City gets TIF plan
Developers outline financing for retail center
With all of the properties necessary for the Towne Center development under contract, developers say they are just about ready to start moving dirt for the project, which they say will cost about $69.3 million.
One facet of the planning that remains, however, is to spell out a development agreement outlining exactly how the undertaking will be financed - in other words, how taxpayers will be asked to help with a portion of the costs.
In a work session Thursday, May 10, the Lansing City Council reviewed funding mechanisms to be used for the Towne Center redevelopment district, which stretches on the west side of Main Street from Kay Street to 4-H Road. The work session was a prelude to consideration of a development agreement up for approval at a special May 24 council meeting.
City of Lansing finance director Will Lundberg said two bond issues are being proposed by the city for the development: the first being a tax increment financing or TIF bond and the second being a transportation development district or TDD bond, as requested by Towne Center LLC, the developer of record for the project.
The city is being asked to sell approximately $16.7 million in the two types of special obligation bonds for the project. Of that, the city will recoup around $14.3 million spent on reimbursable costs ranging from property acquisition, site preparation and consulting fees to street improvements, utilities and parking, Lundberg said.
The difference between the two figures accounts for bond issuance costs and reserve requirements, or basically establishing a contingency fund set aside in case changes are made to the plan once building begins.
"These are things that are normal for any development of this size," Lansing City Administrator Mike Smith said.
Lundberg added that the developer would assume any costs above $16.7 million for the estimated $69.3 million dollar project.
"They (Towne Center LLC) have got costs on this project that far exceed what can be reimbursed with TIF funds," Lundberg said. "The developer will have more private expenses than what the city is contributing."
In the first phase of the bond issue or the TIF bond revenue for paying off the debt for the bond will be collected in two ways.
Half of the city's 1-cent sales tax collected in the Towne Center redevelopment district will go toward debt relief. The other half will go back to the city's general fund.
"That's a little unusual," said the city's legal consultant, Neil Shortlidge, a land use and development attorney who primarily represents local governments. "Usually you see a developer fighting tooth-and-nail to keep more (of these revenues)."
The other part of TIF funding will come from the increased property taxes in the district, or the "tax increment" itself. Generally with any TIF project, a municipality looks at how much revenue in property taxes an area produces before development begins compared to how much revenue it will produce once commercial property goes in. The additional tax dollars are captured and set aside for certain infrastructure for the project produced by the city to facilitate the project.
"The percentage of the total cost being picked up by public dollars is smaller than average in this project," Shortlidge said.
Whereas the TIF bond has two revenue streams, in phase II of the bond issue or the TDD bond only one means of paying off debt exists.
A special 1-cent sales tax inside a TDD (transportation development district), which developers requested be created within the entire redevelopment district, will be levied on any purchases made at stores within that TDD.
"In essence, we're self-taxing ourselves," Jess Davis, managing member of Towne Center LLC, said in a phone interview.
Like TIF costs, TDD costs can fund infrastructure improvements in the redevelopment district, but, unlike TIF, they can only be transportation related. According to Mayor Kenneth Bernard, roads, traffic signals, parking lots and sidewalks could all be considered TDD costs.
"The TDD is more limited in terms of the projects that funding can be used to support," Lundberg said.
In an attempt to communicate the project's direct benefit to Lansing taxpayers, Smith projected that in Towne Center's first year, $67,500 in sales taxes would be returned to the city for general uses via half of the city's local option 1-cent sales tax and its share of the voter-approved, countywide 1-cent sales tax that runs through 2016. Assuming that the countywide sales tax remains in effect after 2016, Smith estimated the city's revenue at approximately $770,000 after 20 years.
Lundberg stressed that these amounts were separate from revenues associated with TIF and TDD.