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Archive for Sunday, June 12, 2011

Dubious incentive

Why should the city use public tax incentives to help real estate investors recoup their losses?

June 12, 2011

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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.

Comments

Gandalf 3 years, 7 months ago

Privatized profits and socialized losses? Interesting concept. I think I have heard of it before. Shouldn't the city be treated like any other investor in the business and get a percentage?

Otherwise it's just business as usual and more pigs at the government (taxpayer) trough.

Phillbert 3 years, 7 months ago

They learned it from those other great defenders of the "free" market: Wall Street.

ferrislives 3 years, 7 months ago

"Why should the city use public tax incentives to help real estate investors recoup their losses?"

Because taxpayer money shouldn't be used once again to bail out real estate investors who made poor choices in this economy. If that's the city's belief, then why don't they bail out regular home owners with that money?

I'm all about bringing more business to the city, but how can a company ask our struggling city for what amounts to corporate welfare? This is what wrangles me about so-called conservative businesspeople. They're all for fiscal conservatism until they want their share.

cowboy 3 years, 7 months ago

Is the writer referring to the Bioscience property and Farmland ?

Richard Heckler 3 years, 7 months ago

Incentives should come entirely from property owners and/or the real estate industry. These groups are speculators aka gamblers. First Management comes to mind.

It is not the responsibility of taxpayers to guarantee any speculator,builder,developer or the real estate industry a profit on their ventures. Again First Management,Schwada and Fritzel come to mind. Now MD Management is knocking on our tax dollar wallets.

Taxpayers have been preyed upon far too long as " defacto investors" without the dividend checks showing up in our bank accounts. It is time to cease this activity. Go directly to the banks.

Purchasing property at inflated market value was a mistake that comes with the turf. I say hit up the seller for a rebate or complete refund. Not the taxpayers!

Developers,builders,property managers,Chamber of Commerce and the real estate industry have become quite expensive budget items.

Here’s what happens: http://www.democracynow.org/2008/1/18/free_lunch_how_the_wealthiest_americans

http://www.uua.org/events/generalassembly/2008/commonthreads/115777.shtml

Hey City Hall clean up and fix up the walkway in front of Pinckney School please with my tax dollars.

Richard Heckler 3 years, 7 months ago

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. ( a little like what MD management is asking for)

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."

Republican David Cay Johnston worked tax dollar issues for 20 years with the New York Times. In fact he feels most politicians are uninformed.

Flap Doodle 3 years, 7 months ago

You seem to be forgetting that attribution thing again, merrill. Plagiarism makes the planet cry. BTW, I'm still calling wild blueberry muffins on the Cabela's lie.

geekin_topekan 3 years, 7 months ago

"Although most of the public attention has been focused on the relative merits of bringing an Olive Garden to Lawrence," ++++ Umm, no. From what I can tell, most of the attention has been toward the welfare they are asking and how much the tax payer can expect to invest in OG for the privilege of eating their nasty arseed food as a return. Oh and 70 more jobs that pay less than livable wages.

Hey! Isn;t one of the stipulations for having a contract with the city is to pay livable wage? Make that a stipulation for tax welfare and I am all for it.

Scott Morgan 3 years, 7 months ago

Olive Garden pays well, and offers good benefits. Why spread rumors. The managers can expect to make over 100K.

Scott Morgan 3 years, 7 months ago

Constantly confused by doublespeak. Do you think the generic example McHippy Fish Shanty and Candle shop pays livable wages? Lawrence has far far too many of these fly by night businesses.

Firms like Red Lobster/Olive Garden have chances of promotions. They employ accountants, and all sorts of real rootin tootin jobs. They have profit sharing and understand full time severs and bartenders can make good money. I say get the kneepads out for a good Lawrence welcome. For that matter did the city make a pitch to Borders?

Folks it's 2011 not 1974, Lawrence is not booming in fact going backwards, time to compete for those tax revenues.

kernal 3 years, 7 months ago

Anyone who owns their home is a real estate investor. The city isn't giving us a tax break.

whats_going_on 3 years, 7 months ago

I hate this. Hate hate hate. Olive Garden is disgusting, and why right across the street from Paisainos? I swear, if they go out of business.........errrrrrrrrrrrrrrrrrrrrrrrrrrrr. :\

Scott Morgan 3 years, 7 months ago

Should make Paisainos better, which I have no doubt it will.

Fred Mertz 3 years, 7 months ago

My questions is, will the developer lose money if they develop the property and lease it to Olive Garden at market rates? If they just break even, isn't that better than letting the property sit vacant?

And, it is blighted so the city should make the developer do something about anyway or condemn the property.

No tax break. To give them a break is to take my money to help a private entity make a profit and it is wrong.

jafs 3 years, 7 months ago

Good questions.

The Oread hotel project would have made a profit for the developers without the tax incentives - it just wasn't a large enough profit for them.

I think there must be ways that commercial property owners can use vacant/unused property to get some sort of tax write-offs, otherwise they wouldn't let their property remain that way for years, the way many do in Lawrence.

Ron Holzwarth 3 years, 7 months ago

I have read the claim that one of Olive Garden's main profit makers is the selling of wine. That's quite clear if you've ever eaten there, the wait staff repeatedly asks you if you would like wine with your meal.

We certainly need another drinking establishment here in Lawrence to go with the enhanced DUI penalties, don't we?

Here's a give a way of Olve Garden's business model, from their official web site:

Olive Garden North American chain. Menu, wine list, and employment opportunities. www.olivegarden.com

Scott Morgan 3 years, 7 months ago

Liquor and drinks are often the profit in any restaurant.

Eileen Jones 3 years, 7 months ago

Of course the landowner is the major beneficiary. The landowner was the major winner when Wal-Mart #2 went in. (I doubt Wal-Mart won since their parking lot over there is never very full when I drive by.)

It's robbery of the taxpayers to make them subsidize the landowner or the restaurant chain. Olive Garden will do well here, and if the landowner wants his land leased, he had better make a deal OG will accept, without taxpayers subsidizing the deal.

If OG gets a tax break here I will never, ever set foot in another one. I promised I'd never shop at Wal-Mart after that fiasco and I don't do that either.

Eileen Jones 3 years, 7 months ago

Jeers also to S. Maceli and Doug Compton, for trying to get the city to give them a tax break to turn the Masonic building on Mass into a wedding venue.

I suppose they'll ask the city to bail them out again when this loony business idea fails.

If anyone else owned that building they would not have gotten away with that ugly plywood face on the Masonic building, on the most visible street in Lawrence.

pizzapete 3 years, 7 months ago

This paragraph sums it up rather well I think. "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."

somedude20 3 years, 7 months ago

I sometimes feel like that poor sap that is ordered to use a little bucket to bailout the water of the sinking ship. It is hard work to bailout so much water and I don't much like that the owner of the ship is going to reap all of the rewards of my effort. At some point it is easier just to stop bailing the water and go down with the boat (ain't no taxes that a dead man pays)

victor_lustig 3 years, 7 months ago

Is anyone else baffled? Compare this editorial to last months “Benefit balance” written May 2, 2011.

pizzapete 3 years, 7 months ago

How did you get the Journal's search function to work? I can never find old stories online when I want to re-read them.

Scott Morgan 3 years, 7 months ago

You folks never learned a thing from watching the Walmart distribution center give Ottawa a few minutes South of here such a boost. So many good jobs were just simply far@@ed away.

tomatogrower 3 years, 7 months ago

These guys bought the land for more than it's worth now. They can have the property assessed and lower the tax bill to what it is really worth. Are they going to lose money on their deal? Yes. But anyone who invests knows there are risks. Sorry guys, I don't feel sorry for them. They probably have made plenty of other investments that paid off, this one won't. So suck it up like a good little capitalist.

BigPrune 3 years, 7 months ago

does this mean Olive Garden will not have a triple net lease, paying common area maintenance, property taxes, and hazard insurance - in addition to their rent, like most modern businesses do?

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