The streetscape was dramatically changed, but the vaunted Downtown 2000 project isn’t paying off as expected. That means Lawrence taxpayers could face a pocketbook lesson on the risks associated with being a developer.

City commissioners recently were told of the continued sputtering of the public-private partnership devised for redeveloping the 900 block of New Hampshire Street. They were warned the slumbering project could require a tax increase, if things don’t begin looking up in coming months.

“As far as I’m concerned, I’m going to be very guarded in what I will look at in the future,” said City Commissioner Mike Amyx after hearing updates on the project. “My goal is to get through the budget process without future mill-levy increases, and this makes that more difficult.”

As part of their 2006 budget deliberations, commissioners learned that the special taxing district created as part of the Downtown 2000 redevelopment was producing only $20,000 per year in new tax revenues, compared with the $250,000 per year projected by city budget-makers when the development was hatched.

The funding shortfall is significant because money from the special taxing district – called a tax increment financing district – was budgeted to pay for approximately half of the $8 million public parking garage that is part of the retail/residential/office development. City officials are required to make the payments on the parking garage even if the money isn’t coming in as expected, because the garage was funded with bonds backed by the full faith and credit of the city.

Carolyn Brown, 13, views a sculpture by Lawrence artist Jan Gaumnitz outside the Lawrence Arts Center. The center and the parking garage across the street are part of the Downtown 2000 project. The project was planned to include several new retail shops, a hotel and other development, but only the building housing PepperJax's restaurant has been finished.

Ed Mullins, the city’s director of finance, said the city has enough reserve funds to cover the shortfall for the 2006 budget and probably for the 2007 budget. But he said commissioners must consider increasing the city’s property tax mill levy if the project doesn’t begin generating new revenue.

“We could be looking at a third-of-a-mill increase,” Mullins said.

The project also is creating questions about whether the city wants to consider similar public-private partnerships in the future. The Downtown 2000 project – which envisioned a new hotel, along with large amounts of new office space, retail stores and loft-style apartments – was the first time the city had used tax increment financing (TIF). A TIF generally allows all new property and city sales taxes generated as a result of a project to be earmarked to help pay for public improvements, in this case a 500-space parking garage.

The possibility of a public private-partnership that uses TIF has been mentioned as part of expanding the Lawrence Public Library and as a way to pay for construction of new affordable housing.

The downtown project has failed to meet expectations largely because it was dealt a serious blow in its early stages, said Martin Moore, a Lawrence developer who leads a group working on the project. The development was launched close to the 9-11 attacks, which created an economic downturn that made it difficult to find retail or office tenants, he said. Only the smallest of the three buildings proposed for the project – a building housing PepperJax Grill and other businesses at 10th and New Hampshire streets – has been built. The lack of new buildings and tenants has led to the lower-than-expected tax revenue.

Downtown 2000 developers optimistic (04-24-04) Downtown 2000 lands first retail tenant (09-06-03) Moore, Shmalberg hope remainder of 2000 project will be completed (04-12-03) Economy cools Downtown 2000 (03-02-03)

Moore said he still believed the project would fill up with new buildings and tenants, but he couldn’t predict when.

“We’re working on it every day,” Moore said. “We’re committed to having successful projects there. We just don’t have anything we’re ready to announce.”

The developers will be required to make a $100,000 payment to the city in September if the project is not completed. Previously, Moore had said he hoped the city would waive that penalty since the group was still working hard to complete the project. But this week, Moore said developers were prepared to make the payment.

“We’re just going to continue to work with the cards we have been dealt,” Moore said. “I still think this project ultimately will produce the revenue.”

Some city officials also said the community has benefited from the project, even though the new tax dollars haven’t met projections.

“One way to look at the TIF district is that the parking garage has clearly benefited more than the 900 block of New Hampshire,” said Assistant City Manager David Corliss. “We have benefited from the assessed valuation growth of downtown, and downtown has benefited from that parking garage.”

Amyx also said he thought the parking garage had been a benefit and that he wouldn’t brand the city’s involvement in Downtown 2000 a mistake. But he said the current problems served as a good reminder of the risks involved in such public-private partnerships.

“Anytime we are involved in any type of project that goes beyond the normal scope of city services, I’m going to make sure that we have the best information we can possibly have,” Amyx said.