photo by: Mike Yoder

Lawrence City Hall, 6 E. Sixth St., Thursday, July 7, 2016

City officials say one of the calculations used to determine whether to award tax breaks and other incentives needs an update, and a team of economists have begun work on a revision.

The city uses a model to determine the cost and benefit associated with awarding tax breaks and other economic incentives. The cost-benefit model’s functionality has now “become outdated” due to several factors, according to a report from City Manager Tom Markus to the Lawrence City Commission.

“There are a lot of assumptions that go into those cost-benefits, so it’s always good to revisit that model and make sure that it’s relevant to today’s issues that we’re trying to take a look at,” Markus told the commission at its meeting Tuesday.

One of the requirements in the city’s economic development policy is that the cost-benefit be at least 1.25 over a 15-year period, meaning that for every $1 in public incentives, $1.25 of benefit value would be returned. The report states that the cost-benefit model has become outdated due to legislative changes, differences in commercial tax appraisal methodology and the need to use the model for economic incentives beyond property tax abatements.

In addition to property tax breaks, available economic incentives include sales tax waivers for construction materials, neighborhood revitalization areas, tax increment financing and transportation development districts. Projects awarded incentives from the city last year include an expansion of a pharmaceutical plant and construction of a mixed-use office, retail and condo building on Vermont Street.

As is, the cost-benefit model is inefficient and difficult to work with, according to Britt Crum-Cano, the city’s economic development coordinator. Specifically, Crum-Cano later told the Journal-World that the model is a series of about 22 different interrelated spreadsheets with no user guide. She said the model is still accurate, but that she had to “reverse engineer” the model’s calculations to figure out how it worked when joining city staff and currently has to manually update some variables.

“It’s extremely time consuming for me to go in and make all these adjustments manually, because I’m going into the back end of the model and doing a lot of formula changes, making sure that things propagate appropriately throughout the many, many spreadsheets in the model,” Crum-Cano said.

City staff began researching revision options for the model last year and has decided to work with Impact DataSource on the update, according to the city manager’s report. The report states that the company has six economists and specializes in developing cost-benefit models for public sector organizations. IDS will update functionality, accommodate the annual customizations and incorporate industry best practices into the city’s cost-benefit analytics. The annual price for the ongoing usage, customization and consultation is about $6,500.

A first draft of the update is ongoing, and Crum-Cano said until the process is further along it will not be known what specific changes will be made or how the cost-benefit ratio calculations may be affected. She said those changes will be “tweaks” rather than a total redesign, and that mainly the consultants will bring improved efficiency, data, reports and best practices to the model.

“I’ve looked at different things in the model and wondered if maybe there weren’t better ways of calculating certain things,” Crum-Cano said. “I feel that they have that background to bring that to us.”

Crum-Cano said the city will continue to work with IDS on the first draft of the update to the cost-benefit model in the coming weeks.