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Passport's West Louisville Plans Are On Hold. What Happens To The City's Incentives?

Courtesy Mayor's Office

Passport Health Plan’s $130 million campus at 18th St. and Broadway was poised to be one of the biggest new developments in the planned revitalization of west Louisville, an area of the city that has suffered over the years partly  due to government policies including redlining.

According to city officials and business leaders, the Passport complex is more than just a few buildings. It could be a job-creator and a catalyst for more investment in a neighborhood that needs it.

But on Friday, Passport announced it would “indefinitely” pause construction on the campus, which was planned to include the organization’s corporate headquarters, as well as residential and mixed-use buildings. The company cited financial pressure due to lower state Medicaid reimbursement rates in its announcement.

“While we remain passionate about the continued revitalization of west Louisville and hope to play a significant role in those efforts in the future, we have no choice but to delay any further work on Passport’s new headquarters building,” Passport CEO Mark Carter said in a news release.

While the project isn’t technically dead yet, some local officials are already mourning.

“This will be absolutely devastating to economic development in west Louisville, because there are so many other developers who are looking at developing projects and enhancing the neighborhoods,” said District 4 Councilwoman Barbara Sexton Smith, who represents the area. “Much of that, I think, has been in part because of the promise of the Passport Health and Well-Being Campus being located there.”

Louisville's Investment

Construction, supported by city and national tax incentives, started about a year ago on the 20-acre site that used to house a Philip Morris facility. A deal to put a Walmart there failed in 2016. Across the street, a new $28 million YMCA is underway. And the city recently finished shifting the intersection of Dixie Highway, 18th Street and Broadway to better fit these developments — at a cost of $1.2 million.

Passport representatives declined to comment for this story, so it is not known how much the organization has already invested into the new complex; construction workers have begun framing the first phase of the project. But in 2017, Passport paid more than $8.3 million for the parcels of land at 18th and Broadway, according to deed records and city officials.

To help support that deal, Louisville Metro paid Passport $812,000 for land acquisition and preparation. But if the headquarters project does not eventually proceed as planned, Passport won’t be able to keep all those funds.

If the 337,000-square-foot building meant for the new headquarters — known as Phase 1 of the project — isn’t completed, Passport will have to return $762,000 to the city, said Jessica Wethington, a spokeswoman for Louisville Metro.

That $812,000 is all the city has paid Passport so far — but it’s all not local officials promised as incentives for the project.

If the headquarters does get completed and the more than 500 employees of Passport and partner Evolent Health move in, the company could receive $500,000 for job creation over five years, as well as up to nearly $10.5 million in tax increment financing for the two phases of the project.

Janet Kelly, a professor of Urban and Public Affairs at the University of Louisville, said TIFs are designed to lessen the increased tax burden created when an entity develops a previously unused site, which results in raising the property value.

“In Passport’s case, 80 percent of the annual increase in property tax owed would be essentially forgiven so that Passport would be incentivized to develop that property,” Kelly said. “Also, Metro Government believed that there would be additional economic development activity with Passport’s location in… a section of Louisville that is rather desperate for redevelopment.”

Were the project to materialize, Passport would receive the rebated tax rate for 20 years. That could save them up to about $5.5 million in property taxes for the first phase and about $4.9 million for the second phase.

The site generated about $4,000 in property taxes a year based on its 2016 assessed value, according to the 2017 ordinance Metro Council passed to establish the TIF district. It pointed out that Metro would capture 20 percent of taxes on the increased property values during the 20 years the TIF was planned to be in effect.

“Therefore, even when considering the requested incentives for the Project from Louisville Metro, the Project will be financially beneficial to Louisville Metro,” the ordinance reads. “The Project will also serve as a catalyst for additional development in the area surrounding the development area.”

For the city, it seemed like a win-win. The undeveloped property wasn’t generating much in tax revenue anyway. And the project’s development plan indicates the city anticipated real estate tax revenue for the first phase of the project would rise to nearly $293,000 in 2020, when Passport was expected to start occupying the corporate headquarters. Were that projection correct, under the TIF structure, Louisville would collect 20 percent of that — or more than $58,000.

As things stand, the TIF has not been activated yet, so if Passport doesn’t complete the project, it will simply expire, said Laura Ferguson, an assistant director at Louisville Forward, the city’s economic development agency. She said there’s a four-year period after approval during which a TIF can be activated.

“We don’t put money up on the front-end but the fact that we are willing to pledge a portion of the increased taxes … helps the developer with their financing, then a bank is more willing to loan them money,” Ferguson said.

Ferguson said Louisville has approved TIFs for projects that never panned out in the past. For example, in 2007, officials approved incentives for Museum Plaza, a downtown high-rise that was expected to cost nearly $500 million.

“That TIF basically just expired,” she said. “If something is dead in the water and never activates, no more action needs to be taken.”

But if Passport’s project falls through and another option for the site comes up, Metro Council would need to amend the TIF district, Ferguson said.

Councilwoman Sexton Smith said losing the Passport campus would mean more than losing tax revenue.

“West Louisville’s day and time has long come and passed. They’ve waited for generations to have economic development that will create jobs, that would in turn break the cycle of poverty in families,” she said.

Sexton Smith blamed the state for “turning their back” on Passport.

The organization is currently suing Kentucky over the lowered reimbursement rates, which mean the company gets less money back for providing services for the state’s Medicaid enrollees. Passport officials said those lowered rates could make the company insolvent by next month, and they’ve asked a judge for a temporary injunction to restore the older, higher rates. In a statement Friday, secretary of Kentucky’s Cabinet for Health and Family Services Adam Meier said the cabinet recognizes and appreciates Passport’s community investment, but agreed with the “prudent” decision to delay completion of the campus.

But in an interview with WFPL Friday afternoon, Sexton Smith suggested there might be another fix in the works.

“There's been another financial structure has been put in place that Passport will use to put together their total financing package, and that was agreed to recently,” she said. “The TIF becomes moot at this point.”

Sexton Smith did not provide further details, and a city spokeswoman could not immediately explain the new financial structure. A spokesman for Passport did not immediately respond to a request for more information.

Amina Elahi is LPM's City Editor. Email Amina at aelahi@lpm.org.