Memorandum
City of Lawrence
City Manager’s Office
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TO: |
Diane Stoddard, Interim City Manger |
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CC: |
Casey Toomay, Assistant City Manger |
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FROM: |
Britt Crum-Cano, Economic Development Coordinator |
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DATE: |
December 1, 2015 |
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RE: |
800 New Hampshire: Request for Industrial Revenue Bond Financing |
Please place the following on the December 1, 2015, City Commission regular agenda:
Receive recommendation from the Public Incentive Advisory Committee on Industrial Revenue Bond financing for a redevelopment project at 800 New Hampshire Street.
Adopt Resolution 7135, if appropriate, authorizing the issuance of up to $7,800,000 in industrial revenue bonds for the 800 New Hampshire Street project for the purpose of obtaining a sales tax exemption on project construction materials.
Project Overview
Treanor Architects is proposing the redevelopment of 800 New Hampshire, which includes a four-story, apartment addition above the existing, street-level building (formerly Pachamama’s restaurant). Plans call for the existing building to remain retail/restaurant space and the upper floors to consist of approximately 50-55 multi-family units and a partial roof-top terrace. Existing parking area will remain with repairs as necessary.
See project drawings for additional details.
Incentive Request
On May 12, 2015, Staff received an application from 800 New Hampshire, LLC./Treanor Architects, P.A. requesting Industrial Revenue Bond (IRB) financing to access a sales tax exemption on project construction materials related to the redevelopment of the property at 800 New Hampshire Street.
The applicant is requesting approximately $7,800,000 (revised from $9,000,000 as previously indicated on the application) in industrial revenue bonds to cover the cost of purchasing the building, soft costs, labor, and materials. Project construction costs are estimated at $6,997,963 with approximately 50 percent of that amount anticipated to be spent on construction materials ($3,498,982) and the remainder spent on labor. With new construction, IRB sales tax savings are realized only on the cost of construction materials.
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.)
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 project construction 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 have been financed by the bonds. If the company defaults, the bond owners cannot look to the city for payment.
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:
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IRB City Policy Criteria: 800 New Hampshire Street |
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Item # |
Policy Requirement |
Project Delivers |
Project Qualifies (Y/N) |
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1 |
Only those projects which qualify under Kansas Law will be eligible for IRB financing.[1] |
Commercial business |
Y |
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Proposed Project shall achieve one or more of the following public benefits: |
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2 |
2a: Meets economic goals of the City as set forth in policy and the Comprehensive Plan of Lawrence and Douglas County: |
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Place high priority on retention and expansion of existing businesses. |
Project is being developed and designed by existing Lawrence companies. |
Y |
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Encourage existing industry to expand. |
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Y |
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Assist new business start-ups |
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N |
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Recruit new companies from out-of-state and internationally |
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N |
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Encourage high technology and research based businesses. |
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N |
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Encourage training and development of Lawrence area employees |
Job training provided for project employees in marketing, accounting, and property management. |
Y |
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Encourage location and retention of businesses which are good "corporate citizens" that will add to the quality of life in Lawrence through their leadership and support of local civic and philanthropic organizations. |
Project partners support numerous local civic and charitable organizations, including Bert Nash, The Lawrence Arts Center, Kansas Athletics, Social Service League, Theatre Lawrence, Lawrence Humane Society, Lawrence Community Shelter, and many others. |
Y |
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2b: Promotes infill through the development of vacant lots, the rehabilitation of deteriorated properties or the adaptive reuse of historic properties. |
Although project does not address infill development of vacant lots, the rehabilitation of deteriorated properties or the adaptive reuse of historic properties, the project will be redevelopment of an existing building which will utilize existing city infrastructure, including utilities and streets. |
N |
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2c: Enhance Downtown |
Project will add density to the core downtown district. |
Y |
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2d: Incorporate environmentally sustainable elements into the design and operation of the facility |
Project facility will meet Energy STAR criteria and will be designed to LEED certification standards. |
Y |
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2e: Provide other public benefits to the community, particularly as set forth in the Comprehensive Plan of Lawrence and Douglas County. |
Expansion of existing property will utilize existing city infrastructure, including utilities and streets. |
Y |
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3 |
Prospective tenant shall show the financial capacity to complete the proposed project and successfully market the bonds. |
Tenant has built two other projects in downtown Lawrence, the 901 New Hampshire building and the Marriott Towne Place Suites hotel. In addition, tenant has under construction a new seven story banking facility and apartment project located at Ninth & New Hampshire. |
Y |
City policy also mentions other project qualities that are favored or preferred when issuing IRBs. Those aspects are outlined below, along with project notes.
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IRB: Other Considerations (Preferred) |
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Item # |
Policy Requirement |
Project Delivers |
Project Qualifies (Y/N) |
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1 |
City looks more favorably upon projects that support the below targeted industries: |
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Life Sciences/Research |
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N |
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Information Technology |
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N |
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Aviation and Aerospace |
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N |
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Value-Added Agriculture |
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N |
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Light Manufacturing and Distribution |
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N |
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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. |
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Project anticipated to bring in new revenues from outside community: |
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N |
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Project enhances local quality of life: |
Provides increased density for downtown, pedestrian-friendly |
Y |
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IRB: Special Consideration for Residential Projects |
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Item # |
Policy Requirement |
Project Delivers |
Project Qualifies (Y/N) |
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1 |
Project is multi-family or senior living project |
55 market rate apartments on floors 2-5. |
Y |
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2 |
Projects that contain no non-residential uses and are requesting IRBs must have at least 30% of all housing units set aside for households making 80% of the Area Median Income or less. |
Project does contain non-residential uses: 1st floor will be retail restaurant |
N/A |
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Preferred Qualities for Residential Projects: |
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Infill or redevelopment: |
Expansion of existing building |
Y |
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Mixed -Use |
Retail and multi-family residential |
Y |
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Downtown Location |
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Y |
As indicated above, the proposed project appears to meet City and State eligibility criteria for support.
Previously Authorized IRBs (for Economic Development)
For reference, the below table summarizes the IRBs that have been authorized previously for economic development related purposes, either in conjunction with a tax abatement or for purposes of accessing a sales tax exemption on project construction materials.
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Company |
Date of Issue |
Issuing Ord. # |
Year Matures |
Amount Authorized |
Project |
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Bowersock: Series 2011B & 2011C |
2010/2011 |
8607 & 8620 |
2037 |
$27,000,000 |
Hydro-Electric Facility |
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PROSOCO, Inc: Series 1998A ($5,800,000) & Series 1998B ($2,240,000) |
1999 |
7060 |
2019 |
$8,040,000 |
Manufacturing Facility |
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9th & New Hampshire LLC: Series 2012 (South Project)* |
2012 |
8804 |
2015 |
$17,250,000 |
Mixed Use Hotel (900 New Hampshire Street: South Project) |
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Rock Chalk Park |
Oct. 2013 |
8862 |
2023 |
$40,000,000 |
Commercial Recreational Facility |
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1101/1115 Indiana Street* |
Nov. 2014 |
9053 |
2017 |
$76,000,000 |
Mixed-Use, Retail and Student Housing |
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Dwayne Peaslee Technical Training Center, Inc.: Series 2015* |
May. 2015 |
9111 |
2015 |
$1,600,000 |
Technical Training Center |
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100 East 9th Street LLC (9th & New Hampshire North Project): Series 2015* |
Mar. 2015 |
9093 |
2015 |
$23,000,000 |
Mixed-Use Commercial/Residential |
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Resolution of Intent Authorized in 2015 |
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Company |
Resolution Date |
Res. # |
Year Matures |
Amount Authorized |
Project |
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Pioneer Ridge* |
Feb. 2015 |
7103 |
n/a |
$14,500,000 |
Commercial, Independent Living Facility |
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Eldridge Expansion (705 Massachusetts Street)* |
Feb. 2015 |
7104 |
n/a |
$12,500,000 |
Hotel Expansion |
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Matured IRBs (no longer outstanding) |
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Company |
Date of Issue |
Issuing Ord # |
Terminated |
Amount Authorized |
Project |
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DST Systems, Inc: Series 2001 |
2001 |
7331 |
2012 |
$9,000, 000 |
Acquisition & Renovation of Existing Office Building |
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Neuvant House II* |
2013 |
8901 |
2014 |
$2,500,000 |
Specialty Healthcare Facility |
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* Stand-Alone IRB used for a Sales Tax Exemption on Construction Materials |
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Estimated Sales Tax Savings
The costs of incentives are restricted to a sales tax exemption on construction materials for the project. To help illustrate typical sales tax savings that might be expected, the below table provides an estimate of sales tax revenues that each jurisdiction would forego if an IRB was issued for the project. Of the total $6,997,963 in project construction costs, the applicant estimates construction materials at 50 percent or $3,498,982.
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800 New Hampshire: Construction Sales Tax Exemption |
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Taxing Jurisdiction |
Tax Rate (2014) |
Est Sales Tax Amount |
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City |
1.55% |
$54,234 |
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County |
1.00% |
$34,990 |
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City Portion (0.58): Countywide Sales Tax (1%) |
$20,091 |
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County Portion (0.36): Countywide Sales Tax (1%) |
$12,610 |
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Other County Municipalities Portion (0.070): Countywide Sales Tax (1%) |
$2,289 |
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State |
6.50% |
$227,434 |
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Total |
9.05% |
$316,658 |
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City Total |
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$74,325 |
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County Total |
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$12,610 |
Updated for July 2015 sales tax rates:
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800 New Hampshire: Construction Sales Tax Exemption |
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Taxing Jurisdiction |
Tax Rate (July 2015) |
Est Sales Tax Amount |
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City |
1.55% |
$54,234 |
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County |
1.00% |
$34,990 |
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City Portion of 1% Countywide Sales Tax |
$20,114 |
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County Portion of 1% Countywide Sales Tax |
$12,599 |
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Other County Municipalities Portion of 1% Countywide Sales Tax |
$2,277 |
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State |
6.50% |
$227,434 |
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Total |
9.05% |
$316,658 |
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City Total |
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$74,348 |
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County Total |
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$12,599 |
City Commission Receipt of Request
The City Commission received the request at their May 19, 2015 meeting and referred it to the Public Incentives Review Committee (PIRC) for review and recommendation.
PIRC Recommendation
During the PIRC meeting, conducted on August 4, 2015 to consider the request:
Draft minutes of the August 4, 2015 PIRC meeting are attached.
Requested Action
Receive recommendation from the Public Incentive Advisory Committee for Industrial Revenue Bond financing for the 800 New Hampshire Street redevelopment project.
Adopt Resolution 7135, if appropriate, authorizing the issuance of up to $7,800,000 in industrial revenue bonds for the 800 New Hampshire Street project for the purpose of obtaining a sales tax exemption on project construction materials.
[1] K.S.A. 12-1740 permits cities and counties to issue revenue bonds for the purpose of paying the costs of purchasing, acquiring, constructing or equipping facilities for agriculture, hospital, natural resources, manufacturing, commercial, industrial, or recreational development businesses.