Title
RESOLUTIONS REGARDING THE NORTH GATEWAY REDEVELOPMENT DISTRICT IN DERBY.
Presented by: Chris Chronis, Chief Financial Officer.
RECOMMENDED ACTION: Adopt the resolutions.
Body
Tax Increment Financing (TIF) is a financing tool that allows cities to fund infrastructure improvements, land acquisition and some other public investments. The creation of TIF districts is governed by KSA 12-1770 et seq. The use of tax increment financing is presumed to be necessary to the development project.
When employing tax increment financing, a city government outlines a contiguous geographic area within which the public funds will be spent. This is the TIF district. The public funds are generated by "freezing" the tax base within the area in a given year. This is known as the base year and all taxes that are generated on the base year assessed values continue to be distributed to the tax districts within which the TIF district sits. Once the district experiences development, and subsequent growth in assessed value, the property taxes generated from this incremental value are distributed into a fund to cover the public investment.
The City of Derby is considering the creation of a Tax Increment Financing District, known as the Derby North Gateway TIF District. The purpose of the TIF District is to fund a public investment of $2,050,000 for road, drainage and landscaping improvements to improve traffic safety, enhance access to the area and improve the appearance of an entry to the community.
The proposed TIF District is located at the southeast corner of K-15 and East Patriot Avenue in Derby, Kansas. It is anticipated that the project plan will consist of a single project area with the same boundaries. If a TIF District is established, the incremental revenues are to be used specifically to address traffic safety concerns and improve access by realigning Nelson Drive. The current alignment of the intersection has approaches to the north and south that are offset. This has resulted in a crash frequency at this intersection that is higher than the rest of the Nelson Drive corridor. The projected line item breakdown for project and financing costs is below:
PUBLIC IMPROVEMENT COSTS
Nelson Drive Realignment Construction $1,100,000
Nelson Drive Realignment Land Acquisition $500,000
Drainage Improvements $350,000
Landscaping $100,000
Total $2,050,000
FINANCING
Public Improvement Costs $2,050,000
Transaction Costs & Capitalized Interest $165,000
Interest Costs $438,220
Total Debt Service $2,653,220
Overall, the analysis provided by the City of Derby is very well done and provides a compelling case for the development and creation of the TIF District.
-- The area has been determined, due to the age and economic obsolescence of the buildings, to meet the statutory definition of a "blighted" area.
-- The highest and best use of the area is for big box retail. This is hindered due to the access to the area.
-- Partial development of the area by Menard's is projected to produce enough TIF tax increment to fund the debt service for the public improvements.
In order for Sedgwick County to find that a proposed TIF District will create an adverse effect, our policy requires that at least one of the following five criteria be met.
• Potential loss of tax revenue would hinder effective future delivery of public services. There is very minimal risk of significant revenue loss to Sedgwick County.
o The land on which the Menard's store is planned, generates almost $1,300 in tax revenue to the county. Of this only $350 comes from the improvements.
o The entire area produces about $25,750 in tax revenues to the County. The total tax base is almost evenly divided between land and improvements. The underlying land therefore would continue to provide almost $12,500 in tax revenue should the project totally collapse after all current improvements are razed.
o In the event of such a worst case scenario, the public investments are financed by general obligation bonds issued by the City of Derby. Repayment of the bonds would be the responsibility of the city.
• Proposed project is economically feasible without county funding support.
o Menard's already owns the property on which they plan to construct a store. However, the ingress and egress to the site isn't considered to be sufficient to support this type of development. In addition, the City has indicated that Menard's building projects are currently on hold.
o TIF revenues sufficiently cover the debt requirements for the infrastructure investment.
o Without a TIF, the additional taxes that would be paid to the City of Derby alone from the additional tax base are not sufficient to cover the debt payments.
• Proposed private equity funding is insufficient to effect default risk.
o Although financial information for Menard's isn't available in the analysis, Menard's has already purchased the land on which their home improvement store would be located. Menard's is privately held and is considered to be the nation's third largest home improvement retailer. Sales for 2012 are estimated at over $7 billion. The company operates 270 stores in over 12 states. Private equity funding would not appear to be a problem with Menards as an anchor developer.
o No public incentives are being sought by the private developers.
• Costs to county government are greater than benefits to county government.
o Again, the project analysis conservatively only considers the development of the Menard's site. This alone is projected to produce an additional $1.9 million in assessed value. At 29 mills, the county would receive an additional $56,000 in annual tax revenue when the TIF District has been dissolved after servicing the debt payments. If the project could go forward without county participation in tax increment financing; the county would forego approximately $767,000 in property tax revenues during the projected life of the TIF District.
• Sufficient data or notification was not provided for county staff to adequately review the proposal for a TIF district. A thorough analysis was provided by the City of Derby prior to the City Council's adoption of the ordinance to create the North Derby Gateway Tax Increment Financing District.
Alternatives:
The BOCC can adopt a resolution consenting to the establishment of the redevelopment district, or a resolution finding that establishement of the district would have an adverse effect on the county, or it can take no action. If the resolution finding adverse effects is adopted, Derby will be statutorily required to rescind its action creating the district. If the BOCC takes no action, county consent to creation of the district is statutorily assumed.
Financial Considerations:
The county currently receives about $25,750 of yearly property tax from parcels within the proposed district, and will continue to receive that revenue. Growth of the tax base within the district is estimated to be such that after development parcels within the district will produce an added $55,000 of county property tax. Creation of the district will cause this increased revenue to be diverted to the City of Derby for the planned improvement.
Legal Considerations:
The creation of TIF districts is governed by KSA 12-1770 et seq.
Policy Considerations:
According to Sedgwick County's policy statement: It is the policy of Sedgwick County to support city efforts to eliminate blight and promote redevelopment of substandard areas by allowing the diversion of county tax revenues to TIF districts when such actions are shown to create no adverse impacts.
The county's TIF policy provides guidelines for determining whether a proposed district will create an adverse effect on the county, and creates an expectation that the finance division will produce a report evaluating proposed districts against those guidelines. The report evaluating the North Gateway Redevelopment District is attached.
Outside Attendees:
Multimedia Presentation: