One of the major funding sources for Project 180, the Devon tower tax increment finance district, is not bringing in as much money as hoped, officials said. Coupled with cost overruns on current and already completed Project 180 work, the shortfall has city planners looking for ways to save money.
A plan is currently on the table and actively being formulated by city staff. The city borrowed millions from Devon Energy for Project 180 and is looking at an early repayment option with a lower interest rate. Although E.K. Gaylord may not be part of Project 180 as initially planned, it could be part of a future project, said Public Works Director Eric Wenger.
Download a PDF copy of the latest Project 180 PowerPoint.
About a TIF
Project 180 is a four-year, $160 million transformation of streets, sidewalks, parks and plazas in the downtown core area. Originally consisting of around 180 acres, it is part of the 2008 agreement between the city and some associated public bodies and Devon Energy: The city makes the improvements, Devon builds its world headquarters in Oklahoma City.
Part of the funding — at least $40 million — comes from city general obligation bonds and other city funds, but the majority of the funding — around $106 million — is to come from the Devon tax increment finance district.
A TIF district sets a base on the last tax assessment on property within the boundaries of the district, and any ad valorem taxes collected above that base level go to a special fund. The TIF district boundaries surround the Devon tower property, and because it was public property before the TIF district was established, all property taxes generated from the improvements will go toward the fund.
However, this money takes time to come in, and so, because the city could not at the time get financing from other sources to pay for the improvements, in 2009 Devon Energy gave the city a line of credit of up to $95 million to begin work, although not all $95 million has been loaned out yet. The loan must be paid by 2015, said M. Brent Bryant, economic development program manager for the city.
In addition to ad valorem taxes, the Devon TIF district also utilizes sales taxes, Bryant said. This means that sales tax money generated by the purchase of construction supplies and materials used to build the Devon tower, which would otherwise go into the city’s general fund, are instead redirected to the city to pay for work on Project 180.
That money is available fairly quickly compared to property tax funds, allowing the city to add it in to the construction budget, along with the Devon loan and general obligation bond funds. State law also allows for state funds matching sales tax collections in such situations.
Shortfall
Funds are not meeting projections for multiple reasons, Bryant said.
The first is because the sales tax revenue from the TIF was overestimated by the Arizona-based firm that studied what the sales tax revenue would be, Bryant said.
“That model was a little bit off on its percentage of how much of the job was going to be labor and how much was going to be (materials),” Bryant said. “When you move that a couple percentage points to the right or to the left, it has a significant impact on it.”
The result was a 50 percent shortfall in the sales tax generated versus anticipated, Bryant said. Rather than the $10.4 million in sales tax revenue — $20.8 million with state matching funds — the TIF only generated about $5.2 million.
That means that more money must be drawn from the Devon credit line, increasing costs further because of interest and other financing costs, Bryant said.
In addition, cost overruns on the project’s various packages because of unforeseen construction issues caused project administrators to dip into contingency funds, Bryant said.
Scaling down?
In light of the funding issues, Project 180 borders shrank somewhat, Bryant said, and planned project areas, such as E.K Gaylord and Myriad Gardens, have been cut.
Other locations, for different reasons, also have been nixed from the Project 180 queue, including Midtown, where a major property owner fought changes through the Board of Adjustment, Bryant and others said.
The shortfall, along with the money required to refurbish streets like Gaylord and others at the edge of the 180 area, were reasons it was left off the project list, Bryant said.
Download a JPG version of the initial Project 180 phasing plan adopted in September 2009.
Program Manager Mike Clark said designs for what Gaylord would look like were drawn up early in the planning process, but considering how wide the street is, the telecommunications lines and the high amount of traffic on the surface, officials decided to remove the project.
“I think in evaluating those things, it was thought that if we are going to leave something out, Gaylord would be a street to leave out at this time,” Clark said.
The most recent Project 180 package, the fifth of six in the series, opened for bidding on Nov. 1, while the streets affected by the sixth package are currently being drawn, Wenger said.
Wenger said he did not consider the current plans for Project 180 to be a reduction of scope, since the plans are constantly evolving.
Meanwhile, the Oklahoma City Economic Development Trust approved a measure on Oct. 25 beginning the process to find firms specializing in underwriting to pay off the loan for Devon and instead use long-term financing to pay for Project 180.
“Some deals are bigger than other deals,” said City Manager Jim Couch during the meeting. “This is kind of a big deal right here.”
Bryant said the way interest rates are right now, it might help the city shake loose some extra money for Project 180.
“We’re optimistic that if we can go out and get good rates, we may have additional funds for additional projects,” Bryant said. “We’re cautiously optimistic, but we’re hopeful.”
Both Wenger and Bryant said all of the plans, including what might get omitted, are dependent upon what revenue is actually generated. If there is extra money when the final Project 180 package is completed, some of the other future projects may get picked up.
“This is a work in progress, we’ll continue to stay on top of it,” Bryant said. “We’ve got a lot of good team members working on it, and we’ll continue to do that.”
Photo by Mark Hancock
