Archive for Monday, August 22, 2011

Retail incentives on Lawrence City Commission agenda

August 22, 2011


They have been called everything from “Community Improvement Districts” to “sneaky taxes.”

Whatever you call them, they’ll be making an appearance again at City Hall on Tuesday. City commissioners at their weekly meeting are expected to have their most significant discussion yet about whether they want to offer financial incentives to attract retailers to Lawrence.

“I do have some concerns about whether we should be using these types of incentives right now,” said City Commissioner Mike Amyx. “If these are something we really don’t want to use, we should let the community know up front so we don’t create any false expectations.”

The incentive drawing the most questions from commissioners is one that creates a special taxing district called a Community Improvement District. The districts allow for up to an extra 2 percent sales tax to be charged on all goods sold in the district. The money from the extra sales tax can be used to pay for public improvements — such as roads and sidewalks — or for private improvements — such as store expansions or special marketing.

The idea of the special taxing districts was a hot-button issue during April’s City Commission election. Candidate Bob Schumm, who went on to take the top spot in the election, branded the districts a sneaky tax because he’s convinced many shoppers aren’t aware of the higher rates.

But whether city commissioners will outright ban the use of such districts in Lawrence is uncertain.

“I think we may want to take some steps to discourage providing incentives for retail development, but I would hate to issue a blanket no,” Mayor Aron Cromwell said. “I always want to have some flexibility for a project that is truly exceptional.”

But Cromwell said he does expect some changes to the city’s current policy. He said it is likely that wording will be added to require businesses that charge a special sales tax to post a sign alerting customers of the additional tax.

“I think it would be extremely unlikely for any type of CID project to go forward without a signage ordinance in place,” Cromwell said. “I think most developers understand that may be coming.”

Area retail developers likely will be watching what Lawrence does with the issue. Developers have told City Hall previously that incentives are becoming a bigger part of the equation when retailers or restaurants are deciding where to open new locations.

There are 13 Community Improvement Districts in the state, with three more in the development phase in Wichita. Kansas City, Lenexa, and Olathe each have one of the districts.

Cromwell said he doesn’t doubt that incentives are becoming more important to the national and regional retail chains that may be looking to locate in Lawrence. But he said it would be unfortunate if retail development became much like attracting a new industrial development, where incentives are often assumed to be something a community will offer.

“It might be heading in that direction, but I think it would be a dangerous direction for Lawrence,” Cromwell said. “I think as a community we just tend to really disagree with that type of philosophy.”

Lawrence does not have any Community Improvement Districts, but it does have two developments that use a different type of special taxing district called a Transportation Development District. The Bauer Farm development on the northeast corner of Sixth and Wakarusa and The Oread hotel development both charge a special sales tax to help pay for transportation-related improvements. Both charge an extra 1 percent sales tax.

Commissioners are expected to discuss their policies surrounding TDDs and also the use of the Neighborhood Revitalization Act, which provides a property tax rebate for certain types of development. The city recently offered that policy as an incentive for Lawrence-based Treanor Architects to relocate its offices into the downtown area.

Commissioners meet at 6:35 p.m. Tuesday at City Hall.


Clovis Sangrail 6 years, 10 months ago

Dear City Commissioners,

If you build it, I will not come.

And by that, I mean that I will not patronize any store in a CID.

I don't go to the ones in the TDDs, either. Much as I would like to try a SmashBurger (I hear they are artery-clogging good), as long as that TDD is in place, I will not be. (The Oread is not so much an issue, because I don't even want to go there.)

Thank you for your time and consideration.

Your pal, clovis

boxers_or_briefs 6 years, 10 months ago

Dear City Commisioners,

Just raise it for the entire city and be done with it. It'll be a win win for everyone.


Dan Blomgren 6 years, 10 months ago

I'm not sure which is worse. The fact that everyone gets to have an opinion or the fact that they get to voice it. That's a lose lose for everyone.

ljwhirled 6 years, 10 months ago

I agree. Please put it in place for the whole city. I would like to be the beneficiary.

I promise if you make me really, really rich, I will hire some people.

I want to be a Job Creator and get into that sweet 17% tax bracket.

kef104 6 years, 10 months ago

Larry, It is not just the tax, it is that it is a subsidy for developers who do not need it and would build their new buildings anyway. Really, when was the last time Mr Compton did not buy or build something? I will never eat at Smashburger, unless they move somewhere else of course. It is easy to go to the Burger Stand instead.
Again, if the elected folks think we want to pay an almost 11% sales tax to support the richest individuals in the community, they should be extra careful with the next election. Are you listening?????

William McCauley 6 years, 10 months ago

(quote)Are you listening????? (quote)

HA< that's a good one....... spit coffee all over my monitor.

flyin_squirrel 6 years, 10 months ago

Compton owns the Burger Stand building as well....

just_another_bozo_on_this_bus 6 years, 10 months ago

No, he owns the building that La Esquina is in. The Millsteins own the Casbah building.

Kookamooka 6 years, 10 months ago

Wow. I'll bet if you ask 20 people on the street if they would be interested in starting a business on Mass street without any up front costs, you would get an overwhelmingly positive response. There are tons of creative, talented locals who would love to get a shop started on Mass. Many have detailed business plans but none have the deep pockets necessary to survive the gauging rents. Cost/Benefit analysis show that unless you sell Beer or Diamonds, or have a large multinational corporation behind you to absorb losses, you will suffer in Downtown Lawrence. Sad but true.

ljwhirled 6 years, 10 months ago

I don't agree. You can make the rent downtown if you have a business that benefits from foot traffic, stays open 7 days a week and sells a product that local shoppers are interested in.

That doesn't mean a burger joint, or a pizza shop. Envy and Saffees are doing well. Weavers has been down there for a long time. Free State is doing well.

I have no idea how M&M stays open.

If downtown starts to empty out, prices will go down, rents will go down and folks will start to move back in.

Just like anywhere else, there is no room for a poorly run, under capitalized business with a product that no one wants to buy, or that is substantially cheaper online.

jafs 6 years, 10 months ago

It's not necessary.

As you state, there are other easy ways to ensure it, without a "tax" that goes to private projects.

If people won't mind spending a little more at stores, the stores can simply raise their prices a little bit.

In my view, the only reason this "tax" would work if that wouldn't work is if people are unaware that they're paying a bit more, which is obviously sneaky.

kshiker 6 years, 10 months ago

The problem is that these incentives are available in our competitor communities in Kansas. If Lawrence does not allow the use of CIDs or TDDs, then national retail and restaurant chains will simply cross us off the list. This will obviously not help with our continuing (and growing) sales tax leakage to other communities in the area.

imastinker 6 years, 10 months ago

Businesses don't pay sales tax. Consumers pay sales tax.

hipper_than_hip 6 years, 10 months ago

Which national retail and restaurant chains have been asking for CID status in Lawrence?

somedude20 6 years, 10 months ago

Heck you don't even have to been in a "special district" as the Kansas Sampler charged extra sales tax for almost a solid year before being found out that they were republicaning us in our republicans.

Boo hiss boo hiss!!

Sigmund 6 years, 10 months ago

I think the new moto for the Lawrence City Commission should either be "You've got problems, we have taxes" or "There's a tax for that!" Every dollar in additional taxes taken form consumers is less discretionary dollars consumers have to spend. For instance, if you take an additional $100,000 in additional taxes, that is a $100,000 less consumers have to spend. Additional taxes "may" benefit a single retailer, but this kind of corporate welfare has a negative impact on other businesses in the area.

chootspa 6 years, 10 months ago

I could see this to attract a business that would be fairly exclusive to the region, substantially improves the area for other businesses or property in the area, and/or is guaranteed to attract a lot of out of town customers. Something like an IKEA or a Disney theme park. Maybe an electric car dealership. In N Out Burgers. None of those places is asking to build here.

In most cases it really makes no sense to give incentives to retail businesses. They can pass their costs to customers or find a cheaper place to build.

Clovis Sangrail 6 years, 10 months ago

I would agree. Unless the retail business is unique enough that it will pull in business from out of the area, I see no justification for giving it tax breaks. A theme park, or the only IKEA monster store in the region -- those will bring in revenue dollars.

But a restaurant or lumber yard -- hardly. All a new restaurant does is pilfer revenue from existing restaurants. And since there are Lowe's in both the KC area and Topeka, I suspect that all a Lowe's in Lawrence would do would be to grab revenue from existing home improvement/hardware stores.

That's fine if that is what they want to do, but let them do it on their own dime.

davisnin 6 years, 10 months ago

Unfriendly to business? Psshh, maybe they make a show of it sometimes but they're always chomping at the bit to give a buddy a tax incentive. I remember the commission meeting on the Oread where they claimed they couldn't make a profit without all the tax breaks. And of course the commission said 'gosh you're right' based on the numbers Compton gave. My question was why would anyone build with such narrow estimated profit margins, how could anyone be so bad at running a business. Of course the fact was that it was all lies and they had to put on a show to justify the deal they'd already struck behind closed doors. The only people saying these incentives are important are the businesses profiting from them. There are so many other factors in deciding where to locate that tax incentives are only seen as a bonus. Every independent study has shown the incentives do nothing to bring a business to one town over another. Add that to the fact that we really have no competition when it comes to restaurants or retail. Does the so called 'leakage' mean they are going to build a Red Lobster in Eudora or Baldwin? No.

jafs 6 years, 10 months ago

Actually, if I remember correctly, they estimated they would make a profit without the incentives, but it wasn't large enough for them.

So we subsidized them to bring the profit up from about 5% to about 8%.

Sigmund 6 years, 10 months ago

Honestly, if a 1% increase in revenues on retail sales from CID's will make or break this deal then they need sit this one out. Or they can put on their big boy pants and raise their prices by 1% and accomplish much the same thing. That said, the City Commission needs to stop the corporate welfare to their buddies who are downtown landlords and businesses as well.

Richard Heckler 6 years, 10 months ago

Lawrence Taxpaying Voters should weed out the city hall “Free Lunch” program:

Here’s what happens. And this is a good example of where the news media hasn’t done a good job. I have tons of news clips that say, oh, this new shopping mall is coming or a new Wal-Mart or a new Cabela’s store, and thanks to tax increment financing, this store is going to be built.

Well, what is tax increment financing? I’ll tell you what it is. You go to the store with your goods, you pay for it at Wal-Mart, and there’s a very good chance that that store has made a deal with the government that the sales taxes you are required to pay, that government requires you to pay, never go to the government. Instead, those sales taxes are kept by Wal-Mart and used to pay the cost of the store. And typically in those deals, the store is tax exempt, just like a church.

Now, there are two ways that it’s important to think about this. One is, that means your kid’s schools, your police department, your library, your parks are not getting that money. And you’ll notice we keep saying we’re starved for money. We’re twice as wealthy as we were in 1980, but we’ve got to close hospitals, and we’ve got to close schools, and we don’t have money for all sorts of things like after-school programs, even though we’re twice as wealthy.

The second thing to think about is, imagine that you own Amy Goodman’s or Juan’s department store across the street. You suddenly have to compete with people whom the government is giving a huge leg up on. You think you would go broke after a while? Well, in fact, you will.

Richard Heckler 6 years, 10 months ago

"Enforcement is a joke these days, because there simply are no cops. Johnston said that, while the number of US taxpayers is growing rapidly, the number of IRS auditors is down by a third—and, not surprisingly, cheating is on the rise. The story is the same at the Department of Labor, OSHA, and other agencies tasked with keeping America 's economic and employment rules fair and equitable.

David Cay Johnston then boggled the crowd with a blunt assertion: "We pay billions of dollars in taxes that never get to the government." Much of the sales tax we pay at big box stores and shopping centers is diverted to the large companies that own the stores. It's just one of the many swindles these chains have learned to perpetrate against city and county governments. This is so effective that the Cabela family, which owns a chain of big-box sporting goods stores, receives 137% of its profits from taxpayer subsidies. If they couldn't work this scam, they wouldn't be in business at all.

The heart of the wealth transfer is tax increment financing (TIF). Store owners come to town leaders and offer to build a new store that, they promise, will "create jobs." In exchange, the city gives them the land, builds the store to their specifications, and finances it all with tax-free municipal bonds (which are usually held by associates of the store owners). To cap it all, the store keeps the sales tax generated in the store to pay off the bond holders. If the store is built on government land, it's also exempt from paying any property taxes.

Why do city governments take such a blatantly bad deal? Many of them are struggling, and believe that a new Wal-Mart will bring in shoppers from all over—shoppers who will stick around and shop in their town. It never works out that way. Under stiff competition the small shops go out of business, taking the town's tax base with them. Schools, parks, recreation programs, and libraries are starved. Almost always, these city councils would be far better served putting the money in upgrades to local Main Street businesses, rather than financing the competitor that will kill them.

Johnston also noted that as a result, the nation is losing mom-and-pop businesses that are often more efficient in real terms than the big box stores, which carry tremendous overhead in management and distribution. He suggested that audience members do an experiment: first, eat at a chain restaurant like TGIF—and then go the next night to a local family-owned place. Not only will you spend half as much in the family place—the people working there are probably making more money. That's what real efficiency looks like."

Other scams Johnston noted:

Flap Doodle 6 years, 10 months ago

Hey, you finally started giving attribution on this sack of twaddle. Inconceivable. You want to give some evidence to support his lie about Cabela's?

Sigmund 6 years, 10 months ago

oneeye_wilbur (anonymous) says… "Commissioners, go ahead and stall the project and any others. Keep the status quo. After all, you do not want to ruin your image of being progressive and visionary.

Maybe they could compromise. No CID, but the City will subsidize their fire sprinklers instead?

That is the problem with corporate welfare, deciding who gets it and who doesn't. It used to be fine when the only businesses were locally owned and didn't compete much with each other and everyone got their share of tax payer dollars. But now that we want to attract new businesses and they want their cut of the action and it just looks unseemly. The sooner we stop it all the better.

Sigmund 6 years, 10 months ago

merrill (anonymous) says… "Instead, those sales taxes are kept by Wal-Mart and used to pay the cost of the store. And typically in those deals, the store is tax exempt, just like a church."

I don't think Walmart is tax exempt like a church, or that the Walmart's in town got CID. More likely that 1% isn't included in the stores revenues (it is a tax) and so reduces their income and profit therefore not taxed as income.

merrill (anonymous) says… "Not only will you spend half as much in the family place—the people working there are probably making more money. That's what real efficiency looks like."

Really? Care to share a local example of a local business that will save you 50% on anything? If that were the case all the Walmart's, Lowe's, Home Depot's, Office Depot's, Applebee's, Five Guy's, etc would all go out of business.

jafs 6 years, 10 months ago

That's the first explanation of why they want this "tax" rather than just raising their prices a little bit I've heard that makes any sense.

They don't want to have to pay taxes on it.

If you include their taxes, they'd probably have to raise the prices a bit more than 1% to get 1% net to use.

Ah hah!

Thank you.

Carol Bowen 6 years, 10 months ago

If a developer cannot afford to build, they should not build - regardless of what other communities are doing. We have to stop using incentives sooner or later. They are a gamble we do not win very often.

The buck should stop here.

Richard Heckler 6 years, 10 months ago

I was not implying this Wal-Mart store however some must be in on the take according to David Cay Johnston. Wal-Mart is no sweetheart after all. They are tax dollar moochers like all other wealthy tax dollar moochin white collars.

David Cay Johnston ....... one of the few republicans still on the planet.

The bottom line = tax incentives are draining our pocketbooks and raising our taxes.

Flap Doodle 6 years, 10 months ago

A habit obscene and unsavory Holds David Cay Johnson in slavery With lecherous howls He devours young owls That he keeps in an underground aviary.

Sigmund 6 years, 10 months ago

merrill (anonymous) says… "I was not implying this Wal-Mart store however some must be in on the take according to David Cay Johnston."

No you were not implying, you stated it plainly and you are wrong; "Instead, those sales taxes are kept by Wal-Mart and used to pay the cost of the store. And typically in those deals, the store is tax exempt, just like a church." So if not Walmart exactly what store "is tax exempt, like a church?"

I also noticed to didn't point to a single example of a "Not only will you spend half as much in the family place—the people working there are probably making more money. That's what real efficiency looks like."

To your credit, at least you didn't use the word "profiteer."

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