Fayette County

Distillery District tax increment financing request withdrawn for now

The Barrel House Distilling Co., foreground, and the old Pepper Distillery are two of the major structures of Lexington's Distillery District along Manchester Street on Lexington's west side.
The Barrel House Distilling Co., foreground, and the old Pepper Distillery are two of the major structures of Lexington's Distillery District along Manchester Street on Lexington's west side. Herald-Leader

The city of Lexington has withdrawn its request for state economic incentives to improve public infrastructure in the Distillery District, the former bourbon-producing area along Manchester Street, after a deadline for action expired.

Barry McNees, the main developer for the $190 million Distillery District project, expressed disagreement with the move in an email message, in which he called it a "tremendous blow to some of the most neglected areas of our city."

On Wednesday, chief development officer Kevin Atkins notified Kentucky Economic Development Secretary Larry Hayes that Lexington would withdraw the application for tax increment financing for the Distillery District but would leave the development area in place for the future.

It is unclear what's next for the project, which was intended to tap into the boom in bourbon and bourbon tourism.

The tax increment financing, known as TIF, was to help pay for the infrastructure and encourage redevelopment by rebating some of the costs out of increased future tax revenue; how much the developer receives depends on how much the revenue grows.

"We've asked to withdraw and come back, when we have a better understanding of where the project is going, with a new TIF," said Derek Paulsen, Lexington commissioner of planning, preservation and development. "We still don't have a good handle on what those costs are and what needs to be done. ... Let's give a restart to this project, with a better understanding to where it is, versus where it was in 2009."

In May, the city asked for an extension to activate the project and was denied; the window for activating the TIF expired Oct. 29.

"Early plans for the District have not materialized due to several factors. In talking with the developer, it is clear that the district development plan is changing, and withdrawing the current application is prudent. The developer supports this action," the city wrote in the letter to the state on Wednesday.

McNees said he was "shocked and saddened by this surprising development," and "we look forward to a meeting with Mayor (Jim) Gray to obtain an understanding as to why such a decision was made without our input."

In 2009, the Kentucky Economic Development Finance Authority approved a TIF to help finance $45.8 million in public infrastructure improvements for the Distillery District, including construction of the Town Branch Trail. Earlier this year, a feasibility study found that $14 million to $23 million in public infrastructure improvements, including water, sewer and electrical upgrades, are needed.

In October, the Urban County Council approved a $500,000 study to determine which areas of the development are in a flood plain and which are not, a step the city deemed essential before any more money is invested.

"We have to work with the utility providers to figure out what needs to go in and how it will go in," Paulsen said. "What is it that's desired in the Distillery District? Do we need to realign the (state) road, and if we're going to put sidewalks on there, where will they go? ... Those kinds of things are important to potential prospects coming into the district."

The Distillery District, which decades ago housed the Pepper Distillery, was the first TIF project approved under guidelines for mixed-use redevelopment of a blighted area. The district was proposed in 2007 as an arts and entertainment district, and there have been efforts to include it in Rupp Arena renovation plans.

Since then, several businesses have moved into the district, including entertainment venue Buster's, Dogtown doggie day care and boarding, custom furniture maker Ironhorse Forge, and Barrel House Distilling.

Jeff Wiseman of Barrel House, which makes Devil John Moonshine and other small-batch liquors, said Thursday that he was disappointed to hear that the TIF request had been withdrawn. His craft distillery is part of the Kentucky Bourbon Trail's Craft Tour and has had 10,000 visitors in the past year. But there are no sidewalks or restrooms; tourists have to use a portable toilet.

Businesses in the district are counting on the city to improve things soon, Wiseman said. "I don't like to hear that at all," Wiseman said of the new roadblock. "The district's finally taking off."

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