Tax district shortfall may cost taxpayers

A special tax district formed by Wichita to assist in the development of the Old Town cinema project can't cover its debt payments because the developers — including the city itself — petitioned a state court and got their property taxes reduced, records show.

Now, taxpayers could be on the hook for $190,000 that had been projected to have come from within the cinema district.

The shortfall in the Old Town Cinema Redevelopment District was revealed during a quarterly financial report at the City Council meeting Tuesday.

Records show that the developers and owners of three main buildings in the district, which has received at least $11.5 million in publicly funded benefits, went to the state Court of Tax Appeals and got their property values reduced by $2.65 million.

Because they had paid past years' property taxes under protest, the developers received more than $139,000 in tax refunds.

Now, the city finds itself $190,000 short of the money it needs to make payments on the district's bond debt.

When the district doesn't generate enough tax money to cover its annual bond payments, the city covers it from citywide taxes, Finance Director Kelly Carpenter said.

Carpenter and other Wichita officials were surprised to find the city itself was listed as one of the parties that went to court to reduce the property taxes in the cinema district.

The city owns retail and restaurant space fronting the parking garage on the west side of the development at 301 N. Mead, although the property is privately managed through a lease agreement.

"It is our land, but we didn't do this (tax) appeal," Carpenter said. "If anybody was made aware of it they didn't make me aware of it."

After an Eagle reporter faxed copies of state and county records showing the city as a party to the appeal, Carpenter said, "No one from the city saw this documentation."

She said she turned the documents over to the city's legal department for review.

History of shortfalls

The Old Town Cinema District was an attempt by the city to redevelop a dilapidated warehouse area and add a theater component to the bars, restaurants and retail shops of the original Old Town district to the south.

The partnership was led by Old Town architect David Burk and included theater owner Bill Warren and real estate agent Steve Barrett, none of whom could be reached for comment Tuesday.

Using borrowed money, the city spent about $9.5 million to acquire land, build a large parking garage and develop a pedestrian plaza to serve the retail/entertainment project, anchored by the six-screen Warren Theatre Grille Old Town.

About $7 million in principal and interest was supposed to be paid off by diverting income from increased property tax from the new development, a process called tax increment financing.

But the theater district has consistently fallen short of its original projections.

In 2004, in an Eagle article on the project's financial difficulties, Burk and then-City Manager George Kolb assured the public that the project was still ramping up. They said tax income would be sufficient to meet the debts once the district was fully developed.

Tuesday, Carpenter expressed much the same hope and said the district might cover its costs when a tax abatement for the downtown Courtyard by Marriott hotel expires in about five years.

In 2005, Urban Development Director Allen Bell told the council that because of the shortfall in the cinema district, the city could not use tax increment financing to help develop the hotel. The city instead directly abated a portion of the hotel developer's taxes to get the hotel built.

In 2008, the city had to provide a $6 million low-interest loan to the theater developers. At the time, Warren was threatening to close the theater because of business losses.

The bailout was used to refinance debt, upgrade projectors and convert an attached sports bar into a seventh movie auditorium.

Developers refunded

Tax year 2008 was the first and only time that income from the cinema district exceeded the original projections — and it did that only temporarily.

Initially, the property in the district had an appraised value of $17.1 million for 2008 and generated $394,980 in tax increment, county records show.

After the tax appeals, the value of property in the district plummeted to $14.3 million in 2009, generating $323,389 in tax increment.

In addition to reducing the taxes going forward, the court ruled that property owners had overpaid in 2008, 2007 and 2006.

That entitled the developers — and the city — to the refunds they received.

County treasurer's records show the following tax refunds were paid:

* City of Wichita — $25,806 for the 2008 tax year and $23,781 for 2007, on the 301 N. Mead property.

* Old Town Warren Theatre LLC — $42,100 for 2007 and $36,943 for 2006, on the theater building at 353 N. Mead.

* S.E. Building LLC — $16,157 for 2008 and $20,120 for 2007, on the building at 300 N. Mead that houses an Old Chicago restaurant.

City Council members said they thought that their redevelopment agreements required developers to make up shortfalls in tax increment to protect taxpayers.

But Bell told them at Tuesday's meeting that both Old Town districts were set up before the city routinely began including that provision in its redevelopment contracts.

Vice Mayor Jim Skelton said that having city development partners who benefit from tax increment financing appeal for lower property taxes "seems like an oxymoron."

City Manager Robert Layton said that anyone has the right to appeal their taxes, but he added that "no doubt that defeats the purpose of the TIF."

This story was originally published February 10, 2010 at 12:00 AM with the headline "Tax district shortfall may cost taxpayers."