Memorandum

City of Lawrence

City Manager’s Office

 

TO:

David L. Corliss, City Manager

CC:

Diane Stoddard, Assistant City Manager

FROM:

Kevyn Gero, Management Intern

DATE:

2/03/2015

RE:

Pioneer Ridge Independent Living: Request for Industrial Revenue Bonds

 

Project Overview:

The applicant, Midwest Health, Inc. (project referred to as Pioneer Ridge Independent Living) is proposing a new senior independent living development located adjacent to its existing sister facilities, Pioneer Ridge Health Center and Pioneer Ridge Assisted Living, south of Wakarusa Street and Harvard Road in Lawrence, Kansas. The residential component will complement the current facilities owned by the applicant and provide more high quality senior living options for individual residents. The campus will allow residents to move through the care continuum as their needs change. The new facility serves a different sector of the senior living market than its existing operation and will fulfill a demand for independent living units in Lawrence.

 

Plans call for the facility to provide 76 individual suites within the approximately 109,308 square foot facility.  The project will provide additional amenities such as kitchen and dining areas, fitness center, movie theater, sundry shop, onsite banking, transportation and rooms featuring high quality furnishings. The floor plan designs include both one and two bedroom apartments. 

 

Capital Investment for the project is estimated at approximately $12.5 million, including land and real property improvements.  Construction is estimated at 12 months, with anticipated opening in spring 2016.

 

Capital Investment

 

Land

Buildings, Other Real Property Improvements

Size:

3.981 Ac

109,308 SF

Estimated Amount:

$472,960

$12,037,727

 

a.        Permanent job creation is estimated at 19 full-time positions with an average annual salary of $31,347.  The applicant will make efforts to fill the positions with local candidates.  It is expected many of the positions will be staffed by employees currently residing in the Lawrence/Douglas County area.

 

Incentive Request: 

On January 14, 2015, staff received a request proposal and application for Industrial Revenue Bonds (IRB) for Pioneer Ridge Independent Living.  IRBs are being requested in order for the project to receive a sales tax exemption on construction-related materials.  The adjacent facilities, Pioneer Ridge Health Center and Pioneer Ridge Assisted Living, which opened in 2001, received no incentives or sales tax exemptions from the City. Currently, the only way to obtain a sales tax exemption for construction-related materials on for-profit projects is through an IRB. 

 

Under most circumstances, IRBs are requested in conjunction with a tax abatement, which is not the case for this project.  This request is for a stand-alone IRB and is not affiliated with a tax abatement.  Therefore, the property is and will remain subject to property taxes.  (It should be noted that State statutes require a cost-benefit analysis be performed for a tax abatement, but it is not required for a stand-alone IRB.)

 

IRB Eligibility:

According to City policy, the City may from time to time grant IRBs when the project under consideration helps further economic and community development objectives.  Additional eligibility criteria, as stipulated in the Policy, are outlined below, along with notes on related project qualifications:

 

City Policy Criteria

Item #

Policy Requirement

Project Delivers

Project Qualifies (Y/N)

1

Only those projects which qualify under Kansas Law will be eligible for IRB financing.

 

Y

2

Proposed Project shall achieve one or more of the following public benefits:

Meets economic goals of the City as set forth in policy and the Comprehensive Plan of Lawrence and Douglas County.

19 direct, net new jobs created. Average salary of ~$31,347.

Y

Promotes infill through the development of vacant lots, the rehabilitation of deteriorated properties or the adaptive reuse of historic properties.

Project will be located on site next to existing facility.  Site is already serviced with existing infrastructure.

Y

Enhance Downtown

 

N

Incorporate environmentally sustainable elements into the design and operation of the facility

Project will have some environmentally friendly features (LED lighting, VRF mechanical units for HVAC, exterior walls will be constructed at six inches for more insulation, minimal glazing to the west  to reduce heating and cooling load with majority of windows facing east and energy efficient appliances). Will restrict the use of disposable products. Plans to have an active recycling program driven by seniors.

Y

Provide other public benefits to the community, particularly as set forth in the Comprehensive Plan of Lawrence and Douglas County.

Horizon 2020 encourages a variety of housing types including retirement housing (2.7).

Y

3

Prospective tenant shall show the financial capacity to complete the proposed project and successfully market the bonds.

Company completed a similar project, which opened August 2001. Parent company also owns other similar facilities in Midwestern region.

Y

 

City policy also mentions other project qualities that are favored or preferred when issuing IRBs.  Those aspects are outline below, along with project notes.

 

Other Considerations (Preferred)

Item #

Policy Requirement

Project Delivers

Project Qualifies (Y/N)

1

City looks more favorably upon projects that support the below targeted industries:

Life Sciences/Research

n/a

N

Information Technology

n/a

N

Aviation and Aerospace

n/a

N

Value-Added Agriculture

n/a

N

Light Manufacturing and Distribution

n/a

N

2

The City favors issuing Industrial Revenue Bonds to projects that bring in new revenues from outside the community or enhance the local quality of life over projects that will primarily compete against other local firms.

Project anticipated to bring in new revenues from outside community:

The applicant’s revenues will be derived from resident/rents/services/etc. The applicant anticipates that many of its residents will come from Lawrence and surrounding areas. Other residents may move to Lawrence from other communities in order to be close to family or because of their affinity for the Lawrence community.

Yes, likely at least some new revenues

Project enhances local quality of life:

Project delivers a state-of-the-art facility designed to provide first-rate services to seniors.

Y

Located in an area that is near a skilled nursing facility and assisted living community. 

Allows patients to locate near family members (e.g. adult children) residing in Lawrence.

 

 

Special Consideration for Housing and Retail Projects (1-2112)

Item #

Policy Requirement

Project Delivers

Project Qualifies (Y/N)

1

Projects requesting IRBs that are primarily residential in nature shall only be considered if the project is a multi-family or senior living project and fits the following criteria:

At least 35% of all housing units set aside for households making 80% of the Area Median Income or less.

Project does not have an affordable housing component as outlined in the policy.

 

*Please refer to Additional Considerations (Page 4) for further staff discussion.

N

 

Additional Considerations:

·         Housing and Retail Projects: One special issue regarding the Pioneer Ridge Independent Living project is that it does not include any non-residential uses such as Neuvant House providing medical care. The policy states “Multi-family or senior living projects that contain no non-residential uses and are requesting IRBs must have at least 35% of all housing units set aside for households making 80% of the Area Median Income or less.” Based on the information provided in the application, the project does not meet the criteria in the policy related to affordable housing.

 

However, the City has in the past issued bonds for some market rate senior housing such as Brandon Woods. The City issued Industrial Revenue Bonds (1987 and 1992) to Brandon Woods for construction costs of a continuing care retirement community that included townhouses, congregate apartments, an assisted living facility, health center and community building. According to the applicant, Pioneer Ridge Independent Living facility is meant to integrate with the two existing facilities, Pioneer Ridge Assisted Living and Pioneer Ridge Health Center, to operate as a campus environment. So it could be considered that this project is a later phase of the existing development, which does include non-residential uses (medical care). It would be up to the City Commission to grant this request in light of the policy considerations.

·         “Encourage the development of a wide variety of older-adult friendly housing – both for those wanting to own and those wanting to rent, in all income rages.[2]

 

·          “Establish policies to encourage the use of universal design principles in new home construction… universal design concepts …include efforts to make a variety of products and environments usable for those with disabilities… a home built in accordance with this philosophy is also intended to be easier for older adults and all other people to use with minimal effort and a minimal likelihood of accidents.”[3]

 

·         “Review zoning policies to ensure that they allow for a variety of community concepts and housing types to meet the needs of older adults in planned intergenerational neighborhoods.”  This also includes Continuing Care Communities that provide assisted living housing, independent living housing, and nursing home care in one facility.[4]

 

The report concludes: “Because no two situations are identical, states and localities must develop an array of approaches for meeting the diverse needs and preferences of their older populations.”[5]

 

 

Estimated IRB Sales Tax Exemption: Pioneer Ridge

 

50% Construction Materials Cost

40% Construction Materials Cost

30% Construction Materials Cost

Total Construction Costs

$12,037,727

$12,037,727

$12,037,727

Estimated Construction Materials

$5,416,977

$4,815,090.8

$3,611,318.1

Sales Tax Estimates

 

 

 

  City (1.55%)

$83,963

$74,633.9

$55,975.4

  County (1.00%)

$54,170

$48,150.9

$36,113

  State (6.15%)

$333,144

$296,128

$222,096

Total Sales Tax Savings (8.70%)

$471,277

$418,912.9

$314,184.7

 

 

 

Other Lawrence Projects Receiving Bonds

Reg Docs

Ord Date

Project

Bond Series

Bond Type

Amount Authorized (up to)

Purpose

Ord 4627

11/11/1975

Lawrence Presbyterian Manor[6]

Series November 1, 1975

IRB

$2,000,000

Elderly Housing

Ord 4948

7/25/1978

Prairie- Ridge[7]

Series July 1, 1978

Revenue Bonds (Housing Development)

$2,310,800

Senior Apartments, low income housing.  Some HUD subsidized.

Ord 5045

5/15/1979

Vermont Towers[8]

Series May 1, 1979

Revenue Bonds (Housing Development)

$1,757,000

Apartments. Low-rent, subsidized

Ord 5706

7/1/1986

Lawrence Presbyterian Manor10

Series 1986

IRB

$3,500,000

Purchase, construct and equip certain additions and improvements to an existing Nursing Home Facility.

Ord 5739

3/31/1987

Brandon Woods9

Series 1987

Variable Rate Demand Revenue Bonds

$6,000,000

Acquire, purchase, construct and install a Commercial Multi-Family Housing Project.

Ord 6395

12/22/1992

Brandon Woods[9]

Series 1993

Revenue Refunding Bonds (Multi-Family Housing Development)

$6,000,000

Refund Multi-Family Housing development variable rate demand revenue bonds, Series 1987 Multi-Family Housing Development

Ord 6553

5/31/1994

Drury Place at Alvamar[10]

Series 1994

Revenue Bonds (Elderly Housing)

$2,880,000

Acquiring, constructing, installing and equipping an Elderly Housing Apartment Project

Ord

8901

9/3/2013

Neuvant

House[11]

Series 2013

IRB

$2,500,000

Acquiring, constructing and equipping a commercial health care facility.

 

About Industrial Revenue Bonds

Industrial Revenue Bonds (IRBs) are an incentive established by the State of Kansas to enhance economic development and improve the quality of life.  Considered a “conduit financing mechanism” whereby the City can assist companies in acquiring facilities, renovating structures, and purchasing machinery and equipment through bond issuance, IRBs can be useful to companies in obtaining favorable rate financing for their project, as well as providing a sales tax exemption on construction-related materials.

 

IRBs are repayable solely by the company receiving them and place no financial risk on the City.   When IRBs have been issued, the municipality owns the underlying asset and the debt is repaid through revenues earned on the property that has been financed by the bonds.  If the company defaults, the bond owners cannot look to the city for payment.

 

PIRC Actions

Public Incentives Review Committee (PIRC) reviewed and considered the Pioneer Ridge request for Industrial Revenue Bonds at its meeting on February 3, 2015.  The Committee voted unanimously to approve the request for up to $14.5 million in Industrial Revenue Bonds. Motion passed 5-0. Draft minutes of the February 3, 2015 PIRC meeting are attached.

 

Requested Action

Adopt Resolution No. 7103, authorizing the issuance of up to $14.5 million in industrial revenue bonds for the Pioneer Ridge project for the purpose of obtaining a sales tax exemption on acquiring, construction and equipping a senior independent living facility near Harvard Road and Wakarusa Drive, if appropriate.

 


[1] Kansas Department of Labor, Kansas Labor Information Center, Average Private Sector Wage in Lawrence, KS (by Industry), Quarterly Census of Employment and Wages, $29,239, data released fall 2012.

[2] Retiree Attraction and Retention Task Force Final Report, Dennis Domer, June 5, 2012, Page 14.

[3] Retiree Attraction and Retention Task Force Final Report, Dennis Domer, June 5, 2012, Page 13.

[4] Retiree Attraction and Retention Task Force Final Report, Dennis Domer, June 5, 2012, Page 14.

[5] Retiree Attraction and Retention Task Force Final Report, Dennis Domer, June 5, 2012, Page 15.

[6] Specified as a Kansas Not for Profit Corporation as per the Business Entity Search Station (BESS) for the Secretary of State's office. Data retrieved 4-2-2013, from: http://www.kansas.gov/businesscenter/

[7] Indicated as a Section 8, Low-income Housing Assistance facility as per www.publichousing.com, data retrieved 4-22-2013.

[8] Specified as a Domestic Limited Partnership as per the Business Entity Search Station (BESS) for the Secretary of State's office. Data retrieved 4-2-2013, from: http://www.kansas.gov/businesscenter/

[9] Specified as a Kansas Not for Profit Corporation as per the Business Entity Search Station (BESS) for the Secretary of State's office. Data retrieved 4-2-2013, from: http://www.kansas.gov/businesscenter/

[10] Specified as a For Profit Corporation as per the Business Entity Search Station (BESS) for the Secretary of State's office. Data retrieved 4-2-2013, from: http://www.kansas.gov/businesscenter/

[11]Specified as a For Profit Corporation as per the Business Entity Search Station (BESS) for the Secretary of State's office. Data retrieved 12-23-2014, from: http://www.kansas.gov/businesscenter/