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State gives initial approval to downtown Lexington projects

FRANKFORT — A state board gave preliminary approval to two downtown Lexington developments that would be the first in the city to use future tax revenues as a way to help finance the projects.

The Kentucky Economic Development Finance Authority board gave approval on Thursday to the Lexington Distillery District on Manchester Street and the Phoenix Park/Courthouse Development Area in downtown near the planned CentrePointe high-rise.

An extensive review process remains before either can get final approval.

Barry McNees, developer of the Distillery District, called the approval "a tremendous watershed moment, to get even tentative approval by the state."

The state has hired Economics Research Associates of Chicago to do a consultant report on both districts. The firm will look at the financial feasibility of each, how appropriate it is to use tax increment money to pay for public infrastructure in each and whether the developments will create new taxes for the commonwealth.

After the consultant's work is finished, the KEDFA staff will work with the Office of the State Budget Director and the Department of Revenue to evaluate both tax increment financing proposals and decide which state taxes to use for the TIF, how much and exactly what the money will pay for, said Brad Thomas, an assistant director in the department of financial incentives.

The KEDFA board will then make the final decision on whether to direct state tax money toward the projects.

The Distillery District and the Phoenix Park/Courthouse area are separate TIF applications and will be considered separately at the state level, Thomas said.

Mandy Lambert, spokeswoman for the Cabinet for Economic Development, could not predict how long it would take to go through these steps.

A vexing issue with CentrePointe has been a reluctance by the developers to reveal their source of funding. Lambert said the source is identified in the Phoenix Park/Courthouse application for state TIF funds because CentrePointe is the economic engine for that area. A statutory requirement keeps that financial information confidential, she said.

"We are comfortable with the financing at this juncture. Additional analysis will be done by the consultant," she added.

The idea behind tax increment financing is that in blighted urban areas, development creates new tax revenue that the city would not have if the land stayed neglected.

A brief look at the two state TIF applications:

Lexington Distillery District: Planned as a 25-acre mixed arts and entertainment district. Included will be a micro distillery and bourbon museum in the old James E. Pepper Distillery; 277 live-work studios and loft condominiums; 70,000 square feet of office space, 85,000 square feet of retail and 17,000 of restaurant space.

Total cost for the project is $190 million. Of that total, $81 million would be paid for by state TIF money. This includes public improvements such as land preparation, sewer and storm drainage. The five-story Pepper distillery and storage building will operate as public facilities, with legal title held by Lexington Fayette Urban County Government.

In the preliminary report the KEDFA staff recommended that the maximum amount of state tax money not exceed $61 million or 75 percent of the project. Local government would be in for 25 percent.

Phoenix Park/Courthouse Area: Project is 14.25-acre development driven by the construction and operation of CentrePointe, a 35-story development. Cost for the complex and nearby TIF improvements is $298 million.

What the city wants in the way of public improvements here 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; permanent site for Lexington Farmers Market with covered structure, sidewalk improvements and public art.

The staff recommended $112 million maximum state TIF participation in this project.

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