Archive for Monday, January 11, 2010

Lawrence leaders looking to be more aggressive in using incentives for economic development

January 11, 2010


City Hall watchers on Tuesday night may witness the beginning of a new era of aggressiveness when it comes to economic development.

Commissioners at their weekly meeting will consider approving two economic development projects, and both involve financial incentives that are new to the Lawrence landscape.

“I think we recognize that the old system just isn’t going to cut it in this new day and age,” said Commissioner Aron Cromwell, who was one of three commissioners who won election last April on a platform of improving the city’s job creation efforts. “Really this is about creating opportunities instead of waiting for an opportunity to come to us. We’re trying to be the instigator.”

Commissioners will consider issuing $2.9 million in bonds to finance the purchase and renovation of the former Oread Labs building in West Lawrence, and will consider about $135,000 worth of improvements and incentives to attract a new aviation company to the Lawrence Municipal Airport.

West Lawrence laboratory

The largest project up for approval Tuesday is the West Lawrence laboratory project.

The project is unusual because it essentially involves the city and county jumping into the commercial real estate business. The city and county would have joint ownership of the building and the Lawrence-Douglas County Bioscience Authority would manage the property and seek to fill it with promising bioscience companies that need laboratory space.

If enough tenants are found, the city and county’s costs largely will be covered through rental income generated by the building. If the number of tenants doesn’t meet expectations, city and county taxpayers will make up any shortfalls.

Commissioners have given the project preliminary approval on several occasions over the last two months. But Tuesday will mark the day when the city will sell the $2.9 million in bonds needed to finance the project.

“I just think when you look at what the state of Kansas is doing and what we have with the university, our best opportunity for job growth is going to be in the bioscience arena,” said Mayor Rob Chestnut. “I have full confidence that we’re going to see some significant opportunities with that building in the next 12 to 24 months.”

In addition to the purchase of the building, the city and county have agreed to partially subsidize the lease payments that the Lawrence-Douglas County Bioscience Authority is scheduled to make as part of the project. The interest rate for the bonds is expected to be about 5.5 percent. The city and county will not pass the full interest costs along to the bioscience authority or other tenants. Instead, the city and county will pay for any interest costs that exceed 4 percent per year. That’s expected to be about $20,000 per year for both the city and the county for the next 25 years.

Within the last two weeks, details also have emerged about an option-to-purchase clause that the local bioscience authority has requested for the building. Under the clause, the bioscience authority essentially could purchase the building at anytime for a price that would be equal to what the city and county has spent on the building, minus the amount of money the bioscience authority has paid in rent for the building.

That provision is likely to draw more discussion from commissioners. Cromwell said he has questions about the option on several fronts. He said he is disappointed that there seems to be confusion about the option. At last week’s meeting, Cromwell said he was led to believe that the option would require the bioscience authority to pay at least the $2.9 million for the building. The provision about the lease payments being subtracted from the purchase price wasn’t clearly explained, he said.

Lawrence Airport

The second project involves leasing city-owned ground at the Lawrence Municipal Airport to Ottawa-based Hawkeye Helicopter, which uses jet helicopters and small aircraft to conduct aerial inspections of rights-of-ways for utility companies.

The deal — which was first announced in August — would involve moving four to six employees to Lawrence, with the potential of up to 10 more jobs being created in the next five years.

As an incentive, the city is offering a lease to Hawkeye that decreases the amount of money the city is owed as Hawkeye adds new jobs. If Hawkeye has at least eight full-time employees at the site, the company’s rent would be cut by up to 98 percent during the first five years of the lease, and up to 50 percent during the second five years of the lease.

Without the incentive, the full value of the lease is $10,585 per year, with yearly increases that are tied to inflation.

Chestnut said he believes the incentive is a good one, especially since the lease stipulates that the company won’t seek a property tax abatement for the project.

“What drives the city’s return on this project is that they are willing to pay the full property taxes on the project,” Chestnut said. “And this is a way for us to get more structured in terms of rewarding a company for tangible employment growth.”

The company is expected to build a $700,000 hangar and office building on the city-leased land.

Unlike a tax abatement, however, the lease incentive does not require that the jobs pay a living wage. City code requires companies that receive a tax abatement to pay employees a wage that is at least 130 percent of the federal poverty level for a family of three, which in 2009 was at least $11.44 per hour.

The Hawkeye project is expected to pay average wages of about $36,000 per year, according to the city, but the company won’t be mandated to meet the living wage requirements.

Cromwell said he wants to have a discussion about whether the living wage requirement should be extended to other economic development incentives in the future.

The airport project also involves a $50,000 extension of a taxiway at the airport, $85,000 in site improvements and parking lot improvements, and $14,500 to install a temporary septic holding tank to serve the new building until city sewer service can be extended to the site.

The city already has begun a project to extend water service to the airport, and has plans to extend sewer service to the airport. The two utility projects likely will cost about $2 million to complete.

City leaders believe the water and sewer line project will open up the airport to other aviation-related development in the future.

Commissioners meet at 6:35 p.m. on Tuesday at City Hall, Sixth and Massachusetts streets.


cowboy 5 years, 10 months ago

I'm all for business incentives but exactly who negotiated these piles of manure. How about some disclosure. These deals suck for the taxpayer ! LDCBA can have the city buy an overpriced building , upgrade it , buy it back later and have 100% of rent applied in a lease option. Thats a BS contract by any measure point.

Hawkeye , create 8 jobs and you get free land , are you kidding me ?
Well sign me up for one of them too fellas.

The city is investing 2.2 million to generate 8 36,000 dollar jobs.

Seriously , are all the calculators defective at city hall. Did you get a deal on them on EBAY and the function keys are switched. WTF

BigPrune 5 years, 10 months ago

If the City wants the job sector to improve they need to get rid of the non-Living Wage Law that keeps more companies away than anything else out there.

Also, stop concentrating on biosciences so much - it's like we put all of our eggs in one basket. Okay, so Manhattan got the hoof & mouth disease biodefense lab - that's not going to be repeated in Lawrence or anywhere else in this country.

I appreciate the fact the City is paying top dollar for an office building (with lab space) when there are empty office buildings owned by private individuals scattered throughout town. Buy low, sell high, or buy high, sell high? Gee.

in123 5 years, 10 months ago

Compare the two projects. One buys a building, the other creates incentive for a company to operate within Lawrence. Buying a building does not create jobs. The building was nearly empty before and will be empty afterwards when Crititech folds. A new business doesn't care who owns the building, they care how much it costs to their operations. You have to work with companies to create jobs, not landlords!

cowboy 5 years, 10 months ago

There needs to be one pass/fail criteria applied to these projects. Does the project create jobs for current Lawrence residents ?

repaste 5 years, 10 months ago

Seems you bush haters and obama haters have common ground! This commission has one goal only - pay back their investors!

repaste 5 years, 10 months ago

Good call on airport cowboy, that has more to do with services for pine's land that he wants to develop through the backdoor, as its value as farmland is of greater worth to the county. He will get his way.

Richard Heckler 5 years, 10 months ago

The only bonds on the plate should put local taxpayers at no risk. This deal shows no substantial promise? Is this wreckanomics?

What makes anyone think Lawrence is among the top Bio Science Communities in the USA?

Show me why we are going in this direction.

Why do taxpayers have to assume risk? These are matter to voted on in April.

werekoala 5 years, 10 months ago

The smaller option sounds okay - we incentivize relocating, and the more employees the company adds, the better the incentive.

The big option doesn't pass the smell test. Especially when the LJWorld has already reported that the person we will be buying the building from is also the owner of the company that will be located there. AND we're willing to pay TWICE the previous valuation of the property. AND we MIGHT make our money back in 20 years time, assuming it's always completely full...

But yeah, the city is so broke we have to cut back on the essential services.

It's like Don's Steakhouse being turned into a homeless shelter. Amazingly again, some local property owner who knows all the right people manages to find a way to get us working schlubs to pay to take his bad investment off his hands.

Can someone tell me why there aren't pitchforks and torches out over this BS? God, I hate the good old boy system...

Wayne Propst 5 years, 10 months ago

25 yrs. ago voters turned down a proposal for an airport terminal.....the city definintly funded it with federal money... to date not one commercial plane has landed.........not one passenger......cargo cult mentalities... "build it and they will come" .....millions have been spent on the airport........home to 56 maybe Hawkeye Helicopter will come to the tune $ 2,149,000.00.......could one "crew" install both the water and sewer lines at the same time?

William McCauley 5 years, 10 months ago

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