Expanded incentives for Crossroads Village seen as draw for more developments

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Posted: Sunday, February 9, 2014 12:00 am | Updated: 2:06 pm, Thu Jun 5, 2014.

While the Crossroads Village development may be the first in Omaha to use an expanded combination of public incentives, it's unlikely to be the last.

The developer of at least one other major project is considering a funding tactic that could make its first Omaha appearance at Crossroads: a special occupation tax on purchases made within the development.

That project is a $205 million complex that would include a hotel, apartments and retail space near the CenturyLink Center at 10th Street and Capitol Avenue.

Like Crossroads, it is already in line for tax-increment financing help from the City of Omaha. Its developer, Mike Moylan of Shamrock Development, said he's still finalizing his plans and isn't certain he'd seek the extra tax.

But he and other Omaha developers said gaining different types of financial backing from the city is crucial to most large-scale urban development projects — and that's not going to change any time soon.

“Yes, things can happen naturally,” Moylan said. “But on the other hand, towns die when they just wait for things to happen naturally. You can sit there for years and years, and it can deteriorate further. Or the city can take a proactive step, get the project done faster and done better.”

City officials, including Mayor Jean Stothert, said that's the goal with the $397 million Crossroads development at 72nd and Dodge Streets.

Developers Frank Krejci and Rod Yates plan to transform the nearly abandoned Crossroads Mall into a bustling area with shops, restaurants, residential space and a new library, among other amenities. To do that, they're asking for a total of $161 million in public assistance in three forms:

» $53 million in tax-increment financing, which allows for future tax revenue from a higher property valuation to be used for public improvements. Those could include streets, utilities, landscaping and professional fees, according to a letter of intent between the city and developers.

» $50 million in general obligation bonds, which could be used to pay for streets, parking, sewers and other public improvements. The debt would be repaid through the city's existing 1.5 percent local sales tax on purchases within the Crossroads Village district.

How would the new incentives work for Crossroads Village?

» $50 million bond issue

The bonds could be used to help fund improvements to streets, sidewalks and other public areas around Crossroads. The plan must first be approved by the City Council, which will hold a public hearing Tuesday and a vote Feb. 25.

If approved, the bond issue would be on Omahans' ballots in the May 13 election. It would be separate from a $92 million bond package which also is up for a vote. That would pay for other improvements to city streets, parks, sewers and public facilities, along with public safety expenses. Payments on the Crossroads bonds would come from sales tax generated at the development — the 1.5 percent that Omaha already levies — but not from the new occupation tax.

» 1.95% occupation tax

Purchases made within the Crossroads Village district — roughly between 72nd and 76th Streets from Cass to Dodge Streets — would be charged an additional 1.95 percent tax on top of the current 7 percent state and local sales tax rate. That occupation tax will be set up to sunset after 10 years. Revenues would go toward improvements around Crossroads.

» $58 million in revenue from a new, 1.95 percent occupation tax that would be charged on purchases made at Crossroads Village. That tax would be on top of the current 7 percent state and local sales tax rate. That money also would be used to fund improvements around Crossroads and such items as demolition and marketing.

Krejci and Yates still must go through several steps with the city before the TIF and occupation tax plans are finalized. The bonds would be issued only if approved by the City Council and by voters, who would weigh in at the May election.

A public hearing on the bond issue will be held at Tuesday's council meeting. The council will vote two weeks later.

In addition, the developers must complete a traffic study, which is currently in the works. That will be a part of a plan that must be approved by the council.

Stothert said she sees Crossroads as a project with a big enough potential impact to match a big commitment from taxpayers.

“It's right in the heart of the city and it's really an eyesore, a lot of it right now, and this may be a once-in-a-lifetime opportunity to have a developer that has this plan to come in and do what they're willing to do,” she said.

Stothert said she was ready to move forward with the plan only when she was sure it would not result in higher property taxes.

For a while, she said, the developers were pushing for a deal under which they would agree to back the bonds for 10 years, which is half of their total life. But they eventually agreed to back the bonds for a full 20 years, promising to have enough of their own money set aside to cover the estimated $4million in annual bond payments, should the project fail to generate enough sales tax revenue.

Officials say the deal protects taxpayers, though the general obligation bonds still are ultimately backed by the city. Officials expect the project to bring in about $6 million in sales tax revenue each year.

The occupation tax must be approved by the council but won't require a public vote — it's allowed as a result of Legislative Bill 562, passed in 2007. It allows cities to implement a tax in a particular area, provided a development meets certain conditions.

The occupation tax can be imposed for up to 25 years. In the case of Crossroads, the agreement will be set up so that the tax sunsets after 10 years, said Cassie Seagren, Stothert's deputy chief of staff for economic development.

The same tax was part of the financing deal Krejci and Yates made with the City of Gretna for the Nebraska Crossing Outlets.

Other than Crossroads and the project at 10th and Capitol, Seagren said she didn't know of any other developers with immediate plans to seek an occupation tax in Omaha.

But she said having a variety of options is important for large developments because more common financing tools such as TIF can go only so far.

For Crossroads, she said, officials ran the calculations and found that $53 million in tax increment financing was as far as they could go. In short, the expected increases in property tax revenue that would be used to help pay for the improvements will grow only so much.

“That leaves us with a gap,” she said.

The city's ability to fill that gap is often determined by the type of project and its location.

TIF, the most common incentive, is reserved for projects in areas that have been deemed “blighted and substandard.” The definition has applied for projects and properties in several areas of the city, ranging from downtown to Midtown Crossing, Aksarben Village to west Omaha's Old Mill neighborhood, where TD Ameritrade built its new headquarters.

When projects fall outside those areas, developers typically turn to private financing or public sanitary and improvement districts that can issue debt for certain improvements. Those public improvement districts can be formed only outside the city limits.

Arun Agarwal, chief executive of developer White Lotus Group, is working on a $100 million, 54-acre office park and residential development near 168th Street and West Dodge Road. He didn't ask for TIF or other support from the city because of the project's location, though he has received it for his Ames Plaza project in north Omaha.

Agarwal said developers must show that their projects wouldn't happen if they didn't receive public help — and noted that those requests are not all created equal.

With so much money on the table for Crossroads, he said, he'd like to see more developers involved to help spread out the risk. But he said the project seems deserving of support.

“There are projects in which I might question whether or not (public support) was required to get it to happen. Did we as a city leave money on the table?” he said. “But these developers did a phenomenal project in Gretna — they have a track record, and they just proved it.”

Chip James owns Lockwood Development, which is building the 153-acre Sterling Ridge Development near 126th and Pacific Streets. He's doing it without any incentives from the city and said the current options for public incentives should be expanded.

He said the Legislature should consider incentives that aren't tied to particular cities or development areas.

“It should be a level playing field for anybody — in Grand Island or Omaha,” he said. “We just need to come up with a better use of tools, and they need to be applied evenly.”

Molly Skold, a spokeswoman for Midtown Crossing, said she couldn't comment on whether developers of that project had sought help other than tax increment financing. The $300million development, which was spearheaded by Mutual of Omaha, received $37.4million in TIF.

But Skold said she supports any efforts to help other areas transform into centers of activity, including Crossroads.

“I think it's great for Midtown, great for downtown, great for Omaha,” she said. “I'm all for a project that would contribute to the big picture of making Omaha again what it's destined to be.”

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