City leads Kendall Yards tax area push

Concerns raised by the Spokane County treasurer have prompted city officials to retake the lead in a proposed tax district that would subsidize portions of the Kendall Yards project.

Last month, County Treasurer Skip Chilberg threatened to file a lawsuit to prevent the county from creating a tax area that would allow developers of the 78-acre project in the West Central neighborhood to collect tax revenue to pay for some of the infrastructure, like sewers and streets. Chilberg has since backed off that threat but still questions the use of tax dollars.

Under new proposals, Kendall Yards developers would pay for streets, sewers and other improvements upfront and then be partially repaid using tax dollars generated from the land, said Spokane’s Chief Operating Officer John Pilcher. Previously, the county had been asked to sell bonds to pay for some of the up-front costs. Officials added, however, that other options have not been ruled out.

Kendall Yards has been touted by city leaders as a boost to the city’s financial health.

“What it brings, I believe, is an accelerated development of key pieces of inner city property that have the potential or promise of generating significant downtown housing, commerce and tax revenues,” Mayor Dennis Hession said.

Pilcher said new arrangements using private funding instead of public bonds center around “building an arrangement whereby we’re not risking city funds.”

But Chilberg said if anything, using private money reinforces his belief that Kendall Yards investors have the money to build the project without tax assistance. If the project will be built anyway, he said, the city and county have better ways to spend extra tax dollars.

Tom Reese, Kendall Yards project manager, said assumptions that the project – along with amenities including construction of the Centennial Trail and other open spaces – is a sure-thing are wrong.

“If we don’t get reimbursed for the public improvements that will occur, then we can’t allocate those funds for other kinds of neighborhood improvements,” Reese said.

Kendall Yards estimates that $65 million is needed for public infrastructure on the land. If approved, tax-increment financing would raise $9 to $20 million of that money. The rest would be paid by Black Rock, the firm leading the project.

Spokane County created a similar tax-increment arrangement with private funding to form a district in Liberty Lake that includes land from Centennial Properties. Centennial is owned by the Cowles Company, which also owns The Spokesman-Review.

Roy Koegen, the county’s bond counsel, said using private money without bonds upfront ensures that the city or county wouldn’t be on the hook if – in a worst-case scenario – the new taxes generated couldn’t cover issued bonds.

“By far, it’s the safest way for the citizens,” Koegen said.

If a Kendall Yards tax-increment district is created as currently proposed, property values would rise or fall based, as they do now, on market forces. But property taxes the city and county collect would be frozen at current levels. When values rise from new construction or assessment changes, 75 percent of the extra amount that normally would have gone to the city and county would be diverted to pay for improvements. Taxes collected for schools would not be affected.

Although plans call for the city to take the lead, the county would have to approve the plan because its taxes are affected. Reese said Black Rock hopes to have a tax district in place by the end of April to get the project moving. He said Black Rock already is paying $200,000 a month on debt it already has incurred for the project.

Pilcher said new construction in Kendall Yards could generate up to $1 billion in extra property value within the project.

The city and Kendall Yards approached the county last year to consider taking the lead, in part, because the city’s charter requires a vote for some kinds of capital projects that require indebtedness, including, as originally was proposed, a public parking garage. City officials say that using tax money for a garage has since been ruled out. The county also was thought to have a faster approval process, more bond capacity and a higher bond rating.

Chilberg has criticized the proposed borders of the area where tax collection would be affected because they include a large area outside Kendall Yards. He said he’s concerned money generated in the older West Central neighborhood could be diverted to the project.

But Pilcher said the city is working to craft an agreement whereby Kendall Yards money will stay in Kendall Yards, and revenue raised outside the project will pay for improvements in the older neighborhood.

Chief Financial Officer Gavin Cooley said it makes more sense for the city to take the lead because the city would take ownership of infrastructure like streets and sewers.

“We want to make sure it’s done and done right, and the best way to do that is to take leadership of the project,” Cooley said.