Memorandum

City of Lawrence

City Manager’s Office

TO:	Mayor and City Commission
FROM:	Diane Stoddard, Interim City Manager
DATE:	September 22, 2015
CC:	Britt Crum-Cano, Economic Development Coordinator Toni Wheeler, City Attorney
RE:	Bond Ordinance for Eldridge Expansion Project Industrial Revenue Bond Issuance

Background:

On February 17, 2015, the City Commission approved a Resolution of Intent to issue Industrial Revenue Bonds (IRBs) for the Eldridge expansion project.   The resolution of intent is a strong signal that the city intends to eventually issue the bonds for the project.  Additionally, it enables a sales tax exemption certificate to be obtained by the City and provided to the developer for the project to use to purchase construction materials exempt from sales tax.  The next step in the process is the authorization of the issuance of the bonds.  This is accomplished with the bond ordinance.  Additionally, the Mayor will need to sign various bond documents for the bond closing.  The ordinance also authorizes the Mayor to sign these documents.

IRBs are a form of conduit financing and City of Lawrence is not responsible in any way for repayment of these bonds nor is it exposed to any financial liability of any kind.  In this case, the Eldridge project is utilizing this mechanism solely to access a project sales tax exemption certificate, which will enable the project’s construction materials to be exempt from sales tax.  The estimated range of savings to the project will be around $450,000, depending upon the actual cost of construction materials.  There will not be any property tax abatement for this project.

Staff recently updated the projections for sales tax savings on the construction materials based upon 2015 sales tax rates.  Below is a chart showing the savings broken out by jurisdiction.  The State of Kansas by far is the largest factor in the overall sales tax savings because it has the highest sales tax rate.

IRB Ordinance consideration: 

As previously noted, the next step in the process is consideration of an ordinance to approve the bonds and finalize the transaction.  After the February approval of the Resolution of Intent, a sales tax exemption certificate was issued by the Kansas Department of Revenue at the request of the city and the applicant.  However, formally, the ordinance must be approved to complete the transaction and enable the use of the sales tax exemption for the project.  If the ordinance is not approved, it will require the Eldridge to pay back any sales tax savings that may have accrued by the use of the exemption certificate to date.   Eldridge officials have reported that they have contracted for approximately $3- 3.5 million worth of materials on the project to date.

The City’s bond counsel with Gilmore & Bell will be present at the meeting in case there are any questions on this item. 

Staff strongly recommends approval of this item.  Denial of this step would send a negative signal related to economic development projects as developers utilize the Resolution of Intent as a strong indication of support to proceed with the finalization of the required steps.  This is why the sales tax exemption certificate is able to be issued after the approval of the Resolution of Intent.

Requested Action:

Adopt on first reading, Ordinance No. 9161, authorizing the issuance of up to $12.5 million in industrial revenue bonds (IRBs) and authorize the Mayor to execute the necessary bond documents for the Eldridge expansion project.