Report: Lexington should halt incentive that has given developers $9.4 million so far
A recent report from a task force examining Lexington’s finances recommends a moratorium on an economic incentive that has given Lexington developers more than $9.4 million in tax rebates in recent years.
Lexington has nine tax increment financing districts, which refund to developers a portion of new taxes generated from a development in order to pay for building sewer or stormwater projects, parking garages and other “public” improvements within the development. Only Louisville has more TIF districts than Lexington, the report said.
State economic development officials have warned Lexington that it has too many TIF districts and that the state is limiting how much money it is willing to refund for TIF districts.
“Over time, the Kentucky state government’s participation rate in TIF projects has decreased significantly. Because of this, the financial burden of TIF projects has shifted from the state to LFUCG,” said the report drafted by Mayor Linda Gorton’s Finance and Economic Advisory group.
The group, which was convened last year by Gorton to exanube the city’s revenue streams, includes J.D. Chaney, executive director of the Kentucky League of Cities, and. Merl Hackbart, a former state budget director.
In its conclusion, the group recommended “a moratorium on the tax increment financing program absent significant state investment in projects” and a study of “job creation incentive structures.”
The group’s recommendation echoes what Lexington officials told a committee of the Lexington-Fayette Urban County Council in November: the city needs to re-examine its use of TIF districts after the state started slashing the amount of state taxes it approved for rebates.
Susan Straub, a spokeswoman for Gorton, said Gorton is considering a temporary halt to TIF applications but still needs to discuss the issue with council members.
“Our intent is not to do more until more information is gathered, and we have had a conversation with council,” Straub said. “State participation is almost maxed out in our area.”
Lexington-Fayette Urban County Councilwoman Amanda Bledsoe said council members need to study the issue further. Bledsoe chairs the council’s Budget, Finance and Economic Development Committee, which oversees economic development incentives.
“We need to talk about what our tax incentives are going to be,” Bledsoe said. “We need to figure out exactly what works in terms of economic development. What are the best tools for Lexington?”
The state uses an outside consultant to calculate how much new tax revenue a taxing district will generate, but reports have shown TIF districts are not generating the tax gains that were initially predicted, state economic officials said last year.
Some high-profile TIF districts that have struggled include a Louisville TIF project for the KFC Yum Center. An audit of its finances showed it had grossly miscalculated how much new taxes the project would generate.
The state can refund up to 80 percent of the new taxes generated from a project, but it has dramatically cut that percentage for Lexington TIF districts in recent years. The city, though, has continued to pledge the full 80 percent of its portion of eligible tax rebates.
For example, a TIF district created in the area surrounding Rupp Arena asked for up to $90 million in state tax incentives, but state economic development officials approved less than half that in November —$41 million over 30 years. To get any taxes back, Lexington Center must also spend at least $200 million on its convention center expansion and improvements to Rupp Arena. The district also includes the still-under-construction Krikorian Theater complex, a proposed park called Town Branch Commons, a proposed parking garage, and future retail and restaurant space.
As of Dec. 31, 2018, the six active TIF districts in Lexington have received $9.4 million in state and city money for infrastructure improvements, according to information the city released in November. Of that, roughly $2.5 million is local taxes and $6.9 million is state taxes.
Those percentages will likely reverse as time goes on, city officials have warned.
The discussion about the future of the incentive comes as Lexington tries to position itself for a possible $29 million deficit by 2023. In other parts of the report, the Finance and Economic Advisory Work Group said Lexington will face significant cuts in the near future without new revenue. On top of an increase in pension payments to the state, costs for police, fire and corrections continue to climb, the report said.
Lexington’s TIF Districts
These nine Lexington TIF Districts have been approved:
▪ City Center/Centrepointe
▪ Red Mile
▪ Former Turfland Mall
▪ 21c Museum Hotel
▪ Summit at Fritz Farm
▪ Midland Avenue
▪ Lexington Convention Center/High Street parking lot
▪ Fountains at Palomar
▪ University of Kentucky Coldstream Research Park
This story was originally published January 28, 2020 at 11:18 AM.
