A property tax would replace a sales tax as the primary source of public financing for the second phase the Prairiefire development in southern Overland Park, under a new plan submitted this week by developer Fred Merrill Jr.
But because the first phase has underperformed sales expectations, Phase 2 was greeted with skepticism by many on the council, who met Monday with Merrill.
Council members tepidly approved 7-5 a measure that would set a public hearing for Oct. 24 on a tax increment financing district. Some of the members who voted for it said they were doing so only to get a conversation started. Those voting against were John Thompson, David White, Curt Skoog, Dan Stock and Terry Goodman.
Prairiefire, on 135th Street between Lamar and Nall avenues, is a mixed-use development that includes residential, retail and office space. It is also the home of the Museum at Prairiefire and Cinetopia movie theater.
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The project opened with a bang in 2014, but sales slowed enough in 2015 that the developer reportedly had to dip into a reserve fund to make interest payments on its bonds.
Merrill and attorney Curt Petersen told a council committee they expect business to turn around this year because they will soon have a replacement for the Fresh Market anchor store that closed and because of changes in movie theater booking practices.
Indeed, they noted that sales are “up across the board” so far this year.
Still, the underperformance caused the developer to drop plans for Sales Tax Revenue bonds, or STAR bonds — a tourism-centered financing option no longer available to them because of the slow sales. Instead, the developer favors tax increment financing based on property tax revenue.
The new plan would ask about $25 million in public financing, Petersen said. That is an amount at or below what would have been requested with STAR bonds, he said.
A property tax is considered a safer bet by investors because it’s less uncertain than sales tax, he said. “All that’s involved are property taxes. Once they’re paid, that’s it. There’s no other uncertainty,” he said.
Merrill and Petersen stressed that they’re optimistic that retail sales will turn around in the already-opened part of the project. Indeed, they noted that sales are “up across the board” so far this year.
One major reason is that movie theaters have mostly stopped a practice called “movie clearance,” in which theater chains can arrange exclusive rights to show certain movies in some market areas. That practice was under investigation as a possible violation of antitrust laws, and most studios no longer do it, Petersen said. The lack of blockbuster movies at Cinetopia also has affected sales at nearby restaurants, he said.
The museum also has changed its leadership and is becoming more aggressive and organized about building its brand, he added. And demand for apartments and office space that the development will provide remains strong.
“I don’t think it’s a failed project. I don’t think it’s a failed bond issue,” Merrill said when asked about Prairiefire’s performance and the change in the financing plan.
But the tax increment financing plan may face an uphill battle with council members, who mentioned the recently approved TIF policy outlining how the financing may be used.
“How do we sell this to the public as not being a corporate bailout, because that’s what it seems like,” asked David White.
“This is one of the toughest things we’ve faced in a long, long time,” White said. “We love Fred, we love your project, but I have some tough questions.”
White added that the project involves undeveloped areas. “My question is: What part of our TIF policy do you not understand? We just wrote the darn thing and we said green field doesn’t get 90 percent.” (The policy limits the amount of property tax revenue for public financing to 90 percent.)
But the policy does promote mixed use and Class A office space, Petersen said.
White and Dan Stock said the council should wait and see whether things pick up at the existing stores before wading into public financing on the second phase.
Council member Goodman also opposed setting the public hearing. “I know how hard this council worked on drafting the TIF policy,” he said. “When we were then presented with one of the first opportunities to determine if that policy is meaningful and has gravitas, respectfully, I think we blinked.”
He also said the approval of a public hearing was an incremental step that moves the idea forward.
But the public hearing doesn’t necessarily mean the council will support it, said Mayor Carl Gerlach. “We have to have our eyes open before we can blink and we won’t have our eyes open unless we have a public hearing,” he said.
Council member Paul Lyons also voted in favor of the hearing. “I see that all we’re doing is allowing this process to proceed to the next step.” He said he is inclined not to support the tax increment financing plan.
“But I also feel this project is so important to our community and Overland Park that we need to at least for the moment give the benefit of the doubt and allow the motion to move forward and see where we go from here,” Lyons said. “But I do think they’ve got an awful large hurdle to overcome.”