Somerset Council mulls potential tax incentive for business development

Mar. 26—Monday's Somerset City Council meeting was primarily a discussion of a type of bond that can be used to incentivize industrial developers — and how it could apply to a new project headed by local businessman Matt Ford.

Jim Parsons, an attorney with Keating, Muething and Klekamp PLL, answered questions about Industrial Revenue Bonds (IRBs) which help to fund projects and, in return, allow for governments to offer incentives.

In this case, councilors for the City of Somerset are mulling over whether they would want to be the issuer for these bonds. In return, the developer would be exempt from real estate taxes but would submit a specific payment to the city that would be equal to what the property's 2023 tax payment would be, plus 50% of the property's increased value.

Or, as Somerset Mayor Alan Keck explained, if the current value of the property was $1 million, then the city would normally receive a property tax payment of $1,300.

"That's what we're going to get, regardless of what happens," Keck said. "But if he (Ford) builds the $100 million project, and we get a 50% in lieu of taxes, the total amount would be $130,000 divided by two — $65,000. So the city's actually getting 65 grand-ish instead of $1,300, not to mention the dozens or hundreds of jobs that are going to be created in the construction of this development and hired once it's there."

Likewise, the developer would, in the long run, pay the city less than he would if he were to pay the property tax bill on that improved land.

The deal would last as long as the bonds existed, Parsons said. The current belief is that it would be a 30-year bond. Therefore, the tax break would continue through that full 30 years.

Plus, as both Parsons and Keck said several times during the meeting, the city itself would hold no liability for the bonds.

The city would not be the lender — another lending agency would do that — and therefore the bond would not show up as debt that the city had to pay back.

"If there is a default, it's a default of the project and the developer, not the city," Parsons said.

The city would also not hold any liability should the project become bankrupt of be sold to another company, he said.

The incentive would only cover property taxes. It does not affect any other taxes connected to the development, including occupational taxes, Parson said.

The developer would have to make payments to the lender, and according to Keck, the city would get its money by billing the developer, similar to how they would send out a bill for property tax collection.

Parsons also said that the only bond-owner would be the developers themselves.

In the Citizen's Comments portion of the meeting, Pulaski resident Bob McAlpin asked for clarification of that point, asking whether the bonds would be bought by public investors.

"I thought the only person that could actually lose would be the person who bought the bonds," McAlpin said.

Parsons said that was true, but, "In reality, these bonds are not going to be sold via an underwriter, so there's not going to be an opportunity to buy the bonds," meaning there would be no public involvement.

The bond-purchaser would be the development entity itself, Parsons said.

Parsons said that due to state law, only a governmental entity can issue the bonds — so, the City of Somerset or Pulaski County Government.

In answering a question from Councilor Jim Mitchell, who wanted to know wether the Somerset-Pulaski Economic Development Authority (SPEDA) could issue the bonds, Parsons said they couldn't because they were in no position to tell a company they didn't have to pay property taxes.

Parsons also assured Councilor John Ricky Minton that the developer would still have to follow all Somerset zoning laws and regulations when Minton asked whether the city would have "no say" in what the developer built.

The development is planned to go around the intersection of Ky. 914 and East Mount Vernon Street.

Keck presented a resolution to the council concerning whether the council would vote to become the bond issuer in this case, but said he wanted to give councilors time to look over it and to ask questions before a potential vote.

Carla Slavey can be reached at