The Ames City Council is considering a draft Memo of Understanding (MOU) between Ames and Iowa State University, which describes the financial aspects of the proposed CyTown development, a collection of retail, residential, office, and medical facilities planned for an area in the parking space between ISU’s Hilton Coliseum and  Jack Trice football stadium.

ISU’s athletic department has said one purpose of the CyTown project is to create revenues that will be used to renovate and bring the Iowa State Center up to current codes, at an estimated total cost of $110 million.

My primary concern is whether the proposed arrangements will actually generate funds in the amount needed for renovating Iowa State Center’s four structures.  The answer in short is no.

More: Ames, CYTown partnering to fund future renovations of four Iowa State Center buildings

Because the MOU does not adequately protect the city’s interest in preserving Iowa State Center as a viable statewide attraction, I recommend City Council either continue negotiations with ISU or allow the primary issue of contention to be referred to the relevant legal authorities.

That primary issue is whether CyTown would be unfairly competing against private for-profit businesses in Ames.  The MOU proposes an agreement that avoids a definitive ruling on that issue. Ames does not formally challenge the building of CyTown, and ISU will collect what the MOU calls Payment in Lieu of Tax (PILOT) and use that revenue stream to pay for Iowa State Center revitalization.

PILOT is a new concept to many people, but not to city managers.  PILOT is paid by some universities and medical centers to their communities to compensate for the fact that while the nonprofit organizations rely on their communities for infrastructure and services, they are not legally subject to property taxes which other community members pay. PILOT is always paid to the local taxing authorities, not to the developer. In this case, the taxing authorities are primarily Ames, the local school districts, and Story County.

What is unusual here is that the PILOT is not going to the governments. Over the 35-year period of the MOU, over 97% will be kept by the developer, ISU’s Athletic Department.

The MOU specifies that the “PILOT” ISU collects from its CyTown tenants will be allocated into two separate funds.  The Capital Improvement Fund (CIF), which is directed to renovating Iowa State Center will receive only a portion  of the “PILOT” that under reasonable assumptions is unlikely to exceed 25% of the annual total they collect. The remainder goes into a second fund, called the Operating fund, which is to be spent on operating expenses for CyTown, maintenance and development of CyTown, construction costs and debt service of CyTown and CyTown developer rebates. In the unlikely event that there is a balance left in the Operating Fund, it will be transferred to the Capital Improvement Fund, that is, the one used to pay for renovating Iowa State Center.

Given total estimated development costs for CyTown of $150 million and current property tax rates, accumulating “PILOT” in the CIF fund sufficient to pay $110 million for Iowa State Center renovations might happen in 100 years.

If ISU wants to make Iowa State Center renovation a priority, leaders could agree to amend the MOU to allocate all PILOT funds to the CIF and to prohibit PILOT from being spent on any CyTown costs until the Iowa State Center renovations and updates are fully funded.

Sue Ravenscroft lives in Ames.

This article originally appeared on Des Moines Register: Ames should amend CyTown plans, not let the Iowa State Center wither