The use of public incentives to attract retail businesses and restaurants is a tricky business, as once again illustrated by the pending request for a property tax break for a project that would bring an Olive Garden restaurant to the corner of 27th and Iowa streets.
The owners of that property want to receive a property tax rebate under the Neighborhood Revitalization Act. The rebate would represent the difference in the property taxes being collected on the property now and what would normally be collected on the higher value of the improved property. The owners could use the tax rebates to offset their development costs.
Although most of the public attention has been focused on the relative merits of bringing an Olive Garden to Lawrence, the primary beneficiary of the request is not Olive Garden but the owners of the property. The owners say Olive Garden won’t be offered a lease rate that’s lower than the local market rate. So, even if Olive Garden will provide added competition for local restaurants, it would do so on a relatively equal footing.
Who really gains from this proposal are the property owners. In a letter to the city, the ownership group acknowledges that it bought the property at “the height of the real estate market.” Because of the price they paid for the property, the owners would have to charge any tenant a lease rate higher than the current market rate in order to break even on their investment. However, because it would be difficult to lease the property at the higher rate, the owners want to use the property tax break to make up the difference.
The Neighborhood Revitalization Act was intended to provide incentives for projects that either provide a unique benefit to the city or redevelop a particularly blighted property. Olive Garden is hardly a unique development, and although the property in question has been vacant for some time, it is a good commercial location.
The primary impetus for this request appears to be to allow some local real estate investors to break even on a piece of property that now isn’t worth what they paid for it. That’s a pretty dubious justification for a public tax incentive. Virtually every business and homeowner in Lawrence has seen the value of his or her property decline in the last few years. Who’s going to bail them out? The owners of the 27th and Iowa property surely aren’t the only people who made a bad business decision and paid too much for a piece of land. Why should the city, county and school district forfeit precious tax revenue to help them recoup their investment?
If Olive Garden thinks Lawrence provides a favorable market for one of its restaurants, there’s a pretty good chance it will come here with or without the property tax break the city is being asked to consider. Unless the owners of the 27th and Iowa property can come up with some reason that having an Olive Garden at that particular location is so important to the city that it justifies a public financial incentive, city commissioners should reject their request.