Local developer awarded millions in incentives tied to companies that owe years of back taxes
About the same time that local developer Doug Compton was provided millions in public incentives for recent downtown projects, another of his city-backed ventures was racking up hundreds of thousands in delinquent taxes.
“The city made good faith decisions, did their part,” said City Commissioner Lisa Larsen. “And we’ve also given this individual and maybe others in that group incentives and they are essentially not following through as good citizens.”
After years of nonpayment, those delinquencies amount to more than $1.7 million in back taxes and other payments to the city and other local governments, according to calculations by the Journal-World. The existence of serious delinquencies, though not the total figure, was brought to the attention of the City Commission this week.
“I find it to be very disappointing that it was not brought to our attention sooner,” said Larsen, who voted in favor of granting incentives to Compton in December 2015.
Eighteen parcels owned by Eastside Acquisitions LLC and Fairfield Investors LLC, both companies with ties to Compton, owe taxes dating as far back as 2011. By the end of this month, those development groups will owe more than $1.7 million in delinquent property taxes, special assessments, interest and fees.
City supported infrastructure
The development, which continues to sit mostly empty, received financial backing from the city at its outset.
The two LLCs petitioned the City Commission in 2009 to establish a benefit district for the parcels, located on the eastern edge of the city near the intersections of East 23rd Street and O’Connell Road. The petition asked the city to front the development groups about $2 million for infrastructure costs. The commission voted to establish the district in order to do so, under resolutions 6842 and 6832.
Though the project did rely on some city financing, Compton said that he and his partners certainly made their own investments.
“Our investment group — I was one of six original investors — has supported this commercial project for well over 10 years with millions of dollars of private investment,” Compton said in an emailed statement to the Journal-World. “The City and County partnered with us in infrastructure investment because of the critical location of this project, particularly across the street from the City’s new business park.”
The infrastructure built includes streets, sidewalks, storm sewers and roundabouts — all built through empty fields. Within a couple of years, as much of the land continued to sit vacant, the LLCs began missing payments for property taxes and the special assessments due on the benefit district. The parcels amount to dozens of acres, with portions zoned commercial, residential and industrial. The area is located across 23rd Street from Lawrence VenturePark, a city-owned business park that has also struggled to attract buyers.
Millions worth of incentives
During the same time that the two LLCs started going into the red, development groups led in part by Compton were granted incentives for more projects.
Specifically, three downtown projects along New Hampshire Street: the Marriott Hotel and adjacent 888 Lofts, as well as a retail and apartment building in progress at the former Pachamamas site. Together, the incentives for all three projects amount to more than $12 million.
Though disappointed the current commission wasn’t notified sooner of the delinquent taxes and payments, Larsen said she realized that to associate the delinquencies with Compton would have taken some digging. The two LLCs are tied to various entities and individuals: Farmland Development LLC, Norris Holdings LLC, Robert M Chase Declaration of Trust, Norris Holdings LC, as well as William Newsome and Doug Compton.
“Unless you’re actively looking for those, it’s not going to come to your attention,” Larsen said. “So obviously, we’ve learned a very valuable lesson in that we need to be more diligent in vetting out anybody who wants to get incentives from the city.”
Still, Larsen didn’t think the various entities or individuals involved absolve anyone of responsibility.
“You sign a contract at the business level, you’re responsible for that money no matter who you signed it with,” Larsen said. “… If you’re on that dotted line, you are part of that situation and you’re fully responsible for anything that occurs or any debt that’s taken on by that entity.”
A struggling venture
The city became aware of the delinquencies after one of the properties recently entered tax foreclosure owing to its unpaid property taxes and special assessments. That the city provided financial backing for the property was noteworthy for Larsen because the city may not be able to recoup those funds.
“We’ve already spent the money for the special assessments for that infrastructure, so we are out that money at this point,” Larsen said. “We’re actually out hard dollars. I find that whole situation to be deplorable.”
Contributing factors of the situation, though, may be a point of disagreement. The commercial development in the area has not gone well. Apart from Tractor Supply Co., no businesses have located in the area. Across the street, Lawrence VenturePark has yet to confirm its first buyer.
Compton said that part of the reason the area has yet to succeed was the city’s own doing, in particular the past commission’s amendment to the comprehensive plan that allowed home improvement store Menards to locate in a district that had been zoned residential.
“It must be said that during the timeframe since the mid-2000s, the City has chosen not to support this location by rezoning tracts in the South Iowa corridor to retail instead of encouraging retail at the location where it had made this investment,” Compton said. “The most obvious example of the City’s actions is the Menard’s store, which, if the City had not chosen to allow it to go on a site that was not zoned for that use, Menard’s could have been a catalyst for this entire commercial development.”
In general, the city’s special assessments delinquency rate is low, according to Assistant City Manager Diane Stoddard. In 2011, it was less than 1 percent. But because the city doesn’t use benefit districts as an incentive very frequently, Stoddard said it doesn’t take a very large dollar amount in delinquencies to sway the percentages.
As a result, the delinquency rate has risen significantly in the past five years. For the most recent year, 2014-2015, the total special assessment taxes levied were $2.3 million, with a delinquency rate of 10 percent, Stoddard said.
At their meeting Tuesday, commissioners and City Manager Tom Markus agreed that whether a developer owes taxes or is involved in litigation with the city needs to be part of the application process for incentives. The city is in the process of overhauling its incentives policy, and Larsen said she agreed those changes should be included. Updates to the policy will be discussed at the commission’s meeting on Dec. 20.
As far as the parcel already foreclosed, there is not much the city can do to recoup what amounts to approximately $150,000 in unpaid taxes and special assessments. That parcel alone is subject to significant future assessments, totaling about $54,000 to Douglas County and $145,000 to the City of Lawrence, according to a city memo. If purchased, the city would be able to recoup a portion of the delinquent taxes and the payment of the future assessments would be taken over by the new owner.
“The best-case scenario is to have a bidder come forward,” Stoddard said.
That still leaves the 17 other parcels owned by Eastside Acquisitions LLC and Fairfield Investors LLC that are delinquent. If the back taxes and special assessments are not paid by the beginning of the coming year, a large part of those parcels will also go to tax foreclosure, according to the Douglas County Treasurer’s office.
Despite the losses, Compton didn’t discount the area’s potential.
“It also needs to be said that, while this investment has not worked out for any of the parties involved, the infrastructure is now in place to support future commercial growth in Southeast Lawrence for decades to come.”