk Park: KU Facilities

Incentives

Cost-Benefit Ratios

Total Value

City

County

USD 323 (Perry-Lecompton)

State

10-year, 100% tax abatement

1.62

2.69

33.16

N/A

$17,031,609

 

 

Overall, the model estimates the total value of incentives at a little over $17 million, with the project delivering positive returns for all jurisdictions over the ten year abatement period.  The analysis shows that the 1.25 threshold for the benefit-cost ratio will be met as the City will realize a benefit-cost ratio of 1.62, the County will realize a ratio of 2.69 and the School District will realize a ratio of 33.16.  This means that for every dollar of additional costs and tax abatements, the City will receive $1.62, the County will receive $2.69 and USD 323 (Perry-Lecompton) will receive $33.16 of revenue.  The State does not have a cost-benefit ratio as there are no costs involved.  

 

 

Additional Analysis:

 

Bliss Sports had previously requested the issuance of Industrial Revenue Bonds (IRBs), which in addition to accommodating conduit project financing, would also provide a sales tax exemption on construction-related materials for the KU portion of the project.  Subsequently, Resolution 7002 was approved by the City Commission on January 22, 2013, indicating the City’s intent to issue IRBs for the project. 

 

Based on initial construction materials expenses, the below shows an estimated break down of the amount of sales tax that the various jurisdictions would forego through a sales tax exemption.

 

 

Estimated Sales Tax Savings: Rock Chalk Park

Est. Construction Materials Expense

$10,000,000

Sales Tax Estimates

 

  City (1.55%)

$155,000

  County (1%)

$100,000

  State (6.3%)

$630,000

Net Estimated Savings from Sales Tax Exemption

$885,000

 

 

 

Incorporating the amount of sales tax savings into the model, additional analysis shows cost-benefit ratios are reduced for both the City and County, but still exceed the 1:1.25 threshold.

 

 

Rock Chalk Park: KU Facilities (includes sales tax exemption)

Incentives

Cost-Benefit Ratios

Total Value

City

County

USD 323 (Perry-Lecompton)

State

10-year, 100% tax abatement

1.49

2.54

33.16

N/A

$17,916,609

 

 

 

Additional Considerations:

 

Under normal property tax exemption status, both the City and KU Athletic facilities enjoy an exemption of property taxes for the duration of ownership.  However, state statutes limit a property tax abatement to 10 years.  Thus, under a tax abatement, the KU portion of the project would be exempt for a limited period.  After that 10-year period, the property would be subject to property taxes.

 

 

Suggested Action:

 

Consider applicant’s request for a 10 year, 100% tax abatement on the portion of the Rock Chalk Park project that will accommodate KU facilities and provide a recommendation to the City Commission regarding the request.  It is anticipated that the City commission would hold its public hearing and consider this issue at its March 5, 2013 meeting.