A special taxing district that has generated more than $2 million for a local development group that built The Oread Hotel is the subject of a city-ordered audit.

A document outlining the arrangement between the city and Wichita-based Allen, Gibbs & Houlik L.C. was obtained by the Journal-World through the Kansas Open Records Act. City officials, however, are refusing to comment on what sparked the audit or what concerns they may have about the special taxing district. The taxing district allows private developers of The Oread to keep a large amount of the sales taxes generated at The Oread to pay for parking and other infrastructure improvements.

The document, an “Understanding of Engagement,” states the firm would assist the city in evaluating sales and use tax transactions, receipts and reimbursements connected to The Oread Hotel’s Tax Increment Financing District.

The document states the firm would inform the city about any material errors, fraud or illegal acts that are found during the evaluation. Any significant deficiencies or material weaknesses will also be made known, it says.

“At the conclusion of our engagement, we will submit a report outlining the procedures performed and our findings, including any questioned sales and use tax reimbursement issues,” the document reads.

It’s dated April 15 and signed by City Attorney Toni Wheeler and Benjamin O. Hart, vice president of Allen, Gibbs & Houlik.

A final report from the firm has not been produced.

The city is paying an hourly rate of $150 for the evaluation, with an estimated total fee of $10,000 to $15,000.

The portion of the document that details the specifics of the arrangement was redacted.

The reason given was that the redacted portion was the work product of an attorney. Wheeler said an attorney at Allen, Gibbs & Houlik put that portion together at her direction.

Interim City Manager Diane Stoddard said last month the city was “looking at our arrangement on the Oread project.” On Friday, she said she couldn’t provide any more information than what was already given.

Commissioners Matthew Herbert, Leslie Soden and Lisa Larsen said they could not talk about the purpose of the evaluation.

Mayor Mike Amyx and Commissioner Stuart Boley referred a reporter to talk to Wheeler or Stoddard.

“At this point, it’s being handled properly for the city, and that’s all I can say about it,” Larsen said.

As part of The Oread’s tax incentives, it’s designated as a tax increment financing district. Since the hotel’s beginning in 2009, it has received slightly more than $2.15 million in sales and property tax reimbursements from the city because of that designation, according to the city’s 2014 report on economic development support and compliance.

The hotel could continue to receive sales and property tax rebates until 2029.

The Oread and any other businesses at 1200 Oread Ave. are also designated as being in a Transportation Development District. Through city agreement, businesses in the district can charge an additional 1 percent sales tax on all its sales.

The development group of the hotel, which includes Lawrence businessmen Thomas and Tim Fritzel, may use the extra tax revenue to pay for parking and other infrastructure.

According to the city’s 2014 report, the district had generated about $525,000 in revenue through the extra sales tax since 2009. The TDD will be in place until 2031.

The Kansas Business Center, through the Kansas Secretary of State’s Office, lists several business entities with registered offices located within the district.

Business questions

Documents from the Kansas Secretary of State’s office do create questions about one “wholesale” business that lists its address as being inside The Oread Hotel. But when the Journal-World sought to find the business inside the hotel, it was unsuccessful.

The business is Oread Wholesale L.C.. According to records from the Kansas Secretary of State’s office, it was incorporated at the address in July 2009. Thomas Fritzel, who is part of the development group that receives the rebated taxes, is listed as the business’ resident agent.

Fritzel and his brother Tim are involved in the operation of local construction firms. It is believed Oread Wholesale is in the business of purchasing building materials and selling them to construction firms, but neither Thomas nor Tim Fritzel returned phone calls seeking comment for this story.

The true location of the business is important in understanding whether the sales taxes it generates are subject to rebate.

If Oread Wholesale is located at The Oread, it is likely that any taxable sales made by the business could be included in The Oread’s special taxing district. That would mean the development group would be rebated a large portion of those sales taxes under the terms of the city’s tax agreement with The Oread development group.

If Oread Wholesale were actually located elsewhere, the sales taxes generated by the business would not be subject to rebate.

An office for Oread Wholesale could not be found on the first floor of The Oread.

When asked about the location of Oread Wholesale, a clerk at the font desk Friday told a reporter only that the hotel had executive offices and that Oread Wholesale was listed at the address “just to get stuff shipped in.” She said there was no warehouse on site.

Sales tax reports for the district cannot be obtained through the Kansas Open Records Act. Freda Warfield, executive office administrator for Revenue Secretary Nick Jordan, said tax reports for a specific location are considered confidential.