A state board gave final approval Thursday to the Urban County Government's plan for public improvements around the CentrePointe project in downtown Lexington.
The city intends to make several major improvements — including adding a parking garage and restoring the old Fayette County Courthouse — to the Phoenix Park and courthouse area surrounding the stalled hotel complex.
Under the approval on Thursday, the city has two years to initiate the TIF projects, said spokeswoman Susan Straub.
Straub said the city does not anticipate starting any TIF projects until the block — which remains empty as construction has not yet begun on CentrePointe — is producing new tax revenues.
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If no projects have been started within two years, the city can apply for a two-year extension, she said.
The initial plan was for the state TIF participation to amount to $112 million, but the final approval Thursday came at $69.8 million.
The vast difference had to do with financing costs and not any of the city's proposed projects, said Brad Thomas, assistant director of the Program Servicing Division in the state Department of Financial Incentives.
When the application was first submitted and preliminarily approved earlier this year, the financing costs for issuing bonds and other such processes were pegged at about $75 million.
"Back in February, the markets were all over the place," Thomas said. "We had no clue what financing would cost."
But as the application proceeded and a consultant was brought in to evaluate it, the markets calmed and financing costs have been estimated to be only $32.89 million.
Both the public infrastructure project costs, which amount to $35.76 million, and the signature costs, or the $1.125 million to acquire land to establish a permanent location for the Farmer's Market, stayed the same, Thomas said.
The idea behind TIF projects is for governments to invest in improving infrastructure and then pay for those improvements using new tax revenue, which the areas are expected to generate when the projects are completed and the areas are revitalized.
Under this specific proposal, the Urban County Government would recoup the costs through an 80 percent recovery on additional withholding, sales and real estate property taxes.
What the city wants in the way of public improvements at the site is a tunnel to connect Phoenix Park to the high rise; a pedway to connect the Financial Center garage to CentrePointe; a 331-space underground Phoenix Park garage; a new Phoenix Park; restoration of the old Fayette County Courthouse, Cheapside Park and courthouse plaza; and a permanent site for the Lexington Farmers Market with a covered structure, sidewalk improvements and public art.
The TIF plan thus leaves its future in the construction plans of CentrePointe developers The Webb Companies.
A consulting firm, Economics Research Associates of Chicago, which was hired to review the TIF application, evaluated the feasibility of the stalled CentrePointe plan.
"Every project will have some question marks as it goes into development," the report stated. "We believe the question marks are more with the lease concessions necessary to sign retail and office tenants and the time it may take the hotel to reach its revenue per available room forecasts. However, we do not believe any of these is a major barrier to the project's feasibility."
The firm noted, though, that CentrePointe's developers are setting an "aggressive target" with its proposed financial results from the hotel, as well as its lease rates in its office area.
"If the project's equity financing remains intact and the investors are satisfied with the projected return, then Economics Research Associates does not see a market barrier to feasibility of the project," the report stated.
Another Lexington development — the Distillery District along Manchester Street — is applying for TIF assistance for public improvements. A decision by the state on that project is expected at a meeting of the Kentucky Economic Development Financing Authority in late October, Straub said.