The city of Lexington is considering a proposal to give a developer a $4.4 million tax break over 20 years to help pay for sewer, water and other infrastructure improvements for a new shopping center near the intersection of Harrodsburg Road and Man o’ War Boulevard.
The Lexington-Fayette Urban County Council voted Tuesday during a council work session to move forward with the creation of a tax increment financing district for the Fountains at Palomar, a retail, restaurant and hotel development by The Webb Companies. According to an economic analysis by Commonwealth Economics, the project will cost $46.9 million. Of that total, $16 million would qualify as infrastructure improvement projects.
The project would help fix long-standing sewer and storm water problems in the entire area, said Bruce Simpson, a lawyer for the Webb Companies. The upgrades will save the city money because it would otherwise have to fix those problems, Simpson said during Tuesday’s work session.
The $16 million in public infrastructure costs include extending an existing sewer line and installing a detention basin, which developers say would reduce the amount of flooding downstream. The plans also include a shared-use trail that will connect with area neighborhoods. Those trails and walking paths will eventually be deeded over to the city, according to documents related to the economic incentive.
If approved by the state, the total amount the developers could recoup through tax breaks is $4.4 million — approximately $3.6 million from the city and $800,000 from the state. The city would forfeit 80 percent of occupational taxes within the tax increment financing district and the city’s portion of the property taxes for two decades. School and library taxes must still be paid in TIF districts.
The Webb Companies must spend a minimum of $20 million before it can get any money back.
The council will take a final vote on the Palomar tax incentive at its Sept. 12 meeting. There was little discussion before the council’s unanimous vote to move the issue to the council’s agenda.
The Urban County Planning Commission approved a zone change for the development in March 2018. Plans for the development include a 125-room hotel, 33,750 feet of restaurant space, 13,575 square feet of office space and 12,750 square feet of retail space.
The Kentucky Economic Development Finance Authority, which oversees tax incentives, must sign off on the application if it is approved by the council. The state has final say on the district and will do its own analysis to determine if the project is financially viable before granting the incentive.
If the Fountains at Palomar TIF district is approved, it will be the ninth such district created in Fayette County since 2002. Other TIF districts that have been approved include: University of Kentucky Coldstream Research Park, Midland and Third streets, CenterPointe or City Center, the former Turfland mall area, the Red Mile redevelopment, 21c Museum Hotel, the Summit at Fritz Farm, and the High Street parking lot behind Rupp Arena and the Lexington Convention Center.
As of June 30, the city has given developers more than $2.4 million in taxes generated by five TIF districts — the Red Mile, 21 C Museum Hotel, Turfland, City Center and the Summit.