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Why The Future Of Development In Louisville May Hinge On TIFs

A pair of high-profile developments near Louisville's Highlands neighborhood will likely be the next construction projects in the city to be approved for millions in tax incentives.

The proposed projects by Ohio-based developer Edwards Companies will bring retail space and luxury apartments to the former sites of the Phoenix Hill Tavern and Mercy Academy, near the intersection of Baxter Avenue and East Broadway.

The projects are expected to cost about $76 million to complete. The tax incentive plan being proposed by Metro government officials would send about $8 million back to the developer to help fund the projects.

A Metro Council committee approved a tax increment financing incentive plan this week for the second time. The committee initially approved the incentives last month, but the full council tabled the vote to allow more discussion.

Tax increment financing districts, or TIFs, allow developers to get a rebate of a portion of the newly generated tax revenue from the completed project. There are a variety of options for developers, but most local TIFs require recovery of blighted areas and a demonstrable public good.

The financing tool has been used in the development of the several high-profile projects in Louisville, including the KFC Yum! Center, the University of Louisville's Shelbyhurst campus and, more recently, smaller residential developments that include the revamping of the The 800 Building downtown and Axis Apartments, slated for Lexington Road.

Despite passing through committee, the TIF plan for the Phoenix Hill properties is not without critics.

Councilman Brent Ackerson is one of them.

The District 26 Democrat scoffed at giving city revenue to developers to build luxury apartments in areas he considers "primo of primo real estate areas." Ackerson said such incentives should only be approved for projects that fulfill a community need.

"A community need that could not afford itself. That's a good use of a TIF," he said.

Ackerson said approving the projects for tax incentives sets a bad precedent that any developer can access taxpayer money to subsidize costs without having to meet specific parameters.

"It's the wild west for TIFs," he said.

Other council members say such incentives are necessary to spur development.

Councilman Kelly Downard, a District 16 Republican, said incentives -- from second mortgages to revenue bonds -- have played a key role in revamping downtown Louisville and surrounding neighborhoods.

"We had to coax people," he said.

Downard said tax increment financing can help the city get more revenue from a property. He said the project at the former Mercy Academy, which sat vacant for years and has brought zero tax revenue to the city, would advance the neighborhood around it.

"These types of projects are critical," he said.

Mayor Greg Fischer made a similar case in supporting the city and state tax increment financing package that accounts for nearly half the cost of the $289 million Omni Hotel and Residences downtown.

In an interview with WFPL in February, Fischer said tax incentives in general are not ideal, but they are necessary to generate economic development — in part because of the competition they create among cities and states.

"They come at the expense of the taxpayer," he said. "But if [the recipient is] required to keep in-grow or attract jobs here, it's better to have those than not have them."

Fischer said incentives encourage cities and states to compete with each other to attract companies and, ultimately, jobs. The only way to avoid doing so, Fischer continued, is for a city to build a workforce that can act alone in attracting companies.

"Then all of a sudden, you have much more leverage," he said. "That's the ideal world."

Mary Ellen Wiederwohl, head of the city's economic development department, said Louisville is not unique when it comes to using incentives to attract growth, especially the type of infill that boosts downtown density.

Presently, she said tax increment financing seems to be the jewel of incentive options for its "performance-based" element.

"We believe it is the best tool available to us today because it requires the developer to spend his or her money up front and then only get an incentive back if their promised increment occurs," she said. "You only get the property [tax] back in a TIF if you actually raise the value of the property."

Ackerson warned that the city's quick awarding of TIFs is a "slippery slope." He said tax increment financing is meant for large-scale projects that benefit the entire city. Allowing developers to reap the awards of such incentives to build apartments is "bastardizing" the concept of TIFs.

"It's a new economic tool," he said. "Well, as we've seen in history, anytime there is new economic tools and people run with those tools, sometimes bad things happen."

Jacob Ryan is the managing editor of the Kentucky Center for Investigative reporting. He's an award-winning investigative reporter who joined LPM in 2014. Email Jacob at jryan@lpm.org.

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