CITY COMMISSION AGENDA ITEM

Department:	City Manager’s Office		Commission Meeting Date:  9-4-2018
Staff Contact:	Britt Crum-Cano, Economic Development Coordinator
Action Requested:
Receive recommendation from the Public Incentive Advisory Committee on the issuance of Industrial Revenue Bonds for rebuilding the Heritage Tractor facility at 1110 E. 23rd Street. Adopt Resolution No. 7257, a Resolution of Intent for issuance of up to $3,000,000 in Industrial Revenue Bonds for Heritage Tractor to obtain a sales tax exemption on construction materials for rebuilding their facility at 1110 E. 23rd Street, if appropriate.
Executive Summary:		Heritage Tractor has distributed agricultural equipment since 2009 at its Lawrence location on 1110 E. 23^rd Street. On May 5, 2018, a fire destroyed their current facility.  The business is now doing business across the street at 1105 East 23^rd Street until a new facility can be built. The company wishes to rebuild a larger facility at their current site and is requesting Industrial Revenue Bonds (IRB) to obtain a sales tax exemption on construction materials. Plans call for a 22,000 square foot building to be constructed on 3.5 acres to replace the 14,000 square foot building that was destroyed.  This facility would allow Heritage Tractor to keep its existing Lawrence employees.  The Company reports its existing Lawrence employment base is 28 jobs at an average annual salary of $50,000. In addition, the company expects to increase employment by another 5-10 jobs at the facility over the next few years.  Staff received an application from Heritage Tractor on July 3, 2018, requesting IRB financing to access a sales tax exemption on project construction materials. The applicant is requesting up to $3,000,000 in IRB to cover total project costs.  Of that amount, approximately $1.5 million is estimated to be spent on project materials subject to sales tax. At their July 10, 2018 meeting, the City Commission referred the request to the Public Incentives Review Committee (PIRC) for review and recommendation.   PIRC reviewed the request at their August 13, 2018 meeting and voted 7-0, to recommend City authorization of IRB for the project so it can obtain a sales tax exemption on construction materials.  The request is now ready for the City Commission to receive PIRC’s recommendation and, if appropriate, vote to authorize the IRB Resolution of Intent.  Approval of the resolution of intent will allow the State to issue a Project Exemption Certificate for exempting sales tax on the project’s construction materials.
Strategic Plan Critical Success Factor		Collaborative Solutions Economic Growth and Security
Fiscal Impact (Amount/Source):		The costs of incentives are restricted to a sales tax exemption on construction materials for the project.  Assuming a total project cost of $3,000,000 and using the most recent (January 2018) Kansas Department of Revenue countywide sales tax ratios, staff estimates the total value of exempted sales taxes to be approximately $135,000. Of this total exemption, the City is estimated to forego approximately $31,800 in sales tax revenues and the County is estimated to forego approximately $5,500 in sales tax revenues. The State would forego approximately $98,000 in sales tax revenues. In addition, the City will collect an IRB origination fee based on the amount of bonds that are issued.  Per the City's economic development policy (Section 2.9.1), the applicant shall pay to the City 0.004 of par amount of bonds that are issued.  For a $3,000,000 bond issuance, the origination fee will be $12,000.
Attachments:		Staff Memo Applicant Request Letter and Application Draft 8-13-18 PIRC Meeting Minutes IRB Resolution of Intent No. 7257

Reviewed By: (for CMO use only)

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