After negotiations, ISU seeking CyTown tax deal with Ames

AMES — Following years of planning, fundraising challenges, negotiations, discord, and compromise, Iowa State University is seeking Board of Regents approval to enter into a “creative” agreement with the City of Ames to help finance a new $200 million CyTown development and maintain four ISU buildings central to its arts and entertainment core.

The Ames City Council last month unanimously approved a “Payment In Lieu of Taxes” — or “PILOT” — agreement with Iowa State for CyTown after studying the issue and negotiating through their concerns, according to council documents.

“ISU began exploring the feasibility of a multiuse arts, culture, and community district in 2019, with the intent to develop the underutilized parking lots between Jack Trice Stadium and the Iowa State Center” — a cultural and athletic complex that includes Stephens Auditorium, Fisher Theater, Hilton Coliseum, and the Scheman Building, according to May city council documents. “This exploration resulted in the development concept called CyTown, which is planned to contain a medical facility, retail and office space, an outdoor plaza and amphitheater, and residential units.”

Former ISU President James Hilton in the 1960s conceived of the Iowa State Center — spending $19.2 million to build all four core buildings between 1969 and 1975. Construction was paid for with donations and without the help of state funds.

And while the complex attracted national acts, respect, and prestige, over the years it has faced growing competition from private industry — luring away prospective conferences and performances — alongside mounting facility and maintenance demands.

“Like similar convention and visitor complexes throughout the country, the Iowa State Center requires annual subsidies from the university to cover the operating costs,” according to city documents, citing a 2019 announcement that Iowa State was transferring management of the Iowa State Center to its self-sustaining athletics department. “ISU officials have explained that before the transfer of the oversight of Iowa State Center to the ISU Athletics Department, the annual subsidy had grown to approximately $800,000.”

Aggravating the stress of the subsidy were growing maintenance issues.

“More problematic is the need for over $110 million in renovations among the four main buildings,” according to the city council report. “ISU officials have indicated that these renovations include $37 million in deferred maintenance and over $72 million for upgrades to meet current building code standards.”

Depreciation of the center would be detrimental to both Iowa State and the larger community. But, according to the council, “Despite their best efforts to fundraise for these needed improvements, ISU has found that there is not sufficient interest on the part of private donors to contribute funding of this magnitude toward these types of projects.”

So Iowa State explored the CyTown concept — proposed to cover 40 acres of ISU-owned land with 135,000 square feet of developed property.

“Although one objective of the CyTown development would be the creation of this new, vibrant community attraction, there is a more important goal for this development,” according to city council documents. “CyTown provides an innovative strategy to finance the needed improvements for the original four buildings at the Iowa State Center.”

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PILOT

Through CyTown tenant leases, Iowa State will create a revenue stream “that can be used to pay the debt needed to fund improvements at the Iowa State Center, thereby rejuvenating those original facilities and safeguarding an invaluable arts and cultural center for the Ames community.”

But Iowa State needed the city’s help to make it happen — including through a PILOT agreement that would capitalize on Iowa State’s status as a public entity and thus tax-exempt property. That agreement — approved by the city and going before the Board of Regents this week — is the result of extensive discussions and compromise.

Initial disagreement arose over whether Iowa State is, in fact, exempt from paying property taxes for CyTown improvements and whether the university can compete with the private sector.

“The university staff focuses on a section of the Iowa Code that declares property owned by the state to be exempt from local property taxes,” according to city documents. “On the other hand, city staff relies on a different section of the Iowa Code that imposes restrictions on the university’s ability to compete with the private sector.”

Prioritizing the city’s long-standing cooperative relationship with Iowa State, administrators from both camps compromised with the PILOT agreement “related to the city’s portion of the amount that would be normally collected from a private development.”

“A protracted dispute with respect to the issues of taxability and competition would be detrimental to the parties’ relationship and could delay or altogether thwart the renovation and improvement of the Iowa State Center facilities,” according to the city’s summary of an agreement that “sets aside any differences of opinion that may exist about the issues of competition and taxation.”

Here’s how the deal would work, according to Board of Regents documents:

According to the final agreement, the amount of PILOT revenue eligible to be remitted to the city will start at 25 percent in years 20 to 24 and increase to 50 percent in years 25 to 29 and then 75 percent in year 30 and after.

“The city may, at its option, waive its right to collect any or all … PILOT revenues it is eligible to receive from ISU in any given year if the city chooses to further fund improvements in the CyTown Development Area,” according to the agreement.

Caveats

The city, in casting its approval, gave several caveats — including that the issue of taxability, in the end, will be determined by the city assessor and the Iowa Department of Revenue, “not by this agreement.”

“In addition, although the city would set aside its concerns regarding competition with private enterprises, these agreements do not prevent other entities from raising the same concern,” according to city documents. “Further, this unique arrangement applies only to the CyTown development. It does not imply the city’s approval or cooperation with any future land developments ISU might undertake at other locations.”

The city stressed this agreement does “not grant an exemption to the university from paying property taxes.”

“The university's exemption from paying property taxes is outlined in state law, and interpreted independently by the city assessor and ultimately, the Iowa Department of Revenue,” according to the city. “If the Iowa Department of Revenue determined in the future that some portion of CyTown is taxable, then the agreement indicates that taxes would be collected and the PILOT arrangement becomes void for that portion of CyTown.”

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Additionally, businesses located in CyTown won’t be exempt from sales tax “simply by being located on university property.” And any hotel located on ISU property would have to collect hotel-motel tax — like is true for the hotel on the University of Iowa’s campus in its Iowa Memorial Union.

Given Iowa State early last year sought board approval for a $12 million renovation of its Scheman Building — before the CyTown deal — that project will be covered with athletics funds, given its management of the Iowa State Center.

McFarland lease

As Iowa State works to fill out tenants for CyTown, it also this week will seek board approval for a 30-year ground lease with McFarland Clinic, P.C. for about 30,000 square feet along Jack Trice Way, on the south end of the CyTown Development Area.

Per that agreement, McFarland will build a 70,000- to 80,000-square-foot multilevel medical facility and then transfer ownership to the university, which will then lease it back to McFarland. Per the deal, McFarland would pay a $3 million security deposit before beginning construction.

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Its annual rent would start at $50,000 and increase by $5,000 a year through the end of the 30-year term. The clinic then would have the option of four consecutive five-year extensions.

The clinic would offer primary and specialty care — as well as urgent care.

“Primarily, the clinic would provide ISU’s student-athletes convenient access to orthopedic services and imaging equipment, as well as complement the ISU Thielen Student Health Center,” according to board documents.

McFarland has more than 280 providers and 1,000 staff members serving residents in 20 Iowa communities — tallying more than 1 million patient visits annually. It has providers in 16 Ames locations, including primary and specialty-care clinics.

Its Duff Avenue clinic, a couple miles from the main ISU campus, offers an array of specialty and primary-care services — including from University of Iowa Health Care providers.

“The University of Iowa Health Care location in Ames provides orthopedic care for children and adolescents,” according to the UI summary of its Ames services “within McFarland Clinic.”

Per McFarland’s agreement with Iowa State for CyTown, it will pay “the real estate taxes or the equivalent for the land and building, which shall be calculated by the taxable value and the levy/tax rates in the City of Ames.”

Taxes will be further addressed in the lease, according to the agreement.

Vanessa Miller covers higher education for The Gazette.

Comments: (319) 339-3158; vanessa.miller@thegazette.com