These days on Massachusetts Street bad news doesn’t just come to businesses in the form of customers with less money to spend. It also comes in the mail.

Several dozen businesses along the downtown’s primary retail corridor recently received notices from the county appraiser’s office that their property values have increased by 40 percent or more.

Now business owners are trying to figure out how they’ll manage to pay the higher property taxes during an economy that already has been tough on retailers.

“You can’t pass increases like this through to your customers,” said Joe Flannery, president of Weaver’s department store, which had its property value increased by nearly 41 percent by county officials. “In this environment you can’t do that and still remain competitive.”

Rising sale prices

Flannery is not alone in dealing with the prospect of rising taxes and stagnant retail sales. The entire downtown area saw its property values increase on average by about 15 percent, according to data from the county appraiser’s office. That’s about three times higher than the increase in value other commercial areas of the city experienced in 2002.

For some downtown property owners, though, 15 percent would seem like a bargain. At the request of the Journal-World, the county appraiser’s office compiled a list of the 15 properties on Massachusetts Street, from Sixth Street to 11th Street, that experienced the largest percentage increase in value.

Fifteenth on the list was the Brown’s Shoe Fit building at 829 Mass. with an increase of 38 percent. Topping the list was the former Connex telecommunications building at 945-947 Mass. with an increase of 121 percent.

Sharon Dominik, the lead commercial appraiser for the county appraiser’s office, said reasons for the increases were relatively simple. The amount of money people were willing to pay to buy property in downtown Lawrence increased significantly in 2002.

Seven properties sold in downtown in 2002, and in total, they sold for 33 percent more than the average value the county had previously placed on them.

“That was one of the big factors that we looked at,” Dominik said. “Being that far off line on that many sales meant we needed to take a good strong look at the area again.”

Several downtown businesses have been hit by increasing property tax valuations. Round Corner Pharmacy, 801 Mass., was notified of a 33 percent increase in its property valuation by county officials.

The Connex building, for example, saw its value rapidly increase because it is for sale. Dominik said the appraiser’s office set its value based on the published asking price for the property.

High demand

Commercial real estate agent Kelvin Heck confirmed downtown properties sold for high dollars in 2002.

“People have perceived downtown Lawrence as a really good place to put their dollars,” said Heck, who is the listing agent for the Connex building. “The city has spent a lot of money to improve downtown and to protect it, so people feel like it is a relatively safe place to put their money.

“Plus, there are a lot of people looking for investments other than the stock market right now. That helped drive prices up. There’s really more demand than there is product right now.”

Still, the increases do concern Heck.

“We have to be careful to not get carried away about what the values really are,” Heck said. “We have to hope the market stays affordable for small businesses. It continues the trend in downtown of making it tougher for traditional retailers to do business.”

Heck said he doesn’t expect the trend of rapidly rising sale prices to continue this year.

“I don’t think the property values are in line for what the properties will generate in rent in today’s economy,” Heck said. “I think this year, we’re going to see some things sell for less than what the appraiser has them listed.”

Biting the bullet

None of that helps retailers right now.

Maria Martin, co-director of Downtown Lawrence Inc., said retail sales in the downtown area haven’t slumped as much as in some locations, but the year is far from a stellar one.

“Across the board, people are just holding their own, and trying to hang in there with this economy,” Martin said.

Now they’ll be forced to come up with ways to pay a higher tax bill. In some cases, the dollars add up quickly. For example, at Teller’s, which had the third highest increase at nearly 88 percent, the property tax bill would increase by an estimated $10,000 a year. And that’s assuming city and county officials don’t raise the property tax mill levy, which may be a bad assumption since both governments are battling their own budget problems. XXX

The increases are expected to affect businesses that own and rent their buildings. That’s because Heck said many downtown leases are structured in a way that require the renter to pay for an increase in property taxes.

Business owners said they’ll employ a variety of strategies to try to come up with the extra cash they’ll need to pay the tax bill. Angela Conrad, owner of the antique store My Father’s Daughter, said when she has a good month she’ll be sure to put more of the profits away in savings to pay for the looming tax bill.

“But I still don’t understand why the property taxes are going up so much,” said Conrad, who rents in a building that saw an increase of 83 percent. “I’m frustrated. Lots of mom-and-pop shops are frustrated.”

Trish Jess, director of operations for The Third Planet, described the strategy as a “you’ve got to do what you’ve got to do” approach.

“You have to cut advertising, you have to cut donations, and sometimes staff is unfortunately a place you have to cut,” said Jess, who is in the same building as My Father’s Daughter. “We haven’t had to lay anyone off, but we have cut people’s hours.”

Martin, though, said most mom-and-pop businesses don’t have much staff to cut. Instead, she said owners usually end up making some tough personal decisions.

“You know that you are going to have to bite the bullet,” Martin said. “You, as an owner, take home less, if you take home anything at all. Your profit, your personal gain, is less, but when you go into business you know these things are going to happen from time to time.”

Or sometimes the choices are even tougher. Tom Wilcox, owner of Round Corner Drug, said he’s not thinking about selling or closing his business, but he’s not sure others aren’t.

“People say you can just sell the building and be fine,” Wilcox said. “I could do that, but then I would have to give up my livelihood.

“I haven’t changed my view on the future of downtown yet. I still think it is a good investment, but it is getting more difficult to do business in downtown. We want to protect the downtown, but then we turn around and tax the heck out of people who have made an investment in downtown.

“They’ll be putting people out of business. I don’t know which ones, but I’m sure there will be some that will go because of this.”

Other business operators tried to at least find a bit of a silver lining in the situation.

“It is a Catch-22 because we’re fortunate that we have such a vibrant downtown,” said Flannery. “We wouldn’t see these increases if our downtown was typical of a lot of other downtowns in the Midwest.”