Five Community Improvement Districts in Wichita collect $1 million in extra taxes

01/12/2014 6:42 AM

01/12/2014 6:46 AM

Shoppers and hotel guests in five Wichita Community Improvement Districts have spent about $1 million extra since 2011 to recoup the costs of developers.

The projects include three downtown hotels – Drury Plaza Broadview Hotel, Fairfield Inn & Suites at WaterWalk and the Ambassador Hotel – the Cabela’s store in northeast Wichita, and a redevelopment district comprising the southeast and northeast corners of Central and Oliver.

CIDs have not proven to be wildly popular. Since their enactment in 2010, developers have sought districts for at least 10 projects, with five projects gaining City Council approval and getting built. The last CID project approval was in September 2011.

Still, developers who have used CIDs said they have proven useful, and in at least two cases, the developers said CIDs were vital to keeping their projects alive.

“Absolutely,” said Paul Coury, developer of the Ambassador Hotel, which comprises the Douglas and Broadway CID. “I think it’s a very smart tool for a city to use because there’s not a cost to them.”

CIDs were enacted in 2009 by the Kansas Legislature and approved for use by the City Council in April 2010. CIDs allow businesses to charge customers up to 2 percent in sales tax to pay for construction, landscaping, parking lots, lighting, bus stops, art and other projects. The tax can last up to 22 years, but it goes away when the maximum reimbursement is reached, which varies by project.

Of the five CIDs, the project with the lowest maximum reimbursement is the Ambassador Hotel, at $2.56 million, while the project with the highest is Cabela’s, at $17.2 million.

According to information provided to The Eagle by the state Department of Revenue, the five districts have collected the following totals from the time they began collecting the additional taxes (each of which began at different times) through October 2013:

• Drury Plaza Broadview Hotel, $175,024.06, at a 2 percent tax rate
• Fairfield Inn & Suites at WaterWalk, $185,027.08, at a 2 percent rate
• The southeast and northeast corners of Central and Oliver, $19,964.83, at a 1 percent rate
• Cabela’s, $595,094.38, at a 1.2 percent rate
• Ambassador Hotel, $56,760.07, at a 2 percent rate.

When the city first approved CIDs, a number of developers chased the designation aggressively. Four of the five districts received their approval within the first year.

Other requests have failed for various reasons: Eastgate Shopping Center and a grocery store at Washington and Pawnee were turned down as not sufficiently in the community interest. Proposals for Westway Shopping Center and a project called Central Park Place at 2600 N. Maize Road also never made it through the process.

The council did approve a CID for the Bowllagio, a entertainment complex slated for Kellogg and Maize, but the project failed to get needed approvals from the Sedgwick County Commission and is on hold.

Guidelines to qualify for a CID include whether a project will attract development that would enhance the city’s economic climate, or benefit the city and its residents in other ways, according to city documents.

Allen Bell, the city’s director of urban development, said the city reviews whether a project fits the guidelines and whether the developer’s costs are eligible for reimbursement by the special tax dollars.

There’s no city money at stake, he said. And if a project isn’t generating as much money as hoped, it’s the developer that stands to lose the benefit of the extra tax money, not the city.

“We don’t take any risk in the program, such as with bonds,” Bell said.

“It’s however successful you are,” added Coury.

Another tool

Bell said the city has been relatively conservative in awarding the districts.

“We haven’t gone crazy with this,” he said. “It’s a program that different people have different feelings about. We’ve been circumspect because of major concerns by the council that these projects serve some kind of public purpose, that they not merely enrich private developers.”

The developer of the Fairfield Inn & Suites at WaterWalk said he wouldn’t have built the 131-room hotel at 525 S. Main without a CID. Jim Korroch said he wasn’t comfortable taking on the $12 million project that opened for business in June 2011 without a way to offset some of the financial risk.

“Economically the project wouldn’t have been feasible without the CID,” said Korroch, whose other area hotels include the Courtyard by Marriott at Old Town.

Coury, chairman of Tulsa-based Ambassador Hotel Collection, said it’s doubtful he would have proceeded on the $23 million, 117-room boutique hotel without a CID – especially after Wichita voters overwhelmingly turned down a guest tax allocation in 2012 that Coury sought to offset the cost of renovating the historic, 14-story former Union National Bank building. “It would have been tough,” he said.

The hotel opened in December 2012 and began collecting CID taxes in January 2013.

“On a historic building it’s very expensive,” Coury said. “A lot of times the numbers on a project won’t stand alone without some assistance.”

Jeff Fluhr said CIDs play a critical role in redeveloping downtown by helping to finance the three newest hotels. It’s another tool needed to make these expensive projects financially workable.

“It is a viable tool, particularly as we work with destination-type hotels and other special developments that draw out-of-state people who will be paying that tax,” said Fluhr, president of Wichita Downtown Development Corp.

Such projects can be so difficult and expensive that it may take several types of subsidy. This is just one more.

The CID at the Fairfield Inn will help make WaterWalk happen. The one at the Broadview is starting to reverse downtown’s relationship with the river, and the Ambassador district helped redevelop a whole block of downtown, supporters point out.

People don’t pick a destination hotel based solely on price and tax levels, Fluhr said.

“I don’t decide where to go mainly by the cost, but look at the amenities and the proximity to where I want to go,” he said.

The Ambassador’s Coury said he mostly agrees with Fluhr’s assertion.

“I think maybe if you are a convention hotel and competing for convention business (the additional tax) comes into play more,” Coury said.

Additional taxes are an uncomfortable fact for most developers of CIDs.

Fairfield’s Korroch pointed out that the extra tax is mostly paid for by people outside of Wichita.

“I’m a lot more comfortable knowing that,” said Korroch, who estimates more than 90 percent of Fairfield’s guests are from out of town. “I would think twice about developing something that would affect the local consumer. I think a hotel situation is a perfect project … for something like (a CID).”

It’s that additional tax that has officials at Occidental Management – which nearly a year ago purchased the historic Union Station campus downtown with plans to renovate the 9.5-acre site into a mix of office, retail, restaurant and residential uses – ruling out a CID to aid in their redevelopment plans.

“We have never really even considered it at Union Station or any of our other projects,” said Chad Stafford, Occidental’s president. “We think when you’re adding additional fees and taxes that creates a competitive disadvantage for you.”

CIDs for retailers

Two Cabela’s customers last week found the extra 1.2 percent tax an inconvenience. But it didn’t prevent them from making purchases at the outdoors store, which opened in March 2012.

“It does bother me, now that you mention it,” said Richard Michaels, of Pittsburg, Texas, who stopped in the store on his way to Nebraska for ice fishing. “But it wouldn't have stopped me because I needed it.”

Annette Ross of Rose Hill said she sort of noticed the higher taxes, holding up her receipt. “I saw it was high, but said ‘Oh, well,’ ” she said.

Even had she known going in that the taxes were slightly higher, she would have gone anyway because the store carried what she needed.

Cathy Erickson, vice president of Laham Development, which is the developer of the Regency Lakes development on which Cabela’s sits, said her company didn’t think the extra sales tax “was going to be much of an issue.”

A portion of the extra sales tax at Cabela’s – 0.2 percent – will be used to help pay for the cost of constructing an interchange at K-96 and Greenwich, just north of Regency Lakes. That interchange will benefit Regency Lakes and future development of that part of the Greenwich corridor, she said.

The interchange “may not have moved forward without the CID money,” she said. “It’s a great tool.”

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