By CHRIS HARRIS, CJ Staff Writer Commonwealth Journal
Flip to the first page of the dense 27-page document presented to the Somerset City Council this past week and you’ll see the words there in bold print: “The timing is right.”
That’s the expert opinion of Commonwealth Economics, LLC, at least. The analytical firm out of Lexington put together a detailed study of a proposed plan to use locally generated taxes to retroactively finance significant improvements to downtown Somerset — with the goal of making the center of the city a more active, attractive place to live, work, and play.
“It’s sort of the tail wagging the dog,” said Gib Gosser, executive director of the Downtown Somerset Development Corporation (DSDC), the entity entrusted with ensuring the heart of the community stays healthy. “I was out looking for a solution to the Virginia Cinema, looking for the $2 million we needed for that, and now we’re looking at a $40 million project for the whole downtown just to get the cinema project done. I’d like to see a vibrant downtown area — retail, service, entertainment — and I think that’s all possible with this (plan).”
The idea hinges on a Tax Increment Financing (TIF) program, which is quickly becoming a viable option in the community development game here in Kentucky. John Farris and Casey Bolton of Commonwealth Economic paid a visit to DSDC in February to discuss the TIF plan and Somerset’s potential with it. They noted that similar TIF projects have been initiated in the Kentucky cities Louisville, Lexington, Dayton, Georgetown, and Versailles — specifically noted the Red Mile redevelopment plan in Lexington and the KFC Yum! Center in Louisville.
DSDC saw the plan as a real possibility, but more research needed to be done first. Thus, the study by Commonwealth Economics. It’s a “lengthy and expensive process,” as Gosser put it, as the city has spent about $13,000 already and will likely pay another $20,000 for the consultants. Next, the state will need to paid to do their own analysis, another bill of likely between $60-70,000, according to Gosser.
It will be worth it, though, if the financial rewards for the city end up being many more times than a few tens of thousands of dollars, and at no additional cost to the taxpayers.
“It doesn’t cost anybody any increased money,” said Gosser. “What it does is increase the value of property that is now decreasing each year, so that the improvements are not only paid for by new money, but local and state government gets increased money by increased property values.”
Under a “TIF” plan, local and state governments would rebate as much as 80 percent of any new tax revenue that results from a development back to it’s own certain area. This tax money would pay for infrastructure work needed to create the development.
The question now is if the state will decide that the idea is worth it to them. If not, the project could fail to get off the ground altogether.
“They will have to determine if it’s profitable to them,” said Gosser of the state officials. “If it’s not going to create new tax dollars, they will turn it down. We have to convince them that it will create enough new dollars that it will pay for the work and the city, county, state will get new dollars out of it.”
Gosser added that DSDC has discussed the plan “briefly” with Somerset Mayor Eddie Girdler, and he has been given a copy of the study, but the matter has not been discussed in-depth yet.
While the state may ultimately take a different opinion, the outlook of Commonwealth Economics proved positive for the feasibility of a TIF program helping Somerset.
For one, the aforementioned “timing” given last year’s vote to go “wet” and allow alcohol sales in restaurant and stores “places Somerset in a unique position to capitalize on the vastly underutilized building space in the downtown district,” according to the study.
The study identified over 200,000 square feet of existing building space in downtown Somerset as “blighted space that needs development,” including 82,950 square feet of ground-level retail, restaurant and entertainment venues, the Virginia Cinema facility, and second-level office and residential space.
The analysis projected that “the potential fiscal and economic impacts created ... will be significant,” with an estimated $498 million in incremental tax revenue generated over a 20-year period. Of this amount, approximately $45.5 million comes from state tax revenue, and more than $4 million remaining from local tax revenues.
The study also estimated that the project would create over 600 sustainable jobs throughout the region, with another 294 during the construction period alone.
“With approximately 4 million visitors to the area annually, a revitalized Downtown Somerset could go a long way towards creating new tax revenue and jobs, both locally and fore the state,” reads the report.
In short, it has to pay off, however — it’s a must. No money starts coming back to the city until $20 million has been spent in the downtown area. “If we don’t reach that threshold, no money ever comes back from the state,” said Gosser.
On the plus side, the city is already almost a third of the way there, given the $8.5 downtown energy center to be located at the corner of College and East Mt. Vernon Streets. That spending counts toward the threshold, said Gosser, as does other basic work projects such as paving streets, fixing water lines, and “practically any expenditure in the downtown area,” as Gosser put it. The $2 million the city already knows needs to be spent on the Virginia Cinema would also count toward that cost.
“The state wants to make sure they aren’t the only ones investing in the area,” said Gosser, who believes the plan would likely get approval from Frankfort by September of this year if things go as DSDC hopes.
The proposed development area covers a wide area of Somerset, all the way down South Main Street to Dearl Whitaker Lane, coming around Cotter Avenue and north along Crawford Avenue, up College Street, west on Oak Street, and finally south all the way down Richardson Drive.
“The improvements would probably be for the entire downtown business district,” said Gosser. “First of all, there has to be infrastructure to improve the district, but infrastructure can be pretty broad. Say you’ve got a small shop and you’d like to put a bakery in there ... but you determine the problem is there isn’t enough parking, or updates to the streetscape are need, or you need a street to cut through to somewhere else. Those are the most obvious infrastructure solutions to downtown. We may decide a particular building is a problem to the whole block. If that building were enhanced, that would be an infrastructure improvement to the block. The City of Somerset might purchase a building, rehab it, then sell if off for a loss to improve (the area).”
The study notes that in order to make an improvement, local government must decide that the development area ins not reasonably expected to be developed without public assistance, that the benefits justify the costs, and that the area has not been growing through private enterprise, or if it has, there are special circumstances that require public assistance.
The plan, which Farris has called a “public-private” partnership, would seek to build on the current tax revenue generated by property in downtown Somerset, estimated at about $15,468 per year. The study projects a new incremental tax revenue haul of $1,482,362 in the first year, with $127,205 available for local participation and the rest for the state TIF program, $1,668,412 net after five years, and $39,831,633 net with over $3.4 million available for local participation after the full 20-year period. That’s after 20 percent of the nearly $50 million total over that time is retained by state and local authorities.
“This project will provide countless benefits to both the City of Somerset and south-central region of Kentucky and should meet the qualifications of the State’s Mixed-Use Program,” concludes the study. “The Downtown Somerset Project will provide new entertainment and retail options as part of the revitalization of Somerset’s historic town center, thereby creating a vibrant new entertainment destination to be enjoyed be the region as a whole. This ... will not only provide intangible benefits to the region, but will create significant economic and fiscal impacts as well.”