Lawrence and Douglas County

Lawrence and Douglas county

City to consider issuing industrial revenue bonds for Rock Chalk Park project

September 29, 2013


The Rock Chalk Park project is back at Lawrence City Hall, and it hasn't gotten any cheaper during its time away.

City commissioners at their meeting Tuesday will be asked to approve up to $40 million in industrial revenue bonds, a type of special financing that won't obligate the city to pay for the privately owned sports facilities but will allow the project to receive a 10-year tax abatement.

Approval of the bonds is expected to be relatively routine because a majority of city commissioners in March approved a resolution of intent to issue them.

But the bond activity has provided an update on the estimated costs for the project, which includes a track and field stadium, soccer field, softball stadium and several other amenities that will be owned by a firm led by Lawrence businessman Thomas Fritzel but leased to Kansas University Athletics.

Dale Seuferling, president of the Kansas University Endowment Association, a partner in the project, said the estimated construction costs of the stadium and improvements is $40 million, which is unchanged from what developers estimated in March.

But since March, questions have been raised about the accuracy of cost estimates related to the city's 181,000-square-foot recreation center immediately adjacent to the Rock Chalk Park project and designed by many of the same architects who have designed the Rock Chalk Park facilities.

In May, the city received a bid to build the recreation center for $10.5 million, even though the project's architects estimated construction costs at $18.4 million to $20.7 million.

Unlike the city's recreation center, the Rock Chalk Park facilities are not going through an open bidding process. Instead, KU officials chose Fritzel's Bliss Sports firm to build and develop the project.

Seuferling said that despite the greatly lower-than-expected bids on the recreation center, KU officials haven't questioned the accuracy of the cost estimates for the Rock Chalk Park project.

"We're comfortable with the value of the project," Seuferling said. "The scale is significantly different on this project, and we had certain standards of quality that we really insisted upon with this project."

Seuferling referred other questions about the cost estimates to Kansas Athletics, which will be the main tenant for the project, or to Fritzel. Attempts to reach a spokesman with Kansas Athletics were not successful Friday, and Fritzel declined to comment.

It was not clear on Friday what the original $40 million estimate made in March included. An attorney representing Fritzel said he could not immediately determine whether it included the cost of shared infrastructure for the Rock Chalk Park and the city's recreation center.

That's important because the infrastructure costs certainly have changed since March, when the city was estimating that it would pay about $3 million for the shared infrastructure. But the final development agreement approved this summer has the city paying about $12 million of the shared costs.

City Manager David Corliss said today's $40 million estimate for Rock Chalk Park should not include the $12 million the city is paying for infrastructure because that's being paid for through a separate set of bonds.

Corliss said he also wasn't sure what today's $40 million cost estimate included.

Also creating questions about the cost of the project is a construction mortgage that Fritzel's Bliss Sports has taken out on the Rock Chalk Park property. Emprise Bank in March placed a $17.1 million mortgage on the property.

Generally, construction mortgages are roughly equivalent to the cost of the project, with the difference being made up in cash financing supplied by the developer. In this case, a $40 million project would require Fritzel's Bliss Sports to put up about $23 million in cash for the project.

Seuferling said large equity investments by developers are not unheard of, but he didn't provide any details about how much cash Bliss Sports is bringing to the project. Fritzel also declined to comment.

As for the city's role in the project, Corliss said the cost estimates largely aren't a concern to the city because the city will not be responsible for paying any of the industrial revenue bonds. The bonds largely are a technicality in this case because Fritzel's Bliss Sports is buying the bonds and receiving the bond proceeds. In other words, if $40 million in bonds are issued, Bliss Sports will be responsible for providing $40 million in funds to the city's bond trustee. The bond trustee then would allow Bliss Sports to withdraw up to $40 million in funds from the account.

Curtis Petersen, an attorney with the Polsinelli law firm representing Bliss, said the bonds are being issued for tax purposes. If the sports complex were wholly owned by Kansas University it automatically would qualify for a permanent property tax exemption. But since Fritzel's Bliss Sports will own the stadiums and facilities and lease them to KU, the project does not qualify for the automatic tax exemption. A state law, however, allows projects financed with industrial revenue bonds to receive a 10-year exemption.

Commissioners meet at 6:35 p.m. on Tuesday at City Hall.


somebodynew 4 years, 8 months ago

"It was not clear on Friday what the original $40 million estimate made in March included."

This thing is just like dead fish - it doesn't smell any better the longer it goes. Well, unless you are Fritzell. Then it smells better every day as that huge pile of money gets closer and closer.

Richard Heckler 4 years, 8 months ago

Reckless financial planning a quite popular endeavor in Lawrence,Kansas. Taxpayers are on the hook because this has become a tax exempt project therefore not paying its' own way. What's with this after the fact approach tax exempt approvals on too many new construction projects? Isn't there two at 9th and New Hampshire? The Summit certainly is one.

This is similar to the Chamber of Commerce deal with bankers on the so called adult education project under the guise of a Vo-Tech education center. No site plans, no cost estimates or who knows what will be offered.

BUTTTTTTTT the taxpayers are the next stop because the private investors will not want to pay for construction and operation expenses.

Tax dollar money holes galore.

Richard Heckler 4 years, 8 months ago

When can local homeowners become tax exempt instead of making up the taxes this new for profit venture and others should be paying but are not for the 10 years?

How many tax exempt for profit ventures are on the books at this moment in time?

Where do I apply for tax exempt status as a non profit homeowner?

How is it property taxes a variety of rates and user fees and such are increased yet city hall claims Lawrence,Kansas does not need the new taxes this new for profit venture should generate?

Richard Heckler 4 years, 8 months ago

Industrial revenue bonds language need some clarification for the purpose of discussion

Corporations can borrow money by issuing bonds on their own in the commercial marketplace, in which case they must offer investors the prevailing rate of interest.

When the bonds are issued instead through public entities, the securities become tax-exempt. That means that the investors who buy the bonds do not have to pay federal (and often state) tax on the interest income they receive.

Because of this advantage, tax-exempt bonds typically carry a lower rate of interest. The difference between the interest rate on tax-exempt bonds and the interest rate on commercial corporate bonds constitutes the subsidy to the business.

Richard Heckler 4 years, 8 months ago

As I read on there is more worthwhile IRB language that provides clarification for the purpose of discussion and may in fact raise some questions.

Starting in the late 1960s, Congress began imposing restrictions on the uses of bond proceeds as well as limits on the allowable volume of bonds that could be issued.

Today there are two permissible types of tax-exempt IRBs used for corporate subsidies. Small Issue IRBs are restricted to the construction, expansion, or renovation of manufacturing facilities. They are generally limited to $1 million, but under certain circumstances that amount can go up to $10 million.

Exempt Facility IRBs have no size limits, but they can be used only for specific types of projects, such as water and sewer facilities, electricit and natural gas facilities, and certain types of rental housing.

Certain facilities such as stadiums, convention centers, and parking garage that used to be allowed are now excluded.

There is a limit on the total amount of IRBs that can be outstanding for the same company nationwide.

There are also limits on the volume of certain categories of private-activity bonds that can be issued by each state.

Plenty more important info at this site.

no_thanks 4 years, 8 months ago

It would appear that this is a misuse of the purpose of IRBs. There is nothing industrial about this location, and frankly, this project has received enough incentives from the City.

Steve Jacob 4 years, 8 months ago

Very curious what the interest rates will be on those bonds. More risk to the buyers, higher interest rate. Now if the city co-signs the loan (shelter) they get a better interest rate. That part scares me, if it happens.

Phil Minkin 4 years, 8 months ago

This continues to be the murkiest, non-transparent project the city has ever been involved with. I feel strongly that the city will regret ever getting tangled up with it.

lawrencereporter 4 years, 8 months ago

City issues up to 40 million dollars of IRB's to a private investor builder Thomas Fritzel, yet Corliss is quoted "he wasn't sure what todays 40 million dollar cost estimate included".

It gets worse folks... No ad valorem tax collected for 10 years from this private real estate investment.

Fritzel as builder pays no sales tax on construction materials.

Fritzel doesn't pay for building permits, water meters, sewer pump station fees, and water uses.

Fritzel also gets 12.5 million dollars to build infrastructure without competitive bidding. 8-9 million dollars of that is a gift from the taxpayers to Fritzel for his private real estate project.

Great job Corliss, Schumm, Dever, et al... enabling the transfer of taxpayers funds to benefit a private investment.

Matthew Herbert 4 years, 8 months ago

Amazing what we'll do under the table to keep the Oread afloat.

pizzapete 4 years, 8 months ago

I'm sure there are plenty of good reasons why we should be giving big real estate developers tax breaks, after all, paying taxes is so working class. Why should Fritzel or Compton have to help pay for the additional police, firefighters, roads, and sewers that their hotels, apartment buildings, and other developments require? This recreation center was a huge money grab from the start, so let's give Fritzel more tax breaks so he can keep more of the money we're giving him to develop his property. And if you're planning on using the recreation center, make sure to bring an extra $20 or $30 for parking and concessions, because that's the real reason Fritzel is giving us this gift in the first place.

pizzapete 4 years, 8 months ago

Sure all that tax revenue could have been put to a better use paying for our crumpling schools or helping to pay for a new police station, but Fritzel's got needs, too. All that money will help pay off all the bad real estate decisions he's made lately and he'll still have enough money left over to pay for a new yacht and the red Ferrari with the personalized license plate that reads EXEMPT.

BlackVelvet 4 years, 8 months ago as usual by the Lawrence City Commission

skinny 4 years, 8 months ago

The City of Lawrence needs a different form of Government.

I am ready to vote for a change. This is getting crazy!

patkindle 4 years, 8 months ago

wonderful investment for Lawrence, it is all about sports and the kids

BringBackMark 4 years, 8 months ago

Good god it just keeps getting better! When the lights finally come on and the cock roaches start to scurry, the truth about this project is going to be mind boggling. Amyx knows what's going on but he won't speak publicly about it. There's got to be photo's of the City Commissioner's with little kids or something.

If I'm not mistaken the issuance of IRB's and the tax exempt status are two different issues. The IRB's could be issued by the City (although I have no idea why they would) without them being exempt. This is just another gift to Fritzel.

nick_s 4 years, 8 months ago

All of those involved from the beginning should feel completely ashamed at the way this was proposed, pushed through, planned, & financed. Unfortunately, shame is not an emotion that most politicians & business leaders posess in this day & age. If they tell the lie enough it becomes truth in their minds. It is amazing how stupid they must think people are & this debacle is downright disrespectful to everyone in the city of Lawrence. Just tell the truth already, we can see the writing on the wall. Dont take a leak on my back & try to tell me its raining.

cabmando 4 years, 8 months ago

why doesn't this parcel deserved to be taxed? It is owned and operated by a private individual?

minimadoff 4 years, 8 months ago

Surferling president of KU Endowment had to refer questions to Sheahon Zenger athletic director, he won't talk. Fritzel declined to comment, Fritzel's attorney couldn't determine anything. David Corliss wasn't sure whats included.

If KU Endowment's president, KU's Athletics director, Fritzel, Fritzel's attorney, and the city manager Dave Corliss aren't sure, don't know, won't comment, refer to others........ who knows what the hell is going on.

There should be a investigation into the dealings that lead to the use of taxpayers money for this project. Fritzel as been treated as if he was KU. The folks at KU have promoted this type of deal so their developer received this treatment.

This is a private for profit project where KU is only a tenant that pays rent.

jack22 4 years, 8 months ago

None of these tax breaks would have been necessary had this really been a gift to the city of Lawrence. But Fritzel is no philanthropist, he's just a very good promoter and salesman. He knows from experience that people like to think they're getting something free or at a bargain price. So you might see a sign advertising free all you can eat hotdogs for the entire family, but when you go to get your free hotdog you find that the fine print explains that they're free with the purchase of a new house or condo in Junction City. Well, it looks like we've all bought condos from Fritzel, although this time they're really more like a huge warehouse that we'll have to share with KU. But I'm sure Fritzel will live up to his end of the bargain, and at the grand opening and for one day only you can get your free hot dog, after all, Fritzel did say he was giving us a gift, right?

uptillnow 4 years, 8 months ago

Why the outlandish fiction continues of a 40 million dollar Fritzel cost for facilities to be leased to KU Athletics?

Answer: Zenger made an irresponsible lease deal with Fritzel in 2012 for 1.3 million dollars for thirty years. Additionally Fritzel gets exclusive concession rights, free rent to use facilities for Fritzel sponsored events, a share of parking revenues and other lucrative lease terms. That lease was based solely on Fritzel's representation that the facilities would cost 40 million dollars. There were no plans, no specifications, and nothing concrete to justify to anyone a 40 million dollar cost. Neither Zenger, Seuferling, nor their boards preformed any due diligence regarding the 40 million dollar cost Fritzel represented.

A revealing example, On October 2, 2012 Seuferling sent a proposal to the city for a Fritzel priced 25 million dollar recreation center using the same routine of no plans or specifications. Fortunately, under considerable pressure from citizens, competitive bids were allowed for the recreation center. The same Fritzel gets the job at a figure of less then half of Seuferling's/Fritzel's proposal to the city.

Now Zenger and Seuferling et al.. have to to stick to their 40 million dollar story because competitive bids on the stadium improvements would result in sizable savings. Even KU officials and athletic supporters should question the competence of KU officials deal with Fritzel.

A Seuferling, RCP LLC audit of Fritzel's actual costs would confirm this, but it ain't going to happen.

minimadoff 4 years, 8 months ago

There will be an investigation into the actions of those involved sooner or later. When a non-profit 501-c3 such as KU Endowment provides the opportunity for a for-profit such as Bliss LLC (Thomas Fritzel) to profit from its actions the endowment program has crossed the line. The Fritzel's and related families members John T. Stuart should not personally benefit or profit from the maneuvers and actions by KU Endowment. In the case of Rock Chalk Park they are, KU Endowment has mislead their donors and taxpayers of Lawrence.

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