Sharing the money pot
The skinny on the Lafayette/Erie revenue-sharing agreement
I guess we’re looking at part three of a series that began with me thinking I should update you (especially new readers) on the potential development at the corner of 287 and Arapahoe, the Lafayette Marketplace. Once more welcome to Karen’s brain, enter at your own risk. Oh, something shiny!
Check out these posts if you need to get caught up.
Part one Deep Diving at 287 and Arapahoe!
Part two Lafayette and Erie come to an agreement, gasp!
We ended part two with one more section of the Global Settlement Agreement between Lafayette and Erie to cover, the revenue sharing.
I had this piece mostly written but some holes needed to be filled to give us the complete picture. I sent a list of questions and document requests to City Manager Kady Doelling. To ensure accuracy she ran the answers by City Attorney Mary Lynn Macsalka before sending them to me on Friday Jan 10. Her answers gave me monetary details about the agreement which I will share but also changed my view of the framing for Nine Mile Corner.
KING SOOPERS AND LOWE’S
Maybe it’s a minor tweak but I’ve been repeating what I’ve heard from the city, that we will only get sales taxes from King Soopers until 2038, and then we will get them from the entire Nine Mile Corner. It’s more accurate to say we won’t get sales taxes from Lowe’s until the mid to late 2030s. There are other smaller businesses at Nine Mile Corner and if they collect sales taxes we will get our 50% share. It might not be big bucks but still. It’s Lowe’s that plays a different role here.
I thought, wrongly as it turns out, that there must be a document that specifically names King Soopers and revenue sharing because that’s what we kept hearing about. Something like, Erie agrees to share the sales taxes from King Soopers with Lafayette as soon as it opens, with a lot of legal jargon like “whereas” and “now therefore”. I also thought there must be a city document that shows 2038 as the year we get the additional sales taxes. Nope, wrong again.
I’ll weave my questions and City Manager Doelling’s answers into this piece.
Karen: I know it’s supposed to be 2038 before we start getting money from the other businesses beyond King Soopers. I heard that in a workshop presentation to council. That must be in writing, can I get that document?
City Manager Doelling: The only business that will have a time gap before Lafayette gets revenue is Lowe’s. Their performance on that site will determine when we receive revenues (aka pay off the incentive) but it is not anticipated until mid to late 2030s. What you are recalling is a presentation given by former CFO Billingsley on April 19, 2022 that estimated 2038.
That is exactly where I got the year 2038 and I later watched the workshop again before I started using it.
I have the dollar amounts for the incentives but let’s get details nailed down first.
ANCHOR TENANTS AND INCENTIVES
Karen: Where is the agreement that we will get money from King Soopers right away? Document again please.”
As you can see from this answer the Intergovernmental Agreement (IGA) also known as the Global Settlement Agreement, calls out the first and second anchor tenants, Lowe’s is the first, and King Soopers is the second.
TOEURA is the Town of Erie Urban Renewal Authority and was involved in developing Nine Mile Corner. Erie’s council serves as TOEURA.
City Manager Doelling: In the Global Settlement Agreement, Section IV.B. states: “In accordance with this cooperation, and unless Erie and Lafayette mutually agree on an alternative approach, Erie and TOEURA agree that they will not provide any form of incentive for a second anchor tenant on the Erie Development Parcel until a first anchor tenant is irrevocably committed to locating on the Lafayette Development Parcel, and Lafayette agrees that it will not provide any form of incentive for a second anchor tenant on the Lafayette Development Parcel until a first anchor tenant is irrevocably committed to locating on the Erie Development Parcel.”
Karen: Does the “get money right away” apply to other businesses that open after the IGA was signed or is it just KS?
City Manager Doelling: Yes, it applies to any other business. See section II.C.1-2.
OBLIGATORY INCLUSION OF SECTION II.C.1-2
SAVE UNTIL YOU NEED TO FALL ASLEEP IMMEDIATELY
“C. TAX REVENUE SHARING.
1. For the purposes of this Agreement, the following four parcels of real property, as depicted on Exhibit D, shall be known as the "Erie Development Parcel": Parcel 2 (owned by TOEURA), which includes the Nine Mile Property; plus the parcel to the north of the Parcel 2 and to the east of Highway 287 owned by Erie (and the former site of the Prince Reservoir); plus the two parcels directly to the east and owned by TOEURA. For the purposes of this Agreement, "Erie Tax Revenue" shall include all revenue generated by Erie's sales, use, lodging, admissions, amusement, excise and any other sales or activity based taxes for activities occurring on the Erie Development Parcel.
2. In the event that the Erie Development Parcel is developed for uses that generate Erie Tax Revenue, Erie and TOEURA, to the extent that TOEURA receives any portion of such Erie Tax Revenue as tax increment or otherwise, agree that they will share such Erie Tax Revenue with Lafayette on a 50%-50% basis with Lafayette receiving 50% of the net, unrestricted Erie Tax Revenue. Except for incentive payments that reduce the net amount of Erie Tax Revenue that is subject to sharing, as provided in Subsection 5 hereof, the amount of Erie Tax Revenue to which Lafayette is entitled to receive under this Agreement shall not be affected by, or otherwise reduced by reason of TOEURA's entitlement to sales tax increment pursuant to the Colorado Urban Renewal Law, or the relevant Urban Renewal Plan. The Erie Tax Revenue sharing shall continue in perpetuity, subject to annual appropriation, commencing on the date on which the first certificate of occupancy is issued by Erie for an Erie Tax Revenue generating business on the Erie Development Parcel. The Parties anticipate that the provisions regarding Erie Tax Revenue sharing for the Erie Development Parcel will be further detailed and memorialized in one or more separate agreements, to be negotiated at the time of development of the Erie Development Parcel.”
GOT THAT?
Is it just me or is it hard to glean what’s going on from this? I hope you are smarter than me.
HERE’S THE DEAL
OK, Erie gave incentives to get Nine Mile Corner in motion, and that money has to come from somewhere. Bonds were issued. The IGA says Lafayette and Erie/TOEURA will split the sales tax revenue 50%. But we also agreed to split the cost of the incentives by forgoing sales taxes collected by the first anchor tenant, Lowe’s until they are paid off. It’s estimated the incentives will be paid by the mid to late 2030s.
ECONOMIC INCENTIVE AGREEMENTS
Remember I wrote about deals incentives companies can ask for before locating in a municipality and how they can play neighboring communities against each other? Here you go. The IGA says if Erie or Lafayette plan to enter into an incentive agreement with a business they must consult with the other party first.
These incentives often take the form of the municipality allowing the business to keep sales taxes to cover upfront expenses. For instance, if a business says the price of land is too high by x amount, the city might allow them to keep the sales taxes until x amount is covered. That way the city is not giving them a bundle of cash, but is still foregoing that income spread over time. Other incentives such as waiving or lowering development fees don’t involve sales taxes but still give up income in anticipation of what will be gained.
50/50 SHARING FOR PAST AND FUTURE INCENTIVES
The agreement states that incentives will be shared 50/50 between the two parties including past incentives given by Erie.
Here’s what it says.
“Such expenses of the Parties may include not only future expenses, but expenses that have already been paid in anticipation of development of the Erie Development Parcel, such as the extension of infrastructure to the Erie Development Parcel.”
“Any Erie Incentive Expenses for which Lafayette is responsible pursuant to this subsection shall be deducted from Lafayette's share of the Erie Tax Revenue that are to be shared under this Agreement, until such time as Lafayette's obligation for the Erie Incentive Expenses is satisfied.”
For the Tebo property, it says:
“Such expenses may include not only future expenses, but expenses that have already been paid by Erie or Lafayette in anticipation of development of the Lafayette Development Parcel, such as extension of infrastructure to the property, or expenses associated with acquisition of mineral extraction rights on the property and the current oil and gas well on the Property.”
“Any Lafayette Incentive Expenses for which Erie is responsible pursuant to this subsection shall be deducted from Erie's share of the Lafayette Tax Revenue that is to be shared under this Agreement, until such time as Erie's obligation for the Lafayette Incentive Expenses is satisfied.”
THE INCENTIVES - ARE YOU DYING TO KNOW?
This was another question I asked City Manager Doelling. It seemed like an important part of all this.
Karen: How much did Erie pay in incentives to get Nine Mile going? I know they will withhold sales taxes until that is paid, but it doesn’t say what that amount is. I am thinking there should be something in writing. What is the full cost and what is our share? Half I know. Can I have that document?
City Manager Doelling: The Town of Erie Urban Renewal Authority (TOEURA) provided an upfront incentive of $12.8M to the Lowe’s / Nine Mile developer Evergreen. Bonds were issued by the Nine Mile Metro District to reimburse the developer for fronting the costs of the improvements. TOEURA pledged its sales and property tax increment revenues to the metro district, which the metro district is using (along with the metro district's mill levy) to help pay off the bonds. That is the arrangement through the 6th Amendment to the Evergreen EDA (attached).
In addition, TOEURA gave land to the developer, which was counted as an incentive, and paid for the ditch relocation and other expenses for a total of $3.752M in additional incentives on top of the $12.8M TIF reimbursement deal.
Here’s the Evergreen Economic Development Agreement (EDA)
THE INCENTIVES DESCRIBED IN THE IGA
Here are the incentive expenses Erie incurred for the development of Nine Mile. The bolding is mine.
a. Contribution of real property necessary for the development of the Erie Development Parcel, which expense shall be valued at the fair value of such property at the time of contribution, net of any payments, credits, or reimbursements received or to be received by the contributing Party in consideration for such contribution; and
b. Expenses incurred to extend infrastructure to the Erie Development Parcel necessary for development of the Erie Development Parcel, net of any payments, credits, or reimbursements received or to be received by the Party towards or in consideration of such expenses; and
c. Expenses incurred for site development of the former Prince Lake parcel (depicted on Exhibit A as " Parcel 1"), net of any payments, credits, or reimbursements received or to be received by the Party towards or in consideration for such expenses; and
d. Expenses incurred to relocate the irrigation ditch located on the Erie Development Parcel and owned by the South Boulder Canyon Ditch Company, net of any payments, credits, or reimbursements received or to be received by the Party The towards or in consideration for such expenses.
MORE PIECES OF THE PUZZLE
Some additional information about sales taxes and more details from the IGA.
THE KING SOOPERS LAMENT
Everyone who shopped at the Lafayette King Soopers will tell you their reasons for going there. They range from I can walk there, I like their cinnamon raisin bread (Ok that was me but they stopped making it so who needs them now?) to It’s right next to the library, I’ve been shopping there since the day it opened (that’s me again) and it’s a convenient stop on my way home from work. I’m sure you have more to add. Plus it was really Lafayette’s only grocery store. (The King Soopers on S Boulder Rd. is in Louisville) Yes, we have Walmart, Sprouts, and Natural Grocers but you know what I mean. A big complaint I hear is how difficult it is to get to the new store and to leave. So let’s get this sentiment out of the way first, it stinks that they moved. Now, let’s dig in on how that impacts Lafayette.
GOOD OLD SALES TAXES
Think about the businesses within Lafayette’s borders where you shop for goods. I’m talking physical goods not services like dentists, car washes, tattoos, or hairstyling but things you pay money for and someone hands you something in a bag (I mean puts it in the bag you brought with you!) or a glass or on a plate. You are paying sales taxes to Lafayette on all those purchases and those taxes are the top source that pays for all things needed to run the city. I wrote a lot about money this year because it’s kinda important to understand how it all fits together.
This pie chart City Manager Doelling gave me last year illustrates it quite well. There’s more to it (isn’t there always?) but in the simplest terms, sales taxes make Lafayette’s world go round. And all the other cities and towns worlds too.
ONLINE PURCHASES
Lafayette sales taxes are collected on online purchases so those goodies you buy from Amazon or any business that sells over $100,000 a year in merchandise are part of our sales tax haul.
WHAT WE LOST WHEN KING SOOPERS MOVED - THE MONEY ANGLE
Now think about other large sales tax producing stores in Lafayette and after you think of Walmart, King Soopers was the next one down in size. We lost our second-largest contributor. What will we get from the new store? Will it be more, less, or the same? You and I won’t know because that is proprietary information.
But there’s more to think about. Lafayette has four voter-approved sales taxes generally called dedicated taxes. The Parks, Open Space, and Trails (POST) tax helps to support, you guessed it, parks, open space, and trails, the Legacy Tax is dedicated to open space purchases and maintenance, the Mental Health and Human Services tax helps support local non-profits (we gave $650,000 to 18 non-profits in 2024) and the Public Safety tax helps to support police and fire services. When King Soopers moved to Erie those dedicated Lafayette sales taxes did not move with them.
REVENUE SHARING BETWEEN LAFAYETTE AND ERIE
Back to the Global Settlement Agreement and sales taxes collected at Nine Mile Corner and potential future sales taxes from the Tebo property. The basis of the revenue sharing is set up in the IGA.
FOR HOW LONG AND WHEN?
It says the Erie and Lafayette revenue sharing shall continue in perpetuity, subject to annual appropriation, commencing on the date on which the first certificate of occupancy (COO) is issued by Erie for an Erie Tax Revenue generating business at Nine Mile Corner and the same for Lafayette on the Tebo property. Once that COO is issued a separate revenue-sharing agreement will be written.
In April 2022, Lafayette signed the revenue-sharing agreement with Erie for Nine Mile Corner.
WHAT IS COVERED?
The IGA covers all tax revenue generated by retail sales, use, lodging, admissions, amusement, excise, and any other sales or activity-based taxes on both properties.
WHAT IS THE TAX RATE?
The sales tax rate for Erie and Lafayette when the agreement was signed was 3.5%. However, remember I just told you about Lafayette’s dedicated sales taxes? .5% of that rate is for the POST and Legacy taxes for parks and open space. If Tebo is developed with retail businesses those taxes will be collected by Lafayette but are not shareable with Erie. The agreement equalizes the tax to be shared to 3.0% for each community.
If either community raises its tax rate the 3% will not change.
Voter approval of the Mental Health and Human Services .10% tax and the Public Safety .27% tax happened in 2021 (after the IGA was signed) increasing Lafayette’s tax rate to 3.87% on January 1, 2022. Again they will be collected if the Tebo property is developed but not shared with Erie.
If Erie lowers its tax rate below 3% the revenue sharing will reflect that. (Never heard of this happening. Who would reduce the amount of taxes collected?)
WHAT IS THE SPLIT?
50/50
BENEFITS
I’ll let the agreement speak for itself.
“Erie and Lafayette agree there are numerous benefits associated with sharing equally the revenue and costs associated with incentivizing development on the Lafayette Development Parcel and the Erie Development Parcel, including without limitation: (i) more effectively achieving the highest and best development potential for the area, which will maximize the private property values and public tax revenue generated by the area; (ii) a more diversified portfolio of tax generating properties that is less subject to economic variability that could otherwise affect the Parties individually; (iii) equalizing all Parties' position with prospective tenants and thus reducing the need to offer incentives to achieve the same public benefits associated with location of those businesses in the area; (iv) more effectively planning the area to optimize success of · retail sites and fostering higher functioning transit oriented development ("TOD"); and (v) identifying other actions that mutually benefit the Parties in a way that would be impossible without collaboration. The Parties also recognize that several "anchor" tenants have been negotiating with the owners/developers of both the Lafayette Development Parcel and the Erie Development Parcel.”
COMMITMENT TO COOPERATE
The agreement states:
“In light of these benefits, and in light of the tax revenue sharing set forth in Sections II and III above, the Parties agree that they will cooperate with each other to foster development of both the Lafayette Development Parcel and the Erie Development Parcel in a complementary pattern to achieve optimal economic and societal benefits for both Lafayette and Erie. Accordingly, all Parties recognize that neither the Lafayette Development Parcel, nor the Erie Development Parcel, should be developed in a time-frame that is detrimental to development of the other parcel. All Parties recognize the importance of attracting good quality anchor tenants to the commercial development of both parcels, and pledge to work cooperatively to attract relatively equally anchor tenants to both the Lafayette Development Parcel and the Erie Development Parcel. In accordance with this cooperation, and unless Erie and Lafayette mutually agree on an alternative approach, Erie and TOEURA agree that they will not provide any form of incentive for a second anchor tenant on the Erie Development Parcel until a first anchor tenant is irrevocably committed to locating on the Lafayette Development Parcel, and Lafayette agrees that it will not provide any form of incentive for a second anchor tenant on the Lafayette Development Parcel until a first anchor tenant is irrevocably committed to locating on the Erie Development Parcel.”
A HISTORIC MEETING BETWEEN THE LAFAYETTE CITY COUNCIL AND THE ERIE BOARD OF TRUSTEES
A quick clarification, recently Erie became a home rule city, which Lafayette has been since the 1950s. Its ruling body is now called the Erie Town Council, if you see me switching back and forth between board of trustees and council that depends on whether I am writing about current or past events.
In September 2022, following the signing of the global agreement and the separate revenue-sharing agreement for Nine Mile Corner, the Erie Board of Trustees had a joint meeting with the Lafayette City Council in the Lafayette council chambers. It was the first joint meeting I was aware of and watched closely. There has not been one since.
THE TEBO AND REVENUE-SHARING DISCUSSION
The first item on the agenda
Discussion points:
Nine Mile Corner & Tebo Parcel
“Global Settlement IGA” (2019)
Revenue Sharing Agreement (2022) – Erie Development Parcel
Nine Mile Corner – Evergreen Devco
Tebo Land Swap for Erie Water Tank
Status of Tebo Parcel in Lafayette
Erie presented a chart showing the projected revenue for each community through 2040. Erie’s share was projected as $36,114,53, Lafayette’s $29,000,395.
I think I have come to the end of the long and winding road that started with the reappearance of the Kensington development, moved on to some history of the area, the relationship between Lafayette and Erie, and ended with the Global Settlement Agreement.
I hope you feel more informed. And now I must eat some chocolate.
Want to offer more support? Awesome!
Karen, Thanks yet again. However, you made one comment I want to discuss a bit. You said, "If Erie lowers its tax rate below 3% the revenue sharing will reflect that. (Never heard of this happening. Who would reduce the amount of taxes collected?)". Actually, the correlation between tax rate and tax revenue is not as strong as you imply.
The classic examples are:
- Years ago, Philadelphia wanted to address childhood obesity so they imposed a tax rate on sugary drinks (they just by happenstance included diet drinks to make tax calculation more simple -- yeah, right). Unsurprisingly, the sales of those drinks in Philadelphia dropped steeply (as did taxes associated with those, and other grocery, sales -- tax rate up, revenue down). The interesting thing is that the sales of those targeted, evil sugary drinks (and other groceries) jumped in adjacent municipalities that did not tax them. People are not (in the words of Dr. Thomas Sowell) inert chess pieces. They make decisions and take actions for themselves.
- The federal income tax rates have jumped all over the place from the 91% marginal tax rate that AOC likes to banter about in the 1950's to the much lower tax rates of the Reagan years. Strangely, the federal-income-tax-generated revenue has remained stable at around 17% of GDP independent of the tax rates. Again, people are not inert chess pieces. If Louisville were to lower it's sales tax rate to 2%, how many people would make the slightly longer trip to the Louisville KS to save on their weekly grocery shopping -- particularly now when a weeks groceries can cost $200 or more. Heck Mary and I often spend almost that, and there's just the two of us.
Thanks Karen.