"Almost every time crews break ground on a new downtown building, Harold Tate, president and executive director of the Lexington Downtown Development Authority, has been asked why these buildings fail to scrape the sky and instead hug the ground at just a few stories.
Each time, he has explained that it's just too cost prohibitive to have a sky's the limit attitude when contemplating a project because of the intensive code restrictions that go into effect once a building gets taller than a few floors. But now, with new types of Tax Increment Financing (TIFs), as passed by this year's legislature, the money spent on mixed-use projects could be brought back to developers, putting buildings and their plans on a higher plane.
House Bill 549 establishes three new types of TIFs, in addition to the originals that had been next to impossible for Lexington developers to secure because of a requirement of one square mile of undeveloped land. The new TIFs expand upon the previously established ones that returned extra property tax to developers to pay for infrastructure improvement costs incurred during construction. But under the new TIFs, which allow for the redevelopment of blighted land with a minimum $20 million investment, as well as "signature projects," costing $200 million and above, developers can be reimbursed with money from the added sales taxes that previously would not have occurred, as well as corporate and individual income tax.
The timing of the new TIFs has proven serendipitous for the developers of the Manchester Street redevelopment project, aiming to turn a mostly neglected industrial area of town into Lexington's Distillery District.
"The financial burden of taking some of the most interesting buildings in Lexington and bringing them into public use and into the fabric of Lexington would largely be made possible through a vehicle such as this," said Barry McNees, managing partner of Manchester Development, LLC.
The Manchester Street corridor is currently tucked behind Rupp Arena and out of the way to many Lexingtonians, but will be opened up with the completion of the Newtown Pike extension. The area lacks much of the necessary infrastructure, and what it does have hasn't been maintained, according to McNees.
"The real impact has to do with timing and quality," McNees said about the ability to recapture money spent on infrastructure improvements his company would have to make. "It's the difference between unveiling something full-blown and something that has to occur at a less aggressive pace."
The creation of the new TIFs is the result of ambitious projects underway in Louisville and northern Kentucky: the $465 million Museum Plaza skyscraper mix of residential, art, office, retail and hotel planned for the Louisville riverfront, and Ovation, a billion-dollar residential, office and retail community slated for Newport's riverfront.
"In order to make the project a reality, we needed help from a tax increment financing program to pay for that public infrastructure that was a part of this otherwise private development," said Craig Greenberg, a developer of the Museum Plaza.
Greenberg's group is anticipating reimbursements of $130 million over, at most, 30 years for improvements to the area, including public space linking Museum Plaza with the Ali Center, which Greenberg said was necessary in order to get the 62-story building off the ground. "We were very clear to the General Assembly and everyone that without these changes to the TIF laws, Museum Plaza could not be a reality," he said, adding the extra provisions included in the legislations made it a great tool for development around Kentucky.
Unlike the Museum Plaza, McNees said the Manchester Street project didn't hinge on the new tax incentives, but it will help. "Without the TIF, it's doable, but it's a staged process that would take a lot longer," he said.
The added ways to recoup capital investments and additional items that qualify for reimbursement makes Kentucky's TIF program truly viable for the first time, according to Bill Lear, developer of multiple local projects including CenterCourt, and one of the top development lawyers in the state.
"The primary problem with the old TIF was it only allowed you to recover property tax, and state property tax, compared to other states, is relatively low," Lear said, making the application process not worth the bother.
In order to qualify for the new TIFs, a project must incorporate at least two types of uses: residential, retail, office space, restaurant or hospitality. At minimum, one of the secondary uses must be 20 percent of the overall square footage of the project, and no single retail entity can exceed 20,000 square feet, which rules out a big box store from being part of the incentivized development.
Government leaders are excited by the possibilities available to Lexington with the new TIFs.
"It's very encouraging," Mayor Jim Newberry said. "It obviously won't work in every development project we're working on, but there are some where it can make a huge difference. I'm quite confident we'll see some TIF projects emerge in the next several months. It will be a very helpful tool for us to have."
Governor Ernie Fletcher agrees. "This TIF legislation, if you look at it, is a very powerful piece of legislation to promote economic development, and it's not focusing on manufacturing. It's focusing on professional office space. It's focusing on tourism and some of the other things that make a city more strong and vibrant," he said.
And vibrancy in the downtown leads to betterment of the city and the region, according to Lear.
"The bottom line is the vitality of the downtown area is critical to the overall success of the community for a thousand reasons. Anything that improves the ability for projects to go forward and be successful in downtown is a big boost," Lear said.