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Conference center plans may hinge on funding mechanisms

Conference center plans may hinge on funding mechanisms

Jefferson City council poised to choose Monday night

November 17th, 2013 in News

The Jefferson City Council is expected to make a decision on two potential conference center plans Monday, but lingering questions remain on the feasibility of the proposals.

Two developers - the Jefferson City-based Farmer Holding Co. and the Hannibal-based Ehrhardt Hospitality Group - submitted their final and best proposals to the City Council for review early this month. Both proposals have changed since the developers initially revealed their plans in June and neither requests an ongoing subsidy from the city's general revenue fund.

Last week, the city's facilitator Charles Johnson, of Johnson Consulting, recommended the Farmers' proposal at the Capital Mall site, stating it's the clearer and simpler proposal, though he noted either project is likely to do well.

But Johnson also noted both projects have funding gaps, and one reason he favored the mall site was because of their plan to fill that gap.

Capital Mall site

Farmer Holding Co.'s final plan shows a 150-room hotel attached to the Capital Mall, with the conference center existing within the mall space. The conference center would provide a 20,000 square foot ballroom and 10,000 square feet of additional meeting space within the mall.

The plan comes with an estimated $36 million price tag, split evenly between the cost of constructing the conference center and the hotel, which includes the city's $9 million contribution from lodging tax revenues.

That leaves a $27 million investment needed to complete the Farmers' proposed project, and Farmer said their funding gap is in the $12 million to $15 million range. The remainder would be the developer's contribution, though Rob Kingsbury, with Farmer Holding Co., noted all final numbers will depend on negotiations with the city moving forward.

"This is why it has taken 80 years to get a convention center in Jefferson City," said Kirk Farmer, with Farmer Holding Co. "The numbers don't work."

But Farmer said that gap can be closed by using existing infrastructure to help cut costs and utilizing economic incentives, such as the tax increment financing district the development company already has proposed at the mall site.

Last month, the city's Tax Increment Financing, or TIF, Commission approved a redevelopment plan for the Capital Mall that would incorporate the 23-year tax incentive. Though the City Council has yet to give its final approval of the TIF district, its original request for proposals stated the city's willingness to consider and offer any economic development incentives possible for the conference center project.

The TIF district would allow for a portion of property and sales taxes generated by the new project and development to be used to repay the costs of the redevelopment itself for up to 23 years. After the 23 years, or earlier depending on how quickly the developer is able to be reimbursed, all the property and sales taxes generated by the new development would return to the city and other taxing entities.

If approved by the council, the TIF is estimated to raise $10.6 million.

"It costs the public no more than doing nothing," Farmer said.

Also requested to help close the funding gap is the designation of a community improvement district, or CID, which would allow for an additional sales tax to be levied to pay for public improvements as defined by the state, which includes shopping malls. The CID would last for 40 years and raise roughly $5 million.

In September, the city approved a development agreement with Farmer Holding Co. to create the CID.

"We're the only real viable option," Farmer said.

Downtown site

Ehrhardt Hospitality Group's final plan shows a conference center with a total of 30,000 square feet of meeting space attached to a 150-room hotel at the McCarty Street site downtown. Though the floor plan shows five separate meeting rooms, with the largest being 15,000 square feet, the plan notes the areas have collapsible doors to create one 30,000 square foot area if needed.

The plan comes with an estimated price tag of $24.6 million, including the city's $9 million contribution which would cover construction costs for the conference center.

In the Ehrhardts' final plan, several incentives are listed as required to make the project work. Those include city tax exempt status for all purchases of furniture, fixtures and equipment; Missouri Downtown Economic Stimulus Act funding; a state super TIF; and property tax abatement.

Interim City Administrator Drew Hilpert said the Missouri Downtown Economic Stimulus Act, or MODESA, funding, which comes from the Missouri Department of Economic Development, is not available.

The state super TIF requested would operate similar to the TIF requested by Farmer Development Co., except it would include a portion of the state's sales tax revenue to be returned to the developer as well.

The property tax abatement requested would mean the downtown site would not be subject to real property taxes during the first 10 years. During the next 15 years, the property would be assessed up to 50 percent of its true value.

Representatives of Ehrhardt Hospitality Group did not return calls made since the last public hearing, but Scott Ehrhardt did speak with the News Tribune on Nov. 8.

Ehrhardt said then all the incentives required by the developer are based on revenues generated by the development and would not cost the public any additional funds.

"I think it's a very realistic option, financially," Ehrhardt said. "It really costs the city zero, outside of the parking garage of course."

But the parking garage is not a small aspect of the project.

The Ehrhardts' final proposal requests the city build and operate a parking garage with a minimum of 350 spaces. Interim Public Works Director Matt Morasch said the standard formula for construction costs is about $20,000 per space, meaning the requested garage would cost $7 million to build and another $180,000 per year to operate.

Morasch said the city has about $3.5 million in the parking fund reserved for construction of a new garage. In order to build and operate the garage requested in the Ehrhardts' proposal, Morasch said the city would have to increase existing parking fees and fines by 30 percent to 70 percent because the new garage would not generate revenue.

Morasch and Hilpert also said another issue is the McCarty Street site of the Ehrhardts' proposal is not seen as a high demand area where the city would build a parking garage.

"It doesn't seem economically feasible," Hilpert said.

Morasch said the location is seen as too far away from the downtown to be in demand for parking.

What is a funding gap?

Both conference center proposals before the Jefferson City Council have a funding gap, which is the difference between the city's lodging tax contribution of $9 million and the projected total cost of each project.

Here's a breakdown of how the developers propose closing their project's funding gap.

Capital Mall site: $37 million project

For the Farmer Holding Co. proposal, a $27 million funding gap would be closed by using $11.4 million in private investments, $10.6 million in tax increment financing funds and $5 million in sales tax proceeds from a community improvement district.

Downtown site: $24.6 million project

For the Erhardt Hospitality Group proposal, a $15.6 million funding gap would be closed using funds from a state super TIF, property tax abatement and city tax exempt status for all purchases of furniture, fixtures and equipment. The proposal would also require the city to contribute $7 million to build a parking garage, which would cost another $180,000 a year to operate and maintain.


See also:

What's next in the conference center saga?