Lexington, KY - The Kentucky Economic Development Finance Authority (KEDFA) today approved Tax Increment Financing (TIF) for the proposed $190 million Lexington Distillery District. Developer Barry McNees has said his three-phase plan would transform a now mostly blighted industrial stretch of Manchester Street near downtown Lexington into an economic and cultural beacon.
An official with the Kentucky Economic Development cabinet confirmed that the $45.8 million mixed-use, blighted area TIF was approved at today's monthly meeting of KEDFA. McNees said the approval from the state triggers $26 million reimbursement support from the Lexington Fayette Urban County Government.
The District received unanimous support from the Lexington-Fayette Urban County Council with approval on December 4, 2008 of plans to help revitalize Manchester Street. Under the redevelopment, the area will receive tax incentive reimbursements from the TIF for such infrastructure improvements as storm sewers and sidewalks.
TIFs return a portion of funds spent to improve infrastructure in the designated zone. Those funds are reimbursed over time from any additional taxes generated by the development.
"Our immediate objective in light of the dramatic progress being made with the Newtown Pike extension is to see to what extent we can integrate District work to leverage the public investment that's being made there," Mc Nees said. "As we've said all along, this project depends on infrastructure and it depends on the TIF to help with that."
"With today's approval of tax increment financing for the Distillery District, we will be able to make public improvements as the area is redeveloped by the property owners," Mayor Jim Newberry said.
"Tax Increment Financing is a great way for the city to support infill and redevelopment projects."
The "Distillery District Mixed-Use Redevelopment Tax Increment Financing Project" was requested by the Lexington Fayette Urban County Government.
Preliminary approval by KEDFA on February 5, 2009 capped the maximum amount available for commonwealth participation through tax increment financing at an amount not to exceed $61,000,000 for public infrastructure costs.
After preliminary approval, the project was reviewed by KEDFA's independent consultant and determined to create a net positive impact to the commonwealth under the condition that $31,339,000 of public infrastructure reflected under Public buildings/structures be removed from costs available for recovery.
The Office of State Budget Director and the Finance and Administration Cabinet agreed with the consultant's recommendations and certified the report and the findings with their statutory required Certification of Net Positive Impact to the Commonwealth.
LFUCG has also reviewed the report and city officials agreed with the findings and the reduced amount eligible for recovery. As a result of the consultant's analysis, LFUCG would be eligible to recover up to $45,804,000 of public infrastructure costs using Tax Increment Financing.
LFUCG will be permitted to recoup these approved costs through an 80 percent recovery on increments gathered from withholding, sales and real estate property taxes.
Estimated increments available from these taxes include
withholding tax over 20 years on employees working in the "footprint" district totaling $16,054,000; sales tax over 20 years from sales within the footprint
totaling $105,734,000; and real estate property tax over 20 years from within the footprint
estimated at $5,082,000. Total Taxes Eligible:$126,870,000. Allowed Recovery Percentage:80 percent. Potential Increment Stream over 20 years: $101,496,000.
Through the use of these taxes KEDFA will provide a 2.22 coverage ratio of Potential Increment Stream to Approved Costs.
McNees acknowledged that the current economic environment makes the attraction of commercial investment more challenging, but added "this support from the state inspires confidence." And at least one signature Kentucky industry has been watching closely for today's decision in Frankfort.
"The Kentucky Distiillers' Association is discussing the creation of an interactive 'Bourbon Education Center' at The Distillery District to inform visitors of Bourbon's rich heritage and significant economic and tourism impact," KDA president Eric Gregory said in a statement. "We've been impressed with the Distillery District's work to promote our signature Bourbon industry and build upon Lexington's Bourbon history."
As Business Lexington's Erik Carlson has reported, the 25-acre project is slated to incorporate 277 residences, 83,300 square feet of office space, 118,600 square feet of retail and restaurants, the first Boutique Bourbon Hotel with Spa and 125 rooms and 700 parking spaces in what is now abandoned or under-utilized industrial space.
According to an impact analysis and TIF revenue projection compiled by C.H. Johnson Consulting, under contract with McNees, the Distillery District is estimated to generate a total of $126.8 million, $48.1 million, and $23.8 million respectively in State and local tax revenues over the three phases of a 20-year TIF program. In contrast, were the district to remain unchanged, it could be expected to generate no more than an estimated the $4.7 million.
In 2007 the area brought in just $160,089 in tax revenues. In all, under this analysis, McNees expects his project to return to the district $81 million that otherwise would have been distributed around the county and state.
"This is great news for our downtown and for the developer Barry McNees," said Harold Tate, President and Executive Director of the Lexington Downtown Development Authority. "This will allow his vision and his project to move forward another step. The existing retail and the opening of Busters has shown that this district will have a positive influence on our developiong downtown. I am really excited about this news!"