Title
An Ordinance approving the Tax Increment Financing Contract and Community Improvement District Cooperative Agreement for the Oldham Village Redevelopment Project.
(Note: First read by Council on April 8, 2025.)
Body
Issue/Request:
An Ordinance Approving the Tax Increment Financing Contract and CID Cooperative Agreement for the Oldham Village Redevelopment Project
Key Issues:
The TIF Contract and CID Agreement will implement the Oldham Village TIF Plan and the regional CID for the project.
Proposed City Council Motion:
I move for adoption of an Ordinance approving the Tax Increment Financing contract and Community Improvement District Cooperative Agreement for the Oldham Village Redevelopment Project.
Background:
The TIF Contract establishes the rights, duties and obligations of the City and Developer to implement the Oldham Village TIF Plan and the regional CID as it applies to the project. As approved, the TIF Plan alone allows for reimbursement in the maximum principal amount of $12 million, compared to total projected project costs of about $182.2 million. The TIF Plan contained a project budget which itemizes the project costs and lists the items that are reimbursable from public sources (TIF, CID, TDD) in the total amount of about $36 million. That same budget is used as an attachment to the TIF Contract.
Impact/Analysis:
This contract is based largely on the same TIF contract that was used for the Streets of West Pryor TIF Plan by Drake Development. The Contract and CID Agreement have been specifically negotiated for the Oldham Village project. Certain key provisions of the contracts are summarized here:
Financing Structure
The Contract contemplates and implements a “pay-as-you-go” reimbursement structure, The Contract allows for bonds to be issued on terms that are acceptable to the City. Developer will be responsible for funding with private funds all costs of the project that are not funded by bonds. It is not anticipated that bonds will be issued for the project. It is expected that Developer will proceed on a “pay as you go” basis for reimbursement.
If Developer requests the City to issue bonds, then Developer must present a Financing Plan to the City, which sets forth the anticipated sources of funds to pay for all project costs, and the type and term of each source. The Financing Plan must explain the terms under which Developer will obtain private financing for the balance of the project that is not funded with bond proceeds. The Financing Plan is subject to the City’s review and reasonable approval, in accordance with the approved budget for the project.
The bonds may be issued either in one series for the entire project or in more than one series in connection with multiple phases of development. The sizing of each bond issue will be based on the revenues that are projected to be generated as development occurs. The City has the sole authority to determine the amount, terms, interest rates, redemption terms and other terms and conditions of the bond issuance. The Contract provides that a company which is mutually approved by the parties will be the underwriter for the bonds.
Developer Must Certify Costs for Reimbursement
Developer will receive reimbursement only for costs actually incurred for the project. Developer must submit each request for reimbursement within 180 days after paying such costs. Developer is required to prove that eligible costs have been incurred through documentation, and the documentation must be in sufficient detail for verification by City staff. Each request for reimbursement must be for an eligible line-item in the approved budget. The City has the right to request additional verification and documentation for any requested reimbursable item.
Land Uses
The TIF Contract incorporates the allowed land use list from the approved Preliminary Development Plan ordinance. The TIF Contract also contains a list of land uses which are prohibited in the project area (Exhibit I). Some of the uses on the list are prohibited as primary land uses, but are allowed as secondary uses to another primary use on the property. For example, precious metal/stones purchasing cannot be a primary use of a property but may be a secondary use, such as part of jewelry store operations. This contract does not provide the City with the right to approve tenants and does not contain a list of pre-approved tenants - the restricted land uses list and the PDP is the City’s method of controlling what uses occur on the property in addition to the zoning restrictions that are already in place.
Reimbursement Limit and City Safeguards on Reimbursement
Public reimbursement is limited to the principal amount of about $36 million. The Developer is responsible for cost overruns associated with the overall project costs. In order to ensure that the public assistance provided by the TIF Plan does not subsidize an otherwise economically viable project, and to ensure that reimbursement is scaled to the total amount of project costs that are actually funded with private funds, the TIF Contract imposes two limitations on reimbursement:
(1) Profit limit. Developer’s unleveraged cash on costs rate of return is limited to 14.0%. Developer is required to annually submit information and documentation showing the calculation of actual earnings. These statements must be certified by the Developer’s Chief Financial Officer. The City may request additional documentation as necessary to verify Developer’s statements of profit.
(2) Private / Public Reimbursement Ratio. If bonds are issued, Developer is required to itemize all costs funded from private funds (Developer and third parties) based on actual costs already incurred or expected costs which can be documented based on executed contracts. This amount will be compared to the requested amount of TIF reimbursement for the pending bond issue. If the ratio of private to public costs is less than the ratio of 7.5/1 ($7.50 funded from private sources for every $1 of TIF reimbursement, excluding all CID- and TDD-generated revenues) then reimbursement from TIF revenues will be reduced to a point that maintains a 4.5/1 ratio.
A true-up will occur at the end of project construction, and final reimbursement will be scaled to meet the required private/public ratio.
Prohibition on Business Relocation
Developer may not lease or sell any portion of the project to any business operation if the business intends to close its current store in the City and move into the project area. A business is deemed to move into the project area if it closes its prior store within one year before or one year after the opening of the new store in the TIF area. If the City waives this prohibition, or if a business relocates from an existing location within Jackson County but outside the City into the TIF project area, then the base sales that occurred at the prior store are imputed to be the base sales of the new store that opens in the TIF area so that the prior sales tax levels are maintained with respect to all sales taxing jurisdictions.
Parks Sales Tax Capital Contribution
The 0.25% parks component of the City’s 2.75% sales tax rate will be distributed annually under this TIF Plan as a capital contribution to the City, to account for what would be the circular economics of capturing the park sales tax through the TIF Plan and then not allowing the Parks Department to fund the facility that is to be constructed on the land that is being purchased by the City. The TIF Plan provides for the Parks sales tax to be distributed as a capital contribution to the Parks Department to fund the parks facility that is part of the overall project and provides services to Lee’s Summit citizens as a direct result of the Fieldhouse in the project.
CID Agreement
The CID Agreement implements the regional CID as it relates to the Oldham Village Redevelopment Area. The CID Agreement will allow for the reimbursement of costs incurred by for the overall project in accordance with the terms of the TIF Plan and the CID Petition.
CID Reimbursement Appropriations
The CID Agreement provides that 85% of the “Net District Revenues” (after funding annual Administrative Costs) will be appropriated to the CID-eligible Oldham Village project costs. The remaining 15% of Net District Revenues can be appropriated for the 3rd Street Interchange and the 291 North Interchange projects until the Oldham Village CID-eligible costs are fully reimbursed to Developer in the amount of about $21 million. 50% of all CID revenues in the TIF Redevelopment Project areas will be captured as EATs in the TIF Special Allocation Fund, and are accounted for in the calculation of CID reimbursement payments to Developer for the Oldham Village reimbursable items.
Fieldhouse Property
The TIF Contract contains additional details about the City’s payment plan for the purchase of the Fieldhouse property. The Real Estate Agreement between the City and Oldham Investors, LLC, dated September 13, 2024, provides for multiple payment methods by the City for the land. The TIF Contract selects one of these options and provides for implementation during the life of the TIF Plan.
The City will execute a Promissory Note for the land payment, secured by a Deed of Trust on the Fieldhouse Property. The Promissory Note will contain the details set forth in Section 3.02.C.5 of the TIF Contract, which provides additional details about the Fieldhouse Property transaction. The closing for the Fieldhouse Property will be 30 days after the TIF Contract is executed. The City will pay for the Fieldhouse property in the form of annual “Installment Payments” to Developer beginning on December 31, 2026 in the estimated amounts set forth in the column titled Sales Tax Rebate in the Installment Payment Plan schedule attached as Exhibit M to the Contract until the Promissory Note is paid in full. The amount of each Install Payment will be the City’s actual annual revenues from the Project area determined by multiplying the taxable sales produced within the areas constituting the Redevelopment Project Areas set forth in Exhibit B by a tax rate of 1.25%. The annual Installment Payments will continue to be paid annually to Developer until the Promissory Note is paid in full. After the Promissory Note is paid in full, the Deed of Trust is released.
The sales price of the City-owned property at 1305 SW Jefferson to Developer in the amount of $234,000 will be credited against the purchase price of the Fieldhouse Property by the City from Developer.
Developer Regional Sanitary Sewer Contribution
Section 2.05.K provides that the Developer will make payments to the City for the City’s construction of the sanitary sewer improvements that are needed for the Project. Developer is required to make these payments at these times:
• $500,000 by July 1, 2025, which will allow the City to initiate design work for the Regional Sanitary Sewer Public Improvements;
• $2,500,000 within one month after Developer receives written notice from the City that the Fieldhouse has opened for business; and
• $1,500,000* no later than the earlier of (a) July 1, 2030 or (b) the date that the City delivers written notice to Developer that the City is prepared to promptly issue the first temporary Certificate of Occupancy for a building located on the undeveloped portion of the “East Side Property” on the east side of 291 North across from the Oldham Village project.
* The final payment will be the remainder of the actual cost of the sanitary sewer improvements, up to a cap of $1.5M.
Timeline:
The timeline for the project is set forth in Exhibit G of the TIF Contract.
Presenter
David Bushek, Chief Counsel of Economic Development & Planning
Recommendation
Recommendation: Staff recommends approval of the Ordinance
Committee Recommendation
Committee Recommendation: The TIF Commission recommended that the City Council approve a TIF contract with the Developer.