Archive for Wednesday, October 25, 2000

Why the park land wasn’t purchased

October 25, 2000

In the last issue, I covered the reason why the city is looking at purchasing property for economic development and recreation purposes. The city council chose not to purchase the property outright for several reasons. The top two are deciding whether to exercise the option and the appropriate manner of financing.

Several weeks ago, I mentioned in an editorial letter, we will publicly go through a phase nearly all developers go through without exposure to the public. For developers, it is all private until the product is ready for review by the local government planners. The city, as mentioned above, will be doing that phase of consideration openly.

In the private sector, developers select a piece of property that appears suitable for their development purposes and prepare a purchase option from the current owner. A preliminary design for how they expect to use the property is prepared by a surveyor or an engineer. The lay of the land is studied and design concepts begin to form. This tests their design vision with what the land will let them design. The design changes several times until the final product meets their expectations. The property is evaluated in terms of the expenditures needed to develop compared to the revenue they could realize from selling the property in smaller parcels. If the developer believes they can profit from the development, the process continues.

Baldwin City is evaluating the land to see if it can meet our development vision. The purchase option gives us the right to go on the property to discover the answers to the initial design question. A review of the on and off site improvements are estimated. Then the "go/no go" question is answered can it be done profitably?

The second issue is the manner of financing the property. During the planning process, we expect to determine the size of each function assigned to this property. Because the property is intended to be a mixed use, financing becomes complex.

According to our bond advisors, the business park portion of the property must be financed with "taxable" bonds rather than "tax exempt" bonds. This is due to an IRS ruling making public finance of "private activities" (business parks) ineligible for tax-exempt status. The IRS performs random audits of bond issues. Should they find a city violating the tax code, it would be very difficult for a city to get financing for other governmental (tax-exempt) purposes.

Should we propose a bond package and under allocate the taxable portion, the city is at risk for litigation by the holders of the tax-exempt bonds who would be required to pay taxes on the bonds they thought were exempt. Simply, we would be paying back taxes and penalties for bondholders. Therefore, before a land purchase decision is made, knowing the allocation of recreation and business purposes is vital. Also, if separate properties were purchased at other locations for each use, we would need a tax-exempt issue for the recreation property and a taxable issue for the business park property.

These are two reasons a purchase was not done.

Next time, I will discuss the business and recreation strategies we are considering.

I also wanted to thank those who have sent e-mail's and left questions at City Hall. I will get those items covered. Should anyone wish to e-mail, my address is bcctyadm@grapevine.net.

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