"Where University of Kentucky basketball is concerned, it is not unusual for Lexingtonians to get ahead of themselves. Late last month as city officials, the Lexington Center and Lexington Downtown Development Authority (LDDA) announced a study to possibly replace Rupp Arena, it didn't take long for the phones to start ringing about the proposal and its tax implications for the city.
Business Lexington sat down with some of the main architects of the plan to not only replace Rupp, but bring the first tax increment financing (TIF) district to Lexington. The Lexington Center's Bill Owen, head of the LDDA Harold Tate and former state finance secretary and consultant on the project John Farris addressed some of the finer points, frequently asked questions and misunderstood aspects of the city's plan.
The full interviews Business Lexington conducted on this topic are available as podcasts at www.bizlex.com.
Has the city decided to build a new downtown stadium?
Not yet, according to Owen. At this point, the only decision that has been made is that the Lexington Center Corporation and the LDDA would like further study of the issue.
"It was not a groundbreaking announcement," Owen said.
"In September, the Lexington Center Corporation Board decided to issue a request for proposals from qualified consultants to come in and evaluate a tax increment financing district," Owen said. "At the October meeting, the Downtown Development Authority Board of Directors voted to join in that Request For Proposal (RFP), which hopes to identify a consultant that could come in and look at the tax increment financing laws which exist for signature projects."
Why are we commissioning another study when we already have a downtown master plan?"A lot of this began with the completion of the Downtown Master Plan, which looked at our downtown core very carefully and returned 15 different specific recommendations of what to do with some specific properties," Owen said.
"Three of those 15 recommendations dealt with property managed by Lexington Center Corporation, so if you are looking at the next step of implementation, you really can't separate Lexington Center from being in the mix of that."
The LDDA's Tate noted, "One thing (the Master Plan) did is identify Rupp Arena as the heart of our entertainment that we have right now. That's a facility where if we didn't have that downtown, a large component of what downtown is wouldn't exist today."
"The Master Plan looked at what can we do to make Rupp Arena and Lexington Center, as it says, a part of the urban fabric — what can we do to bring it more into and be a part of the downtown area?" Tate added. "The Master Plan gave us the beginning of what we can do to make downtown better, and so now you are going to see more studies that come about to basically solidify and backup everything that the Master Plan had recommended."
An RFP for further study is the next step in that planning process, Farris said.
"The city is in the process of issuing an RFP to have someone look at exactly what that arrangement should be," Farris said. "What the best district is and how that cost sharing arrangement should work so that it is a symbiotic relationshipto make sure it is a win/win situation for the entire area and the city and folks across the commonwealth."
What will the study be looking at in determining the optimal TIF district for the project?
Tate hopes the study will offer confirmation of the economic potential for initiatives within the study area.
"(We) have an idea of what we see could happen in the area, but it would be nice to have an economist or a team look at it to reassure us that what's in the Master Plan could occur there," Tate said. "And it could occur in such a way that it would bring in enough revenue to help do public improvements that are needed to complete the area."
The study will consider not only what development activity can be expected in the proposed TIF district, but also the development occurring in surrounding areas, including the South Hill neighborhood, Tate said.
"When you look at the study area, the public infrastructure there is very limited, and that's quite an expense for a developer to put in place," Tate said. "That's what's so good about these tax financing (incentives)."
"Hopefully it's a win/win for the folks in the district and the arena, meaning that they'll be generating extra taxes and depending on the cost share burden," Farris said. "It's not always going to be one to one. It may be such the case that an arena may require additional revenue from other sources including TIF and a variety of other sources — maybe even some private sources."
Won't the proposed TIF district simply shift development from one part of the city to another, rather than creating or attracting new businesses?"I feel that in our downtown, as small as it is, you're not going to have that shifting occur," Tate said. "What you are going to see is new (business) brought in. If you look at the stuff that's happened downtown in the last three or four years, it's all new anyway."
Larger cities than Lexington, such as Chicago or Cincinnati, have more reason to be concerned about TIF projects shifting existing development, Tate said.
"The (downtown) retail is very sensitive right now, but there are local people who want to start retail, start entertainment, but there is really no place for them to go," Tate said.
Is this a new tax?
No.
Under terms of the TIF law passed by the 2007 General Assembly, mixed-use projects that have a minimum cost of $200 million are eligible to capture local and state tax revenues above what is currently being generated within the district's boundaries without raising taxes. While those newly generated tax dollars — from greater property values, increases in the amount of sales, corporate income and personal income taxes — in the district would normally head to state coffers in Frankfort and to LFUCG for general distribution, all of the newly generated money will be returned for improvements in the outlined district.
"We are using the tax you already pay to help keep the area, the economy, going in that area, so it's not a new tax," Tate said.
"There are many examples across the country were governments have levied a tax to build an arena. This is not what is proposed here," Farris said. "The way tax increment financing works is that no new taxes are established. In fact, you are generating taxes that are already all on the books for a piece of property that's not currently developed, so there is not much taxes being generated off that piece of property. And so when you have a development, instead of going to Frankfort, the sales and income and property tax, would actually be plowed back into the project to pay for the financing of the project."
How does the newly generated tax money go to fund these projects?
TIF money is used to subsidize the significant public infrastructure improvements to bring severely underdeveloped areas up to speed, Farris said.
"If you take the Distillery District, for example, there's some significant environmental and other issues that cost money in order to make that project a reality. By using the additional tax increment financing revenue to help off-lay some of those costs, it may make a project that was otherwise not viable, a viable project for the city," Farris said.
"If the amount of money generated by all the taxes in the area (is sufficient), they will pay the bond payment for the arena as well as some of the public infrastructure improvements that would go into the entire district," he added.
After the study comes back, assuming the project moves forward, how long will it take before a proposed TIF district starts generating additional revenues?
Before any action could be taken, the local government and state government would need to commit to the plan, Tate said.
"I see (revenue) coming in already," Tate said, referring to investments in the Newtown Pike Extension, which is expected to encourage private development, as well as early interest along Manchester Street.
"But you can't do that until you've done the first study to say that yes, this area is possible," Tate said. "Bill and I both get a lot of questions from people — 'So, when's it going to start? When are you planning on it being done?' Well, we aren't there yet. We are far from being there, and some people think is it too cautious, too conservative, but I think it is logical. Let's not move forward too far before we even know if it will be possible."
"An independent third party consultant study is a benchmark requirement to make the presentation, and before you can go to the planning commission or the city council for public hearings or make a grand application to the commonwealth you've got to have this study. And we haven't even got the consultant yet," Owen said. "We hope to have responses that will give us qualifications by December 1."