VOL. 128 | NO. 198 | Thursday, October 10, 2013
Crosstown Funding at Crossroads
By Bill Dries
The $180 million plan to bring the former Sears Crosstown building back to life with a mix of residential, commercial and retail tenants faces a critical hurdle Thursday, Oct. 10, as the Center City Revenue Finance Corp. considers a 15- or 20-year payment-in-lieu-of-taxes (PILOT) agreement for the project.
The Center City Revenue Finance Corp. will decide on a PILOT application from the redeveloper of the Sears Crosstown building, left. Developers want a 20-year PILOT.
(Daily News File/Lance Murphey)
The developer, Crosstown LLC, says the 20-year PILOT is crucial to moving ahead with the project on a timetable that includes beginning the first site work in February or March. Specifically, the approval of debt financing from banks is contingent on getting a PILOT.
The Crosstown application for a 20-year PILOT is five years longer than the financing body’s policy of 15-year tax breaks.
The Crosstown building is not within the Central Business Improvement District, which is overseen by the Downtown Memphis Commission, whose financing arm is the CCRFC. But projects that are outside the district yet within the city’s parkways can apply for the tax breaks if they are considered “high-impact” projects.
“High impact projects are catalytic and are especially essential to the economic viability of a neighborhood or community,” reads the CCRFC staff evaluation of the Crosstown project. “Staff believes that Sears Crosstown, as planned, is a paramount example of a high impact project.”
The staff report also concludes the Crosstown project “would not go forward without a PILOT,” but their recommendation is for a 15-year – not the requested 20-year – tax break.
Calculations for the 20-year PILOT sought by Crosstown LLC show the revitalization would generate an estimated $53.8 million in city and county property taxes without such a tax break. But since that is based on the project going forward, and the developers and staff contend the project won’t be possible without the PILOT, the estimate is considered “a fictional/moot number used to calculate the benefit of the PILOT to the project,” according to the staff report.
With that caveat, CCRFC staff estimate a revitalized Crosstown building with the PILOT as part of its financing would generate $10.2 million in new property tax revenue for the city and county, plus more revenue from sales tax. The benefit to the project over 20 years would be a tax abatement of $41.8 million.
The math for a 15-year PILOT recommended by the staff is $40.3 million in total taxes without the PILOT. With the PILOT, $5.7 million in new city and county property tax revenue would be generated, with a tax abatement of $40.3 million.
The CCRFC has in the past found a middle ground between longer PILOTs sought for smaller projects and the cap on such agreements. Members of the corporation’s board have, at times, given applicants the tax break for a specific length and then offered what amounted to renewal options beyond, requiring another approval by the finance corporation board at that point.
As Crosstown LLC put its application on the CCRFC’s agenda, its principals also renewed their call for $15 million in city of Memphis public funding they also consider crucial to the project.
Memphis Mayor A C Wharton Jr.’s administration has not yet presented a proposal for such funding to the Memphis City Council for approval. For the current fiscal year, the council approved $1.5 million in capital funding for project infrastructure, including some demolition within the Crosstown building.
The renewed discussion of city funding for Crosstown comes as City Hall is bracing for as much as a $60 million to $80 million budget adjustment at the end of the calendar year to more fully fund the city’s pension fund liability. The additional amount toward that liability is expected to cause a sea change in city budget priorities as the city finds the money by cutting personnel, services or employee benefits – or possibly some combination of the three.
The city’s handling of its bond debt, which is used to finance capital projects, including construction projects, was criticized in a May report on the city’s finances by Tennessee Comptroller Justin Wilson.
Wilson was specifically critical of the city’s priorities and two bond debt restructurings that pushed the growth in the annual debt into future fiscal years. He also expressed concern about the city’s continued use of payments-in-lieu-of-taxes as an incentive.