SAY NO TO OUTDOORS RETAIL SUBSIDIES

TIF Epidemic Infects Local Governments

Written By: Daniel McGraw
Published In: Budget & Tax News
Publication Date: March 1, 2006
Publisher: The Heartland Institute


In 2004, the city of Fort Worth approved an economic development initiative that seemed to have all the numbers on its side. A billion-dollar company would come to town, bringing more than 500 jobs and luring an estimated 2.5 million visitors to the city each year.

And the cost to the city didn't seem that much: $30 million to $40 million in total tax breaks to be parceled out over the next 20 to 30 years. The company receiving the tax breaks would be Cabela's, a hunting/fishing megastore headquartered in Nebraska and now expanding across the country.

But when the numbers are peeled back, and the real costs of giving the tax breaks to Cabela's are studied, Fort Worth's economic development initiative isn't all it appears. The economic development tool--tax increment financing, or TIF--is being used by cities big and small, and critics claim it is the latest form of corporate welfare, with hidden costs.


Overestimate Benefits

The facts are simple, according to the experts. Stores such as Cabela's are already profitable, and incentives like TIF just make them extremely profitable.

Moreover, no one believes the original estimates of the number of visitors to the Cabela's store were realistic. Cabela's no longer offers firm visitor estimates, and Fort Worth officials admit the original estimates of tourist interest were overly optimistic.

"There is always this expectation with TIFs that the economic growth is a way to create jobs and grow the economy," says Greg Le Roy, author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation. "But what is missing here is that the cost of developing private business has some public costs. Roads and sewers and schools are public costs that come from growth. But private businesses need to pay their fair share, and then maybe the tax rate for the general public would not grow, or could be reduced."


Use of TIF Explodes

Tax increment financing has been around for 50 years, but in the past 10 years it has become a development aid most cities and states use ... and many corporations expect. Here's how TIF works:

After a local government has designated a TIF district--most states say the area must be blighted--property taxes (and sometimes sales taxes) from the area are divided into two streams. The first tax stream is based on the original assessed value of the property before any redevelopment. The city, county, school district, and other taxing bodies still get that money. The second stream is the additional tax money generated after development takes place and the property values are higher. Typically that revenue is used to pay off municipal bonds that raise money for infrastructure improvements in the TIF district, for land acquisition through eminent domain, or for direct payments to a private developer for site preparation and construction.

The length of time the taxes are diverted to pay for the bonds can be anywhere from seven to 30 years.

Local governments sell the TIF concept to the public by claiming they are using funds that would not have been generated without the TIF district. If the land was valued at $10 million before TIF-associated development and is worth $50 million afterward, the argument goes, the $40 million increase in tax value can be used to retire the bonds. Local government officials also like to argue the TIF district may increase nearby economic activity, which will be taxed at full value.

Given the competition between cities eager to attract new businesses, tax increment financing is not likely to disappear anytime soon. "Has it gone overboard?" asks University of North Texas economist Terry Clower. "Sure ... but the problem is that if a city doesn't offer some tax incentives, the company will just move down the road." According to Clower, "In a utopian world, there would be no government handouts, and every business would pay the same tax rate. But if a city stands up and says they aren't doing [TIFs] anymore, they will lose out."


Business Competitors Lose

Instead, it's the competitors of TIF-favored businesses that lose. Academy Sports & Outdoors, which employs 6,500 people, has about 80 sporting goods stores in eight Southern states, including a store in Fort Worth. When the Fort Worth City Council was considering the TIF for Cabela's, Academy Sports Chairman David Gochman spoke out against the tax incentives.

"This is not a nonprofit, not a library, not a school," Gochman said. "They are a for-profit business, a competitor of ours, along with Oshman's and Wal-Mart and others."

But for now, Fort Worth has the Cabela's store, down the road from the Texas Motor Speedway, which also has its own TIF. Housing and retail are growing in the area, but they were growing before the Cabela's store came to town. A half-dozen shopping centers nearby were on the drawing board well before the Cabela's TIF was considered. Within a five-mile radius of the hunting/fishing megastore, 10,000 new homes have been built since 2000. The area is expected to grow by 20,000 people in the next two years.


Big Corporations Are Big Winners

Some of the country's largest corporations have been TIF's major beneficiaries in Fort Worth: RadioShack, Dell Computer, Pier 1, NASCAR, and Cabela's. In each case, city hall records show, the company made TIF a condition of its coming to or staying in Fort Worth.

"The plan has veered so far from its origins that it has become little more than welfare for the rich," said Fort Worth businessman Louis McBee, who has fought TIFs. "Find the blight around the Texas Motor Speedway. Find it around Cabela's. Find it in many TIFs around the country. What this is is a corporate giveaway, and the common tax-paying citizens are left paying for it."

Daniel McGraw (danielmcgraw@sbcglobal.net) is a Forth Worth-based freelance writer and author of First and Last Seasons: A Father, a Son and Sunday Afternoon Football (Random House).

For more information ...

In March 2003, the Developing Neighborhood Alternatives project, a research effort in which The Heartland Institute participated, published The Right Tool for the Job? An Analysis of Tax Increment Financing. The executive summary and two-volume report are available online at http://www.heartland.org/Article.cfm?artId=11868.

Additional information on tax increment financing is available through PolicyBot™, The Heartland Institute's free online research database. Point your Web browser to http://www.heartland.org, click on the PolicyBot™ button, and select the topic/subtopic combination Taxes/Tax Increment Finance.

How much is too much for Cabela's?

Sunday, January 07, 2007

By Rob Kirkbride

The Grand Rapids Press

WALKER -- When Cabela's decides on a new site for one of its megastores, it does so with its hand out.

Incentives are the bait used by communities to reel in the stores that draw millions of customers with a "wow factor" of mountains, waterfalls and wild-game replicas to peddle its outdoor gear.

But debate is growing -- and centered in Walker -- over whether it is wise to pony up those expensive incentives to retailers, even one with the mystique of Cabela's.

While most of its stores snagged sweet economic packages, some communities are growing more reluctant.

A growing number -- including a town in Maine last year -- simply say no to the deal-making.

That has come as the 46-year-old Nebraska chain has stepped up its construction plans for new stores, making them more common.

A Cabela's store, usually 150,000 to 185,000 square feet, is planned for a new shopping center at Int. 96 and Walker Avenue in Walker.

The company estimates the store would attract 3.5 million visitors a year, generate $3.15 million in sales tax revenues and employ 263 workers.

Last month, Cabela's informed West Michigan leaders the price tag would be $15 million in incentives. Otherwise, no store will be built, a representative of the retailer told a private meeting of Walker city officials and state lawmakers.

But that is no slam dunk. The state has a longstanding policy of reserving its funds to attract manufacturers with its good-paying jobs.

Some believe $15 million is a small price to pay.

"I'm looking at the numbers, and this is not typical retail," said incoming state Sen. Mark Jansen, R- Gaines Township. "This is much more than retail.

"This could be a very positive thing for our economy in West Michigan."

But competitors such as Gander Mountain, which has several sporting goods stores in West Michigan, cried foul. They never received a penny of assistance and still built stores here.

Gov. Jennifer Granholm supports the Michigan Economic Development Corporation's position of not providing incentives for retailers, spokeswoman Liz Boyd said.

Still, Cabela's is pulling in incentives for many of its projects as the company continues to grow rapidly.

Consider a few examples:

· The incentive package for the Hammond, Ind., store set to open in about a year totals $37.5 million;

· A store planned for Gonzales, La., includes incentives of $50 million.

Cabela's makes it clear that it counts on incentives.

"We have always said that we expect at least 30 percent of the store's costs would be funded by economic incentives," Mike Callahan, senior vice president of retail operations and marketing, said when asked during its quarterly conference call with analysts in November whether incentives have diminished.

"As we look to 2007 and 2008, that remains the case," he said.

A typical Cabela's costs about $50 million to build, some more or less depending on the size.

If Cabela's expects 30 percent incentives, that's about $15 million per store -- the amount being requested in Walker.

Despite the price to attract them, Cabela's is a savior for some small towns. The stores attract millions of customers a year, many from out of state, and spur development of hotels, restaurants and other tourist businesses.

Dennis Highby, president, CEO and director of Cabela's, said he receives proposals several times a week from communities.

Are the incentives worth it?

It depends on who you ask.

Transforming communities?

West Virginia state Sen. Andy McKenzie, whose district includes the Cabela's store and distribution center near Wheeling, W. Va., said the state's incentive package was "worth it and then some."

Cabela's has transformed the blue-collar area in West Virginia's panhandle, he said.

Unemployment is 3.4 percent, nearly two percentage points less than the rest of the state. And more than 3,000 jobs have sprouted up from a 1,200-acre field near Int. 70 that three years ago was empty.

"Here you have the third-largest city in West Virginia, and we couldn't buy a pair of underwear in our city" before Cabela's was built, McKenzie said.

The West Virginia panhandle is about 10 miles wide at Wheeling, a town of 31,000. When the shopping centers arrived, they were built on the Ohio and Pennsylvania sides of Wheeling -- not in West Virginia.

Now, shoppers from both neighboring states come to West Virginia to buy at Cabela's, McKenzie said.

Development came at a price. Incentives totaled more than $100 million. They included free land, a $35 million grant from the state's Economic Development Grant Committee, $57 million from sales-tax increment financing bonds, property tax breaks and a $13 million "Cabela's Exit" off Int. 70.

Despite the breathtaking price tag, McKenzie said it was a small price to pay.

"Our biggest problem now is that we have too many jobs for the people in the county," he said. "We have to advertise to get people to move back home."

West Virginia state Sen. Edwin Bowman said he used to drive seven hours to the Michigan Cabela's store in Dundee while on a fishing trip.

"I called my wife after I went shopping," he said. "She asked how much I spent. I was afraid to tell her that I had spent $1,800."

The Wheeling store, opened in 2004, has become an anchor tenant at a booming development on Int. 70 between Columbus, Ohio, and Pittsburgh, Bowman said.

He is on the side of incentives. "You need to understand that you may have to give something to get something," he said.

Not everyone in West Virginia is impressed.

Gov. Joe Manchin has said that if he was governor when the Cabela's deal was crafted, he would not have offered incentives.

Steve Spence, executive director of the state's Development Office, said Manchin supports business but has a "different philosophy than the previous governor (who ushered through the Cabela's package). He is not focused on using grants to attract business."

Texas says yes, Maine no

The tradeoff worked for Texas taxpayers, officials there say.

A Cabela's store was built in Buda on a 126-acre dairy farm that had paid less than $2,400 a year in property taxes. Now, about $2.9 million in taxes will be collected each year.

"In Buda, it was definitely worth it," said Warren Ketteman, executive director of the Buda Economic Development Corporation.

Cabela's received $61 million in incentives when it opened its Buda store last year. The money paid for new roads, water lines and other improvements, Ketteman said.

Still, not everyone will wave money to lure a Cabela's to town.

A few weeks ago, the Scarborough Town Council in Maine approved a $75 million retail center anchored by a Cabela's -- without any incentives. Cabela's had threatened to pull the plug unless the state agreed that its catalog sales remain tax-free for customers in Maine.

The state dug in its heels.

Maine is expected to reap $2.75 million in new sales taxes and $470,000 in income taxes annually.

"Increasingly around the country, states are wising up," said David Ewald, president of Ewald Consulting, the public relations firm for Cabela's rival Gander Mountain.

"To my knowledge, I don't think they've ever seriously announced they were coming to a location and then walked away" if they don't get the incentives, he said.

Cabela's is not alone in asking for incentives. Competitors such as Bass Pro Shops get incentives for huge sporting-goods stores.

Cabela's officials declined requests for comment, other than to send along a news article to show Gander Mountain accepts incentives as well.

However, Gander Mountain, which received a $1 million grant for a project in Roanoke, Va., turned down the money in a Dec. 26 letter to the county board there.

"We have been informed by Gander Mountain that they have a strict policy which does not allow them to accept public assistance in any form," developer Lawrence Barrett wrote.

Where Michigan stands

The Michigan Economic Development Corp., which works to expand business investment in the state, has told Cabela's "no."

MEDC spokesman Michael Shore said the agency has a "limited toolbox" and saves incentives for higher-paying, high-investment jobs, usually in manufacturing.

"We just don't do retail," he said.

The City of Walker also has said it does not have the money to support an incentive package for Cabela's but hinted there could be money through state Brownfield Tax Credits used to clean up contaminated land. The site is a former apple orchard.

Walker Planner Frank Wash said the city lacks incentives to attract a business such as Cabela's.

"Most states, other than Michigan, are fairly aggressive with their economic development tools," he said. "Even in this difficult economic climate, we don't have the tools to compete with other places across the country. "

He thinks the situation needs fixing. "This project is high profile enough that I hope the state takes a look at our economic development tools and comes up with a better solution."

Jansen said he is organizing a West Michigan legislative summit in Walker in late January to discuss ways to attract Cabela's.

His staff is inviting legislators from Kent, Ottawa, Allegan, Ionia and Muskegon counties to the meeting.

"We need to start talking regionally about what this is going to do for us," Jansen said.

The Cabela's in Dundee, south of Ann Arbor, is the only other one in the state. That project received more than

$35 million in incentives, mostly for road improvements.

But other Michigan communities have attracted tourism retailers without incentives.

Canton Township near Detroit attracted the popular Swedish furniture store IKEA last year with little assistance, said Supervisor Tom Yack.

If IKEA would have asked for assistance, "It would have been a short conversation," he said. "I wouldn't even bring that back to my board. We don't do things like that for retailers."

IKEA spent $1 million of its own money on road improvements, Yack added.

The state did spend about $6 million on improvements for road improvements at two Int. 275 interchanges. But that was needed for fast-growing township's 87,000 residents whether IKEA built or not, he said.

"Even if they would have asked, I feel comfortable in saying we would not have provided any financial incentives whatsoever," he said. "How would I explain (the use of public money to attract a retailer) to taxpayers?"

Send e-mail to the author: rkirkbride@grpress.com

Tim Steele

Posted: Wed Dec 06, 2006


...On December 1, representatives from Cabela's met with the officials at Walker City Hall to talk about what it would take to locate a store at the Orchard Park development. Cabela's is looking for an incentives package worth $15 million.

"They want $15 million," said Zach Bossenbroek of the Walker Orchard Land Partners. "This would fund the public infrastructure, roads primarily."

Those roads would access the 240-acre mixed use site where Cabela's is interested in building, but only if someone can come up with the money.

Walker is out. They have no funds.

24 Hour News 8 learned Cabela's asked the Michigan Economic Development Corporation for the money. But the MEDC told 24 Hour News 8 state law prohibits tax incentives for retailers. The reason is if you give to one retailer, you have to give to all the retailers.

The MEDC's focus is promoting manufacturing.

Should Cabela's get the break they're looking for? Or would it be bad public policy to provide this kind of break?


Tim Steele
Web Managing Editor
tim.steele@woodtv.com

Lucky13

PostPosted: Wed Dec 06, 2006 12:25 pm

Location: Grand Rapids

Regardless of what kind of business Cabela's is or how many people they're going to employ, I think it's wrong for them to expect Walker to roll out the red carpet and allow them a 15M tax incentive.

That's one of the problems with this state, we have given everyone an exception to the rule of business and now EVERYONE expects a hand out.

EQUAL RIGHTS FOR EVERY