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City's Public Incentives Review Committee to consider Rock Chalk Park property tax abatement today; member raises questions about city's analysis
The proposed Rock Chalk Park sports village in northwest Lawrence will create all types of exercises. Today, it will be a math exercise.
The city’s Public Incentives Review Committee will meet at 4 p.m. today to consider making a recommendation on a request for $40 million in industrial revenue bonds for the KU facilities that will be at Rock Chalk Park. The $40 million in IRBs come with a 10-year, 100 percent property tax abatement for the project.
It appears today’s meeting of the Public Incentives Review Committee won’t be without questions. Former City Commissioner Rob Chestnut, who also is a candidate for City Commission in this year’s race, is a member of PIRC. His full-time job is as a chief financial officer for a Topeka-based company, and he was appointed to PIRC to fill the position reserved for a financial analyst.
He seems to be taking that job seriously because he has put together a memo questioning whether the city’s financial analysis of the project is accurate. In short, Chestnut raises questions about whether the amount of incentives the city will be providing to the project will be greater than what it will receive in return.
“I believe the city could lose money on the proposed project,” Chestnut writes in his memo.
That runs counter to what the city’s financial analysis has shown. The city has run a “cost-benefit analysis” that shows for every $1 in incentives offered to the project that it will receive $1.62 back in benefits. That’s important because the city has an economic development policy that says projects receiving tax abatements should have a cost-benefit ratio of at least 1 to 1.25.
But Chestnut makes two major points about the city’s analysis:
• The city’s analysis assumes the $50 million project will start paying property taxes after the 10-year tax abatement has expired. But that does not appear to be the plan in reality. I’ve heard from multiple people that the developers of the project — Thomas Fritzel’s Bliss Foundation, and various KU entities — believe the project should receive the automatic property tax exemption Kansas University receives for its property. The state has not granted that exemption because the facilities will be owned by Bliss — a private, for-profit company — rather than KU. I believe the plan is to use the next 10 years to win such an exemption from Kansas lawmakers.
According to Chestnut’s memo, the city’s model assumes property tax payments in years 11 through 15, and counts them as a benefit that will be received by the city. With those property tax payments, the city’s cost benefit ratio reaches the $1.62 in benefits for every $1 in incentives. Without the property tax payments, though, Chestnut says the project falls into negative territory. His calculation is that the project receives 98 cents in benefits for every $1 in incentives.
• The city’s analysis doesn’t count one item that could feasibly be considered an incentive to the project: the amount of infrastructure the city will pay for Rock Chalk Park.
How much money the city will pay in infrastructure costs for the project isn’t yet known, but it very easily could be several million dollars. The amount the city will pay in infrastructure costs will be determined by how much the city pays to build its recreation center building. The city will pay $25 million for its share of the Rock Chalk Park project, which includes the recreation center building. If the bid for the recreation center building comes in at $22 million, the city’s current estimate, it will pay $3 million in infrastructure costs. Some of that infrastructure is expected to serve both the recreation center and the KU portion of Rock Chalk Park.
But for the purposes of the cost-benefit analysis, the city did not input any infrastructure number into the model. Chestnut notes that if the city even included just $1 million of infrastructure costs in the cost-benefit model, it would create a significant reduction in the city’s cost-benefit ratio.
It will be interesting to see how the PIRC meeting goes today. The committee has some members who are known for asking tough questions. In addition to Chestnut, former City Commissioner Boog Highberger also is on the committee.
Much of this discussion probably hinges on how people view the nature of the project. Most of the city commissioners I have talked to have viewed this property tax abatement issue as more of a technicality than anything else.
They’ve noted that if KU Athletics owned the facilities, rather than leased them, the property automatically would be property tax exempt.
But in recent weeks, new questions have arisen about how much Fritzel’s Bliss Foundation will be able to use the facilities as a privately run, for-profit events venue. The agreements between Bliss and the various KU entities seem to give Bliss much leeway in hosting events at the facilities.
It has been unclear how many and what type of non-KU events Bliss may seek to host at the facility. When I asked KU Athletics about it last week, the response was that the issue was still a matter of “ongoing discussion.”
Another issue to keep in mind is that the model the city uses may not be the best for capturing all the possible benefits of the proposed Rock Chalk Park.
The city’s model seems to be pretty heavily weighted toward measuring how many new jobs will be created by a project. That number has been uncertain with this project. The original application for the IRBs used a jobs figure of two jobs for the project. Then Bliss filed an amended application that says the project will involve 17 jobs. I’m not up to speed on what led to the difference.
But the main economic development part of this project long has been considered to be the amount of visitor spending it can attract to the community. I’m not sure how much the city’s traditional model accounts for that type of benefit.
Plus, supporters of the project would argue an immeasurable benefit is what this project does for Kansas University. It can help with recruitment, it can free up funding to do other improvements — such as at Memorial Stadium or Allen Fieldhouse — and it possibly can solidify KU’s position as a member in good standing with the Big 12 Conference.
Those benefits are hard to measure in any type of model.
So, we’ll see how it goes at this afternoon’s meeting. Ultimately, the PIRC recommendation will only matter so much. The City Commission still makes the final decision on the IRB request.
Commissioners are scheduled to vote on that IRB request just hours after the PIRC meeting. City Commissioners meet at 6:35 tonight at City Hall.