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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DATE: |
April 2, 2014 |
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CC: |
Cynthia Wagner, Assistant City Manager Britt Crum-Cano, Economic Development Coordinator |
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RE: |
Tax Increment Finance and Transportation District Items related to the 9th & New Hampshire Redevelopment District |
Please place the following items on the April 8, 2014 agenda:
Consider the following items related to the 9th & New Hampshire Redevelopment District:
Background:
In 2012, the City Commission established a Tax Increment Finance District (TIF/Redevelopment Area) for the 9th and New Hampshire Redevelopment project. The TIF area includes two project areas, a South Project area and a North Project area. The redevelopment plan for the South Project area was approved in 2013. The new hotel on the southeast corner of 9th and New Hampshire, which is the cornerstone of the South Project area, is currently under construction.
The developers have submitted a proposed redevelopment plan for the North Project area. The redevelopment plan calls for a new $24.5 million mixed-use apartment building with underground parking on the northeast corner of 9th & New Hampshire, which would replace the existing structure. The project would construct approximately 90-120 apartment units, provide commercial space on the first floor, build approximately 100 spaces of underground parking, construct water line improvements along New Hampshire Street, and provide related public and private infrastructure.
The Planning Commission considered this redevelopment plan at its February 24 meeting and unanimously made a finding that it is consistent with the City’s comprehensive plan. The City Commission approved a resolution setting April 8 as a date for a public hearing on the proposed North Project Redevelopment Plan.
Financial Summary and Feasibility Analysis:
The project is a pay-as-you-go TIF project with the project costs entirely being fronted by the developer, with no upfront public expenses or guarantees. The developer will be reimbursed over time for the eligible reimbursable expenses as revenue is available, up to the TIF cap of $4.75 million plus interest. Any shortfall in expected revenue will result in less reimbursement for eligible project costs. The TIF will capture both the full property tax increment and the sales tax increment (both City and County share) associated with the new development. As part of the initial creation of the district in 2012, 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 included the TIF feasibility study and the north project need for assistance analysis. The feasibility study concluded that the projected TIF revenues plus anticipated developer contributions would be sufficient to pay the project costs. The estimated project costs provided by the developer have grown since the original study was completed. Originally, the combined TIF eligible expenses totaled $5.55 million plus interest and the estimated TIF revenue was $4.43 million. The developer was anticipated to make up the difference between the anticipated revenues and expenses through an additional contribution from the developer. The developer has estimated that the TIF eligible expenses will now total $5.63 million plus interest. Again, the developer will be required to make up any difference between project revenues and expenses and have indicated to the City that the project is still viable, despite the increased developer contribution required.
The attached table summarizes the sources and uses of TIF revenue for the North Project. Because no sales tax generating uses are proposed, no TDD revenue is projected for the north project.
North Redevelopment Plan and Redevelopment Agreement Summary:
The City Commission previously approved the South Project Area Redevelopment Agreement. That agreement was utilized as a base for discussions of the North Project Area Redevelopment Agreement and many provisions are similar. The draft North Project Redevelopment Agreement sets forth the details of the reimbursement of the TIF eligible expenses and any possible TDD revenues for the North Project Area. The agreements establish a cap of $4.75 million in TIF eligible expenses, plus interest, for reimbursement. Interest costs will be based on the actual rate of borrowed funds, as long as this rate does not exceed the prime rate plus 3% as published in the Wall Street Journal on the date of the agreement, or the date that permanent financing is in place initially. This ensures that the developer has an incentive to keep the interest costs to the lowest possible costs. This interest cost provision is the same as the provision in the South Project Area Redevelopment Agreement, but some language has been modified to make it more clear.
The agreement sets forth the priority of disbursement for the North TIF revenues as follows:
1) 5% of incremental revenues to the City for the Arts Commons Project;
2) 95% of incremental revenues to the Developer to reimburse eligible and documented TIF expenses
If the City does not proceed with the Arts Commons Project within 60 months of the date of the agreement, the City’s 5% will be used to reimburse the developer’s eligible project costs.
The agreement enables units to be made into condominiums in the future, but future third party owners will still be subject to the terms of the agreement, and the developer would receive the reimbursement of project revenue. The agreement also allows the developer to transfer the parking improvements to a separate 100% owned subsidiary and requires the two principals continue to participate in the management of any new or restructured company.
Though no TDD revenue is anticipated to be generated from the North Project, the agreement does specify that after the City’s $850,000 has been paid from any TDD revenues generated on the South or North Project, the TDD revenues will then go to meet the South TDD eligible expenses with any remainder going to the North Project to reimburse any TDD eligible expenses, up to the overall $3 million TDD cap, otherwise not reimbursed through TIF revenues. It should be noted that the Springsted feasibility study only projected approximately $1.1 million to be collected via the TDD sales tax.
Staff and the developer are still discussing section 5.03 of the agreement related to the operation of the project and the draft language in this section may be subject to change.
Industrial Revenue Bond Financing:
The City Commission authorized industrial revenue bonds (IRBs) for the development of the South 9th 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 and labor for the project. The same IRB financing is requested for the North Project. The IRB amount requested is up to $24.5 million.
The City Commission is asked to consider a Resolution of Intent to issue up to $24.5 million in IRBs for the North Project, subject to final action on the ordinance adopting the North Redevelopment Plan and agreement.
Transportation Development District:
In 2012, the City Commission approved a Transportation Development District (TDD) for the 9th and New Hampshire redevelopment area. This TDD will add an additional sales tax of 1% on purchases made within the district. The TDD is anticipated to generate approximately $1.1 million over its 22 year span. According to the development agreement for the project, the first $850,000 of TDD revenue will be dedicated to the City as a contribution to the existing 9th and New Hampshire area parking garage. The remainder of any projected revenue will be used to reimburse the developer for parking garage costs not otherwise reimbursed through TIF revenue. Revenue beyond the first $850,000 will first go to the South Project with any remainder going to the North Project.
In early 2013, the City became aware that there was a problem with the TDD petition that was used to establish the 2012 TDD. The problem came to light when the documents were being filed with the Register of Deeds. The owner of the northeast corner property was listed as a different Compton entity than the actual owner, Compton Rentals, LLC. This creates a problem with the legitimacy of that 2012 TDD. Because the City of Lawrence is the primary beneficiary of the majority of the TDD revenue, it is in the City’s interest to fix the TDD so that there is no question about its legality in the future.
The developers submitted a new petition with the proper ownership in the fall of 2013. Everything is the same about the new petition as the TDD approved in 2012, except that the 2012 TDD was set to start collection on July 1, 2014 and the new petition calls for the collection to begin January 1, 2015. The reason for the date change is that January 1, 2015 will be closer to the opening of the hotel than the July 1, 2014 date. The City Commission recently authorized the dissolution of the 2012 TDD in order to make way for the corrected TDD.
City Approval Status:
A number of City approvals related to the North Project have already been granted. The Historic Resources Commission (HRC) approved the project with conditions on September 20, 2012. The conditions include working with the Architectural Review Committee (ARC) on the final design and materials of the structure. The City Commission approved the demolition of the existing structure and the applicants appeal of the Downtown Design Guidelines to allow for angled parking on October 23, 2012. The developer will still need to submit a site plan, complete the HRC conditions of approval and work with the ARC on final design and materials, and receive public improvement plan approvals.
Traffic Control Plan:
The developers have provided a North Traffic Control Plan, which calls for the closure of the east lane of New Hampshire adjacent to the project and the north lane of 9th Street adjacent to the project, during project construction. When asked how the North Traffic Control Plan interfaces with the South Traffic Control Plan, the developers provided this response, indicating that the two projects will not conflict such that both lanes are closed on 9th Street at the same time. To ensure this is the case, staff recommends that the proposed traffic control from the north project do not commence until after July 15, 2014.
Mural Issue:
During the discussion of setting the date for the April 8 public hearing, the City Commission requested staff be involved in the mural discussions between Spencer Museum personnel and the developers and other stakeholders concerning the Pollinator’s mural on the north side of the existing structure. City staff attended a meeting between Spencer Museum staff and neighborhood stakeholders on March 24. City staff understands that there will be further discussions between Spencer Museum staff and the developer on Friday, April 4. An additional update on the status of the mural issue will be provided after that meeting. Additional mural issue documentation is included on the March 11, 2014 City Commission agenda, Regular Agenda Item 1.
Easement Request:
The developers have submitted an easement request related to the North Project. They are requesting a 30 foot building setback onto the City’s parking lot property to the north of the North Project. The reason for the request is that building code requires a 30 foot setback or the wall has to be specially constructed due to possible proximity to other structures, making the project more expensive and less feasible. They also indicate that they desire the setback because they plan to construct balconies on the apartment units and the setback would provide light and ventilation for the units.
Restrictive Covenant related to Parking Garage:
In conjunction with the South Project, the City requested a restrictive covenant that requires that the parking garage remain a parking garage into the future. Staff assumed that the City Commission would want a similar restrictive covenant regarding the parking garage associated with the North Project. The City Commission should consider final action on the restrictive covenant as part of final adoption of the redevelopment plan, if appropriate.
Suggested Actions:
Staff recommends that the City Commission consider the following actions related to the North Project Redevelopment Project and the 9th and New Hampshire TDD: