Tax breaks spur development, but at what benefit to Kentucky?
A tax incentive package worth up to $4.4 million for a shopping center at the intersection of Harrodsburg Road and Man o’ War Boulevard won approval from the Lexington city council Thursday and now heads to state economic development officials for final approval.
The Lexington-Fayette Urban County Council voted unanimously Thursday to approve creation of a tax increment financing district for the Fountains at Palomar, a retail, restaurant and hotel development by the Webb and Greer companies. According to an economic analysis by Commonwealth Economics, the project will cost $46.9 million. Of that, $16 million would qualify as infrastructure improvement projects that are eligible for tax rebates.
The $16 million in public infrastructure includes 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.
The Webb Companies must spend $20 million before it can get any money back from the state, according to the agreement. 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.
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 Kentucky Economic Development Finance Authority, which oversees tax incentives, must sign off on the application. 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.