By Ryan Clark
NKyTribune reporter
Covington officials said Tuesday it may be time to reconsider how the city attracts new development.
After reviewing the budget over the past few months, commissioners tasked city staff with reviewing past Industrial Revenue Bond deals to make policy recommendations to “ensure our incentives align with our economic development goals while ensuring the city has sustainable revenues to deliver high-level services,” City documents state.
Economic Development Director Tom West began that process in a presentation at the city’s regularly scheduled commission meeting Tuesday night, first defining what IRBs are, then assessing six current IRB deals the city has made with developers.
“An Industrial Revenue Bond (IRB) is an economic development tool that provides upfront capital to close a funding gap in a development project,” West explained in a memo to city staff. “It acts similar to a property tax abatement by artificially keeping property taxes low for a specified term, and is one of the few economic development tools available to spur large-scale real estate developments.”
West went on to explain that Kentucky lawmakers passed legislation to help cities finance commercial real estate developments to attract new payroll tax revenue.
“In Covington, where real estate taxes often result in less tax revenue than payroll taxes, it can be advantageous to provide an IRB where necessary in order to build the commercial property inventory and capture the long-term payroll tax revenue from the newly created jobs,” he wrote.
West and City Economic Development Specialist Ross Patten then explained the city’s current situation: With thousands of housing opportunities on the horizon over the next decade, it seems the city’s priorities may have shifted to needing more revenue-generating options.
The loss of payroll taxes from the IRS closing in 2019 (which will be as much as $1.8 million), as well as a 12 percent increase in the pension fund (an extra $755,000 per year over the next three years) means the city will need to reap what it can from future deals.
On some of the city’s current IRB deals, the city contributed “significant incentives upfront with cash or land contributions without payroll taxes — resulting in negative or low return on investment,” West wrote in his presentation.
West and Patten, working with city staff, offered the following recommendations to the commission:
- Last to the Table: City staff will underwrite and review incentive requests after all other private financing has been maximized and committed.
- All Deals Underwritten: Each development must deliver a positive, long-term return-oninvestment for the city to offset the additional city services created by the development.
- Commercial vs. Residential Term: While both development types are important facets of the city’s economic development goals, commercial uses contribute greater direct returns on investment and will be prioritized and incentivized accordingly.
- Market Value: After the project is built, the IRB assessed value for determining the payment in lieu of taxes (PILOT) will be determined by the PVA, not negotiated.
- Tax Rates: Property tax rates used for determining annual PILOT payments will reflect the actual tax rates for that calendar year and will not be “locked in” throughout the term.
- PILOT: PILOT percentages shall gradually increase over the term, not remain static throughout the term. At no point will the city’s PILOT on a residential or primarily residential mixed-use project be less than 100 percent after 20 years.
- Assiqnability: City IRB benefits are not to be assignable or transferable unless approved in writing after reviewing the proposed sale terms. Otherwise, a sale or transfer triggers a return to the full tax rate, payment of any outstanding balance, and end of city ownership of the property.
“This starts to set expectations within the development community” in terms of incentives, West said. “It’s not a free-for-all.”
City Manager David Johnston noted the city must take this next step in order to help the commission make the best decisions for the taxpayers.
Mayor Joseph U. Meyer was quick to point out that these guidelines are not set in stone, and that the city needed flexibility. He encouraged the public and staff to read over the proposal, which will be discussed over the next two weeks before the city will craft an order to follow.
“It’s an important policy discussion to have,” Meyer said.
Also Tuesday:
*Numerous hires and recommendations for hires were made, including:
- Victoria B. Hughes to evidence technician
- Stephanie Zac to clerk/typist
- A project engineer
- Emilee A. Buttrum to legal assistant
- Appointing Allison Hudson to procurement officer
- Promoting Donna Wietholter to fire/rental inspector
- Three part-time code enforcement inspectors
- Two part-time fire/rental inspectors
*Jill Morenz, of the Catalytic Fund, reminded the commission of September’s Beyond The Curb Urban Living Tour. In honor of the five-year anniversary of the Catalytic Investment Fund, the group will host a tour of properties in all the river cities: Ludlow, Covington, Newport, Bellevue and Dayton. Tickets and information is availale here.
The next regularly scheduled Covington Commission meeting will be a legislative meeting held at 6 p.m., Aug. 28, at the Covington City Hall at 20 West Pike St.
Contact the NKyTribune at news@nkytrib.com
