Lexington's government agreed Thursday to explore issuing bonds for a three-story underground parking garage for the controversial CentrePointe project.
Darby Turner, a lawyer for CentrePointe, told the Urban County Council at its meeting Thursday that developers hoped to have an application for the bonds to the city within the next 10 days. Taxes generated from the project would be used to pay off the debt.
Kevin Atkins, the city's chief development officer, told the council that the city and CentrePointe officials agreed after meeting earlier Thursday that the city would explore issuing the bonds. That tentative agreement said that CentrePointe developers would have to provide additional information to the city and go through a formal application process.
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CentrePointe planned to apply for $30 million in state bonds for the project at the end of August. But Larry Hayes, the secretary of the Economic Development Cabinet, sent Mayor Jim Gray a letter Tuesday telling him that the state would not issue the bonds and that it was the city's responsibility to do so.
Designs for the CentrePointe development include a hotel, office tower, apartment building and retail and restaurant space. The project sits in a downtown block between South Limestone, West Vine, West Main and South Upper streets. CentrePointe has been controversial since 2008 after historic buildings were demolished to make way for the project.
Depending on the proposal, Atkins said Thursday that the city might or might not recommend that council vote to issue the bonds.
The agreement Thursday included a provision that the council would drop a resolution encouraging the state to issue $30 million in bonds.
At issue during much of Thursday's meeting was how tax increment financing bonds work and what risk the city would face by issuing the bonds.
In 2008, the city and state approved a tax increment financing district, or TIF district, for the CentrePointe project. Tax increment financing uses taxes generated from the project to pay for public infrastructure — in this case, a parking garage. Darby Turner, a lawyer for the Webb Companies, said the 2008 agreement included a provision that said the city would issue bonds for the garage.
But Mason Miller, a lawyer representing the city, said a 2013 TIF agreement superseded the previous agreement. The 2013 agreement did not say that the city would issue bonds for the project. Turner, however, said the 2008 agreement was not superseded by the later agreement.
Turner said that the if the city issues the bonds, it will not be at risk to pay them off if the project does not generate increased taxes as expected.
Some council members said they didn't understand why the city was being so cautious when it had previously agreed to issue the bonds.
"It's such an outstanding opportunity for us without risk," said council member Diane Lawless, whose district includes CentrePointe.
But Miller said that he couldn't tell the council what risk the city would have until he saw the bond proposal.
"There are some very substantial differences in the way (bonds) can be structured," Miller said. "Those risks are what the city should be looking at."
Mayor Jim Gray said the city wanted to take some time and look at all the financial information to make sure that the risk to the city is understood.
"To suggest in any major project that there is no risk is an enormous risk," Gray said. "I've heard that myself, many times. 'Oh Jim, there's no risk in it.' And then the bottom falls out."
Turner told the council that the project can move forward without the city issuing the bonds, and he said that the project has not been stalled.
"They're pouring concrete right now," Turner said.
Miller said that having the government issue the bonds will lower the financing costs and increase profits for the developer. But Turner countered that wasn't true. He said that issuing the bonds will lower overall costs, which could mean that once the garage is paid off, additional tax revenue could go to other infrastructure projects in the downtown TIF zone, which would benefit the city.
Other members of the council were concerned that the city has changed its agreement with CentrePointe over time.
"Has this developer been treated the same as the 21c developer?" asked council member Bill Farmer Jr. Farmer was referring to the 21c Museum Hotel, which is under construction across from the CentrePointe development.
Atkins and Gray said that CentrePointe was treated the same as 21c. CentrePointe's plans have changed since they were first proposed in 2008.
"This is a major undertaking," Gray said of the CentrePointe development. "We are trying to adjust and adapt to the developer's needs."
Vice Mayor Linda Gorton told Miller that the council needed detailed and complete information from both sides, including the risks the city would be assuming, before making a decision on whether to issue the bonds.
Gorton said she would like the council to have a special meeting to discuss the proposal when it is completed. A date for that meeting has not yet been set.