Memorandum

City of Lawrence

City Manager’s Office

TO:	David L. Corliss, City Manager
CC:	Cynthia Wagner, Assistant City Manger
FROM:	Britt Crum-Cano, Economic Development Coordinator Diane Stoddard, Assistant City Manger
DATE:	July 2, 2014
RE:	HERE Kansas request for 1101/1115 Indiana Street

Please place the following on the July 8, City Commission agenda:

Receive recommendation from the Public Incentive Advisory Committee and receive request from HERE Kansas for a Neighborhood Revitalization Area (NRA) and Industrial Revenue Bond financing for a multi-use apartment building development.

Hold a public hearing on the establishment of a Neighborhood Revitalization Area (NRA) at 1101 & 1115 Indiana Street. After the public hearing, consider first reading of Ordinance 9021 establishing the revitalization area and approving the NRA plan, and consider Resolution 7075 authorizing Industrial Revenue Bond (IRB) financing in order to receive a sales tax exemption on project construction materials.

Overview

The City has received a request letter and application from HERE Enterprises/Kansas LLC, to establish a Neighborhood Revitalization Area (NRA) and stand-alone Industrial Revenue Bonds for the property at 1101/1115 Indiana Street. Specifically, the company is requesting:

· Industrial Revenue Bonds (IRB) in order to receive a sales tax exemption on project construction materials.

· A 12-year, 95% NRA rebate of the incremental real property tax revenues generated by the property. The company is requesting NRA participation of the City of Lawrence, Douglas County and School District USD 497.

HERE Enterprises/Kansas, LLC, is proposing the redevelopment of the property into an upscale, 7-story, mixed-use, student housing community. The proposed $75.5 million project will include approximately 237 high-end apartment units, first floor retail consisting of approximately 13,137 square feet to accommodate multiple retail users, and an automated robotic parking garage.

This request was received by the City Commission at its June 17, 2014 meeting and was considered by the Public Incentives Review Committee for review and recommendation on June 24, 2014.

The City, County, and School District will individually decide their participation in the NRA and each will conduct a public meeting to consider this request. Information on this request has been forwarded to both the County and School District.

Policy & Eligibility

The City of Lawrence adopted an updated NRA policy in the fall of 2011. The establishment of a revitalization area enables a property owner to receive a rebate on a portion of the incremental increase of property taxes associated with an improvement project within the area.

The City adopted an updated IRB policy in May 2010. Although IRBs can be used in conjunction with a tax abatement, this request is for a stand-alone IRB to obtain a sales tax exemption on project construction materials.

Staff’s technical memo summarizes the policy issues as it relates to this request. It appears that the request would meet the parameters of both NRA and IRB policies.

Analysis

City Staff has completed a cost-benefit and “but for” analysis of the proposal. Results were first examined utilizing the typical 15-year evaluation period within the cost-benefit model. Including estimated IRB sales tax savings on project construction materials, analysis indicates that the project could meet required thresholds for all of the taxing jurisdictions with a 10 Year-85% NRA rebate.

After additional applicant correspondence, Staff provided additional analysis for a 20-year evaluation period. Results show that when extending the evaluation period to 20 years and including IRB sales tax savings on project construction materials, required thresholds can be met with a 12 Year-95% NRA.

Staff has also provided supplemental information in response to applicant’s letter dated June 26, 2014.

The applicant has also provided estimated retail sales tax revenues for the project. It should be noted that the City’s cost-benefit model was primarily created to estimate the fiscal impacts of projects supporting primary job creation and does not consider retail sales generated by commercial space. Staff would note, however, that if net new retail sales are brought into the community as a result of the project, and assumed retail sales tax revenue amounts were added to the analysis, it would have the effect of raising the cost-benefit ratio.

Draft Neighborhood Revitalization Plan

Staff has prepared a draft Neighborhood Revitalization Plan, which is required by State statute, which mirrors the applicant’s request. This plan should be reviewed by the City Commission, the Public Incentive Review Committee, and the taxing jurisdictions. The plan includes a rebate schedule and provisions for Douglas County to retain $100 annually as an administrative fee for the duration of the rebate program.

Next Steps/Calendar

A draft calendar has been prepared to consider items related to this request. The City Commission will conduct a public hearing to consider the request at their July 8, 2014 meeting. After the public hearing, the School Board and County Commission will also consider their participation regarding the project. The meeting with the School Board is scheduled for July 28^th and the meeting with the County is scheduled for July 30^th. The City Commission would take final action on the NRA ordinance and plan once School District and County participation is known. Second reading of the NRA ordinance and plan is tentatively scheduled for the August 5^th City Commission meeting.

Staff Recommendation

Given City policy guidelines, including eligibility requirements, cost-benefit thresholds, and “but for” provisions, Staff recommends approval of a 10 year, 85% NRA and the issuance of a stand-alone IRB.

PIRC Recommendation

During the PIRC meeting, conducted on June 24, 2014 to considered the request:

A motion was made to recommend a 10-year, 85% NRA. Motion failed.
A motion was made to recommend a 12-year, 95% NRA. The motion was tied with four members voting for and four members voting against the motion.
A motion was made to make a positive recommendation on the project to the City Commission without the group weighing in on the incentive level due to the policy. Motion passed unanimously.

Draft minutes of the June 24, 2014 PIRC meeting are attached.

Requested Action