Lexington library raises questions over incentive for new Distillery District hotel

Lexington Public Library officials told the city council Tuesday that it needed more time to work out a deal with developers of a proposed Distillery District hotel before the council approves a $39 million bond for the project.

Larry Smith, president of the Lexington Public Library board of directors, told the Lexington-Fayette Urban County Council during a Tuesday work session that the developers — New Circle Investments — met with the library on Monday to discuss the $39 million industrial revenue bond pending before the council. Smith said the library still needed to work out a deal with the developers to get payments instead of property taxes.

“We have not had sufficient time to review this proposal,” Smith said.

Under the proposal, the city would issue the bond to finance the 125-room, six-story hotel on Manchester Street near the Oliver Lewis Way Bridge. As part of that agreement, the title to the property would go to the city, and the property would be leased back to New Circle Investments for 40 years. That means the city would not get any property taxes from the project. Other government entities, including the Lexington Public Library, the Fayette County Public School system and Lextran, also would not receive property taxes from the project during those 40 years.

The developers talked to the Fayette County Public School system and worked out a payment in lieu of taxes. According to documents provided to the council, payments to the school system would total $5 million over the 40 years.

The developer did not know until May 4, when the city’s Economic Development Investment Board met and approved the $39 million in bonds, that it also needed to work out similar deals with Lextran and the Lexington Public Library, said Bill Lear, a lawyer for New Circle Investments. As soon as it was able to, New Circle Investment met with officials with those two entities, Lear said.

This is the first time in decades the city has used Industrial revenue bonds for a private project, which has created some confusion, Lear said.

The city is not on the hook to repay the bonds if the project does not materialize, nor does the $39 million affect the city’s bond rating, Lear said. The hotel, which will include a restaurant, an event space, a rooftop bar and other amenities, will continue to pay other taxes, including occupational taxes, the main source of revenue for the city, Lear and city officials have said.

Library officials asked the council to delay action on the revenue bonds until after the library board meets on June 9 to see if it can work out a deal over the project.

The council ultimately decided to put the approval of the $39 million on its agenda for first reading on June 10, giving the developers and the library and Lextran time to ink final deals.

Nik Feldman, a partner in New Circle Investments, said the developers and Lextran believe they can reach an agreement.

If the library and other entities cannot work out deals with the developers by that time, the council could delay a final vote. That final vote is scheduled for June 24.

Vice Mayor Steve Kay was the only council member to vote against putting the incentive on the council agenda for first reading on June 10. Kay wanted to give the library more time.

“I think it puts the other entities at a disadvantage,” Kay said.

Feldman has said once the bonds are approved, construction on the new hotel will start immediately.