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by Robin Gee, city council beat editor
|The city of Southgate will issue Industrial Revenue Bonds to help finance the apartment community portion of the Memorial Point project. This portion is valued at about $32 million.|
At its April 21 meeting, Southgate City Council voted 5 to 1 to approve a municipal order to fund a portion of the planned Memorial Point project on and near the former Beverly Hills Supper Club property.
The municipal order authorizes the city to enter into an agreement to issue Industrial Revenue Bonds (IRBs) for the proposed apartment community (only) within the development. The high-end luxury apartments would include a group of four- and six-unit apartment buildings along with a swimming pool and clubhouse. Between 100 and 200 units overall are planned, and the apartment community, for tax purposes, is valued at about $32 million but that may rise over time.
The agreement is between the city of Southgate and North American Properties (NAP), the developer of the apartment community. Ashley Builders Group is the main developer for the Memorial Point project, but NAP is the developer for the apartment portion.
Discussion of the IRB financing
Currently, the property grosses $28,769 in revenue. After the project is completed, an estimated revenue of $350,000 would be realized for this part of the project to the city.
Council member Tyler Owen spoke in favor of the financing proposal. He noted that with some IRB pilot agreements (payment in lieu of taxes), cities receive a flat payment, but with the agreement for this property, payment to the city is set to rise as assessed values increase over the 30 years.
He said he has done extensive research of other projects with pilot programs across Northern Kentucky and noted the favorable rates for the city.
"With the ones I looked at, this is on the higher end of those rates...and this is what it takes to get economic development done, especially in this competitive region. And, we are also competing with Ohio," he said.
"The city is not cutting any checks. There is no handing over of taxpayer funds. It's just overall a huge benefit to the taxpayers when all this is said and done. The math checks out in terms of the other revenue streams...I look at this and I see a lot of things pointing to a terrific deal for the city and the tax payers."
Both Owen and Mayor Jim Hamberg praised North American Partners as local partners with experience in this type of financing.
City Attorney Mary Ann Stewart responded she could not guarantee anything but so far that is not in the plans, and any new request would be evaluated at that time. She noted that the IRB in question only covers property taxes at the apartment community. At present the other parts of the development would pay property taxes.
Industrial Revenue Bonds
Jim Parsons, a partner in Keating, Muething & Klekamp PLL, presented the information on the IRBs to council. An IRB is a common financing mechanism for large development projects. IRBs are attractive to developers because they offer a lower interest rate and a long-term, fixed-rate financing package. The bonds are not tax exempt.
The bonds are sponsored by a public entity (state or local government), but the bonds are used by a private business (the developer) to secure financing for the construction and other aspects of project development. The developer is totally responsible for repayment of the loans. Even though the city issues the bonds, it is acting as conduit and has no financial obligation.
With an IRB, local governments forego property taxes for the promise of future value and revenue from the project as well as the jobs it will create in construction, management and maintenance of the development (payroll taxes).
A special payment agreement, known as a “pilot,” is offered to offset some of the loss of property taxes and to help support the school districts. Payment of the pilot is based on the current value of the average home in the city. The payment would continue throughout the terms of the 30-year loan.
For Southgate, a pilot agreement has been worked out with Campbell County, and another is in process with the Campbell County School District to cover the tax revenue they would have received from the property. It was noted that tax money dedicated in 2010 to the financing of the firehouse would not be affected.
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The Memorial Point Project
The "Class A" (high quality) apartment community is only one portion of the overall Memorial Point project, but it is the only one covered by the IRB.
Other major portions of the project include a three-story, 79-unit assisted living center that will offer range of assistance including memory care and a mix of 89 single-family homes including houses and between 20 and 30 smaller cottages.
Also included in the Memorial Point project is a memorial to honor the 165 people who perished in the 1977 fire at the Beverly Hills Supper Club. A point of concern and controversy within the community, an agreement was reached last fall on the construction and details of the memorial. The value of the 78-acre project overall stands at $65 million.
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