Wednesday, November 5, 2014

Citizens question propriety of tax-increment financing for redevelopment of Midway Station

By Sarah Brookbank
University of Kentucky School of Journalism and Telecommunications

Despite the elections on Tuesday, Monday evening was a full of business for the Midway City Council, starting with the regular council meeting and ending with a public hearing on tax increment financing for redevelopment of Midway Station's commercial and residential zones.

The big-ticket item at the council meeting was the approval of the rezoning from residential to industrial 38.22 acres on Georgetown Road that touches the edge of Midway Station. Without discussion, the council approved the rezoning, requested by the Woodford County Economic Development Authority.

The EDA has an option to buy the property. That would create 80 acres of industrially zoned property, and EDA representative Craig McAnelly said between the meetings that the agency is looking to put as many as three plants on the property.

Prospects for redevelopment of Midway Station have been centered on tax-increment financing, which allows developers to use the increased tax revenue from a refurbished area to retroactively pay for the public infrastructure of a development. Lexington developer Dennis Anderson has proposed the financing method.

Citizens at the public hearing raised questions about the necessity of TIF.

The first comment came from John Schaaf, a resident of Ironworks Estates in Scott County, just across Elkhorn Creek.

“I would like to speak in favor of free enterprise rather than a free handout to this particular developer and his financial backers,” said Schaaf.

Schaaf said that it was his understanding that developers recover the money that they put into infrastructure through sale of the property. Schaaf’s concern was that Anderson would get “a double return on his infrastructure costs” through TIF and sale of the developed properties.

“If this is going to be a successful development I think it should be undertaken in the spirit of free enterprise,” Schaaf said. “He should take the risk, he should put in the infrastructure and he should recover that money from the people who intend to benefit from having property in that area.”
“I don’t know that the taxpayers of Midway, or the state of Kentucky should be underwriting this project.”

Schaaf said the property’s location and the improving economy mean that it should be able to be redeveloped without TIF. He said that he did not have a problem with the development, but with the way it will be financed.

In response, Anderson consultant John Farris of Commonwealth Economics said the city of Midway would retain 20 percent of incremental tax revenues, and TIF does not apply to school taxes.

“We estimate an additional 200 to 300 thousand dollars coming in to the city of Midway just on the 20 percent, not the school taxes and property taxes,” Farris said.

Farris said the redevelopment has a very large amount of infrastructure that needs to be done and it comes at a high cost. At an earlier meeting, Farris presented a list of infrastructure work totaling $31 million, including nearly $15 million for public parking.

Midway resident Nick Bentley, who has experience as a real-estate broker and a developer, spoke next.

Bentley said that he was pleased to see the rezoning of the 38 acres, since residential areas cost more for a city to service and maintain, and the area will need to be balanced between retail, industrial and residential so that it will be a net positive.

“My biggest question is, why as a taxpayer, as a developer, as a builder, as a Realtor, as a businessman, do I have to compete against subsidized property?” Bentley asked. “Why as a landlord do I have to say ‘Oh, no one gave me any money when I rehabbed blighted property,’ and I mean a nickel, but now I’m going to be asked to compete on the open market with a subsidized housing project?”

Bentley asked what would happen if millions of dollars are spent on infrastructure and the property never sells. He asked where the money that would be spent on infrastructure would come from.

“It’s the EDA that put this thing in place to start with,” Bentley said, noting the project’s failed 25-year history. “It’s a question of how do you trust the horse that takes you to the poisoned well. I don’t.”

Bentley called the estimated infrastructure costs “ridiculous” based on his own experience in the area.
“I’d sure like to see the books, because if I spent 30 million doing that property I’d be going broke,” he said. “So why are we asking the taxpayers to spend more than they need to? I don’t believe those numbers.”

Bentley said the TIF program takes the fiscal responsibility off the developer.

“In this case they’re asking the taxpayers to pay 30 million dollars, instead of ponying up what a developer would normally have to do,” he said. “I don’t get it, I think it’s kind of anti-American if you ask me personally.”

In response, Farris said that the $14.9 million for parking is an estimate, and reminded the council that the project is “receipt based,” meaning the developer has to spend money to get reimbursement. He said that this is a way to make the developer spend less money.

Farris also addressed who would pay for the infrastructure. The City of Midway has yet to determine how this project would be funded, but there are options. Some cities bond the TIF rather than pay upfront. Others, such as Lexington, make the developer take the risk on the infrastructure costs, and some take a hybrid approach.

Later in the hearing, Council Member Dan Roller also asked about retaining sales tax from the development. Farris said that 80 percent of incremental sales taxes would be available to pay for infrastructure, under state law.

Roller also asked about the timeline of infrastructure development and the payment. Farris said  development will be needed before the property can be sold, and that some of that involves updating the current infrastructure and putting down the basics. Farris also said that much of the development timetable will have to do with demand.

EDA Chairman John Soper said the EDA is confident in Anderson’s ability to finance the project. Soper also said that he feels like the EDA has the confidence of the city council, fiscal court and of their banks.

Soper stressed that the project needs to be started so that they can go back to the banks in 2019 when the bond on the property matures and renegotiate finances.
“It makes all the sense in the world to do it, and to do it now,” he said. “Especially with the economy, it is recovering and we’re starting to get calls at least weekly about these properties. We haven’t hit the home run yet, we’re having a lot of conversations and that’s a whole lot better than it was two years ago.”

Soper also said he hopes the council and citizens of Midway could get behind the TIF application process because it would solve infrastructure problems and boost employment.

Contrary to expectations, there was not statement at the meeting from Woodford Forward, which identifies itself as “a group of citizens and business owners that advocate for innovative policies that promote the highest and best use of urban land and the agricultural use of productive farmland throughout Woodford County.”

Billy Van Pelt of Woodford Forward said the organization would announce its position known after a meeting with Anderson. Anderson was present at the hearing but made no comments.

Council meeting

Other business at the council meeting included a conversation with Keith Slugantz, the director of emergency management in Woodford County. Slugantz fielded questions from council members Grayson Vandergrift and Aaron Hamilton about the issues with tornado sirens in Midway in early October.

On Oct. 7, a tornado warning was issued for Midway and surrounding areas by the National Weather Service, but the sirens in Midway went off 17 minutes after they should have, due to an equipment malfunction. The sirens had to be set off by the emergency management department through a portable radio that did not reach all the sirens in the area. Slugantz reassured the council that the issue had been resolved and would not happen again.

Renovations of the Rau building were also discussed. The historic green and red Rau building sits on the corner of Main Street, housing City Hall, offices and the Breckinridge shop. Contractor Phil Kepler said that to keep the historic building from constant repair and damage, that it should be redone and modernized with better wood and new glass. This will keep drafts out of the building, stop the wood from rotting and will make the storefront last much longer.

At the end of the council meeting, outgoing Mayor Tom Bozarth made a statement regarding the next day’s election for mayor, between Council Members Sharon Turner and Grayson Vandegrift.
“I want to thank Grayson and Sharon for their hard work. You’ve both ran a very good campaign. It’s been very positive… Good luck tomorrow.” Vandegrift won with 53.4 percent of the vote; for a report on the mayor's race, click here.

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