Wednesday, December 10, 2014

Council irons out details of tax-financing plan for Midway Station, sets first reading of ordinance for Monday

By Paige Mullen
University of Kentucky School of Journalism and Telecommunications

The Midway City Council decided Tuesday to move forward on the tax-increment financing project for redevelopment of Midway Station. TIF uses most of the new revenue from development to pay for the public infrastructure and some other costs of the development.

At a special meeting to clarify details about a TIF ordinance, the council directed city attorney Phil Moloney to draft the ordinance for first reading at its regularly scheduled meeting at 5:30 p.m. Monday. It would come up for final passage at a special meeting before year’s end.

Moloney and his law partner, Doug Martin, discussed the remaining issues regarding the ordinance with the council and John Farris and Casey Bolton of Commonwealth Economics, a consulting firm that Lexington developer Dennis Anderson hired for the project.

Farris said the TIF will be limited to the footprint of the Midway Station property, a largely failed industrial park that has saddled the city and county with millions in debt. Business tenants and contractors will report their investments, payrolls and tax payments on forms created by the state to the developer or the developer’s compliance agent, who will report them out to the city. The mayor will be designated at the agency responsible for reporting to the state and overseeing the TIF.

Farris said the developer can write into the lease with tenants that they must supply this information when requested. Anderson estimates that the total investment in the project will be $176 million.

Chart prepared by developer's consultants and given to city council
Once $20 million has been invested, the state can make disbursements to the special district fund, from which 80 percent of the increased tax revenues would be used to pay for public infrastructure costs such as parking, utilities, streets, sidewalks, gutters, storm sewers and detention ponds, as well as associated costs such as grading, demolition and disposal – not just to Anderson but to tenants and utility companies for their expenses.

The council asked Farris what could make up the $20 million. "Anything spent on the footprint so there is nothing specific, that is just capital investment," he said. "Anything from soft cost to state funds that are spent. It doesn't even have to be spent by the developer, anything that is spent out there." However, the public infrastructure is the only reimbursable expense. Anderson has estimated those costs at $30.7 million, almost half of it for parking.

Plans call for the city to get 2 percent of the disbursements to cover its administrative costs, including accounting and legal expenses. Questions arose about how the city might be able to pay such costs if the 2 percent is inadequate. Farris said the fees will build over time and noted that the city will be receiving 20 percent of the new tax revenues from the project.

Farris said he expects the county to participate in the project, allowing its increased occupational- and property-tax revenue to support it. A chart offered by Farris estimated that in the first 10 years, the city and county’s 20 percent would total $2.63 million.

School and fire taxes are not included in the TIF, but those taxing districts would benefit from development, with the schools getting almost $4 million in taxes during the first year, according to the estimates. In his presentation, Farris emphasized an even larger number, $6.5 million, which would be the total new local tax revenues available to the city, schools and fire district.

The time limit on the project is 20 years. "When the public infrastructure has been paid for, all taxes flow like they normally do," Farris said. For a copy of his graphic presentation, click here.

Council Member Bruce Southworth wanted to know when the city would take possession of the infrastructure and thus be responsible for any repairs. Council Member Sharon Turner said, "The 2 percent won't cover that."

Southworth suggested that the responsibility could be shared, with the amount of the city’s responsibility increasing over time. He added later that the city’s tap-on fees for water and sewer should remain in place.

Martin noted that the local taxes that go into the special district fund can be spent on local capital improvements, while the state tax money must be used for public infrastructure.

Member Dan Roller said, “We don’t want to be responsible for the repairs if we’re not getting the money for it.”

Farris said he presumed the tap fees would be the same and the repair issue could be handled in a master developer agreement between Anderson and and the city. He complimented Roller, saying, “That’s looking into the future, which a lot of people don’t do.”

Roller replied, “I think we’re here today because with that project out there, there wasn’t enough looking into the future.” Midway Station was developed with the hope of attracting industry but has spawned only three or four businesses with about a dozen jobs.

Anderson first proposed making the entire tract commercial and residential, and it was rezoned accordingly. Then the Woodford County Economic Development Authority, which owns the property, came up with some good industrial prospects, so part of the land that had been rezoned residential was rezoned back to industrial.

As the 47-minute meeting was wrapping up, Mayor Tom Bozarth thanked the council and said, “We have a responsibility to look at the city’s interest not tomorrow, not today, but beyond into the future. And I think that is one thing I want to commend the council about, is they have been talking about this since September and we have been very diligent I want to thank each and every one of you for asking these questions.”

The council ended the meeting in agreement that the 2 percent administrative fee is acceptable for the city. On another issue, Anderson has agreed to pay the fees to the state for processing the application.
The EDA is expected to approve the TIF at a special meeting Friday at 8 a.m. at the courthouse in Versailles.

“We know where we’re going and we’ll get this thing wrapped up and move forward,” said Bozarth, who leaves office at the end of the year and will be succeeded by Council Member Grayson Vandegrift.

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