Pay-to-Play Big Time Retail
Taxpayer dollars have become an almost essential ingredient in the not-so-free market of retail development — and the bigger the retailer, the more the public money.
Cabella’s, with $4 billion in revenues during fiscal 2016, hit up Huntsville for $3 million in land acquisitions to site one of the “World’s Foremost Outfitter” units in the Rocket City.
Two years ago in June, the sporting goods retailer Cabela’s announced that it would open an 80,000-square-foot store in Huntsville. The company announced it would be an anchor at the city’s new Parkside Town Centre, just off Interstate 565 and near Cummings Research Park. Attitude LLC would develop the $80 million, 300,000-square-foot mixed-use property, which would be the site of Cabela’s first retail facility in Alabama.
One of the largest specialty outdoor sporting goods retailers in the United States, Cabela’s was just the kind of big retail Huntsville was hunting. Through its 75 store locations, catalog and website, the company, which dubs itself as the “World’s Foremost Outfitter,” took close to $4 billion in revenues during fiscal 2016 that ended Jan. 2.
[Update: On Oct. 4, Bass Pro Shops announced it is buying Cabela's for $5.5 billion.]
To lure the Cabela's, the Huntsville City Council approved a deal to offer infrastructure incentives, including a promise to buy about $3 million in surrounding land from Attitude to build a public access road and a buffer between the shopping center and another neighboring property. The city would also put in other infrastructure enhancements for public use.
“What we’ve always focused on as an incentive is not a cash incentive,” says Shane Davis, Huntsville’s director of urban development, “but to make sure the public infrastructure is there, providing the utilities that run to the site — water, sewer, gas and electric — and making sure the roadway infrastructure can accommodate traffic and turn lanes. The type of public infrastructure that the city is really already charged to do.”
Davis says the shopping center today is a regional draw and that the city will watch closely to ensure it recoups its investment through property and sales taxes in the years to come.
Across Alabama, municipalities, large and small, are competing to bring national stores and chain restaurants like PetSmart, Cracker Barrel, Wal-Mart and Cabela’s to their communities. To stand out, many cities and towns are offering retailers and developers hefty incentives, from tax breaks to promises to build the surrounding infrastructure for their properties. While some critics charge that municipalities have not been as generous to smaller businesses, supporters say awarding incentives helps to attract major national retailers, which boosts sales tax revenues and meets residents’ demands for close access to major, national stores and restaurants.
- The Hoover City Council voted in 2014 in favor of an agreement to give Patton Creek Investments LLC up to $4.5 million in tax rebates to bring a Field & Stream outdoor sports store to the Patton Creek Shopping Center.
- Also in 2014, in a 3-2 vote, Decatur’s City Council entered an agreement with Bass Pro Outdoor World LLC and Genesis USA Development LLC for the Sweetwater Project. The project would have included a 100,000-square-foot Bass Pro Shops store. The deal faltered later that year when the developer failed to take possession of the 3,500-acre property. Bass Pro Outdoor shops, however, are currently located in Spanish Fort, Leeds and Prattville.
- Chelsea’s City Council recently voted to pay $200,000 for the purpose of economic development to the developer Quality Restaurant Concepts LLC, to construct infrastructure on the property where Quality was building an Applebee’s Neighborhood Grill and Bar on U.S. 280.
- In 2013, the Alabaster City Council agreed to give $1.94 million in sales tax breaks to Delaware-based developer Highway 11/31 II LLC to bring a Dick’s Sporting Goods store to the city.
Alabaster gave $1.94 million in sales tax breaks to bring a Dick’s Sporting Goods store to the city.
The city leaders in Gardendale are playing the game, too. Gardendale, with a population of about 13,000, is located 15 miles north of Birmingham. Mayor Stan Hogeland says that when it comes to drawing in retailers, Gardendale has some major advantages. Interstate 65 runs along the city’s western edge. In addition, Fieldstown Road, the city’s main drag, is the epicenter of much of Gardendale’s economic growth.
But Gardendale has its challenges, too. The biggest challenge, says Hogeland, is its proximity to Birmingham and other nearby cities that are also competing for retailers. To attract the right retailers, says Hogeland, his city’s leaders decide on what to offer developers on a case-by-case basis.
“Every deal is different,” says Hogeland “and we will do more for some than we will others. For example, you take a major chain restaurant. Everyone in our town talks about Olive Garden. We will work a little harder to get Olive Garden than maybe a smaller, lesser known restaurant. Ideally, we like to do it with a 50 percent tax abatement for a period of five to 10 years, but like I said, they’re all different.
“For the right development,” says Hogeland, “we’ll assist with infrastructure or those types of things, but the good thing about the abatement is that we don’t have to come out of our city coffers with any cash.”
When it comes to offering incentives to secure major retailers, cities have some options.
They can, for example, offer a developer sales tax rebates on the sales tax collected for a specified period of time.
Improvement district financing is another option. An improvement district is a legal entity that can issue bonds to raise revenues to pay for the public infrastructure a retailer might need, such as landscaping, utility lines, roads and sidewalks. In Alabama, the revenue to repay the bonds can come from an annual assessment of the property or from a levy on a business’ retail sales. Improvement district financing, for example, helped pay for the Eastern Shore Centre in Spanish Fort, which attracted big-box stores such as Dillard’s, Belk and Barnes & Noble.
In addition, a state statute passed in 2004, Amendment 772, says a county and municipal government can “lend its credit to or grant public funds and things of value in aid of or to any individual, firm, corporation or other business entity, public or private, for the purpose of promoting the economic and industrial development of the county or the municipality.” Therefore, a city can pay the cost to improve a property, such as paving a parking lot or providing security lighting, to help fund a project.
The city of Madison and the Madison County Commission each approved an effort to form a 700-acre tax improvement district called the Town Madison Cooperative District. The District will support a developer, Louis Breland, who plans to build a project to include about 100 acres of retail space. Under the District, monies borrowed for the development will be repaid through ad valorem and sales tax revenues.
But incentives have come under much scrutiny in recent years. In 2013, a report titled “Megadeals” published by Good Jobs First, a Washington, D.C.,-based resource center on economic development accountability, identified 240 deals where state and local governments awarded what Good Jobs calls “subsidies” to industrial companies, as well as to retailers like Cabela’s and Sears.
Good Jobs First argues that states and municipalities have awarded more and more economic development subsidy packages to corporations that reach as high as nine or 10 figures even though they may result in very little new-job creation.
“These subsidy awards are getting out of control,” said Philip Mattera, research director of Good Jobs First and principal author of the report. “Huge packages that used to be reserved for ‘trophy’ projects creating large numbers of jobs are now being given away more routinely.”
In another report, “Wal-Mart Subsidy Watch,” Good Jobs identified at least 10 separate deals worth a total of $49.8 million to bring Wal-Mart stores to Birmingham, Brundidge, Cullman, Gardendale, Leeds, Opelika, Pell City and Mobile.
In Mobile, earlier this year, a majority on the City Council voted to make the owners of the Shoppes at Bel Air eligible to receive $7.5 million in tax breaks for the next 15 years. The vote came while the mall’s owner, Rouse Properties, headquartered in New York City, was in the midst of a $25 million renovation of the mall. At the time, however, two critics of the deal, Mobile City Council Members Bess Rich and C.J. Small, argued that it was unfair since other stores and business owners did not get such tax breaks. Rich, Small and Mayor Sandy Stimpson declined comment for this story.
University of Alabama at Birmingham Business Professor Robert Robicheaux, Ph.D., says, however, that not offering incentives to recruit retail comes with its own costs.
“If I’m a community trying to attract a retailer,” says Robicheaux, “the less I have to give up, the better off I am, but there comes a point where if you don’t participate, if you don’t put something in the game, if you don’t make an investment, you’re very likely going to lose that opportunity to another community that’s a lot more willing to invest in their future.”
Even with financial incentives, attracting retailers is a complex game. Companies like Birmingham-based Retail Strategies helps cities recruit big-box stores and restaurants. The company’s CEO, Robert Jolly, and his team are currently working with 132 active clients across 25 states, he says. Past clients have included Tuscaloosa, Jasper and Mountain Brook. The company played a role in the development of the new 9,845-square-foot Gardendale Square Shopping Center that will house Aspen Dental and a Pet Supermarket.
Jolly says that in analyzing where to place a store, developers consider subjective data to determine the true demand for a particular service or product in a city, such as residents’ disposable income, where they shop, what they drive, what they read and even their favorite mobile phone apps. Such factors can help determine whether a city can support a discount retailer like Target or a lower-cost variety store such as Dollar General, he says.
Besides generating the research data, he says Retail Strategies also vets and analyzes requests for incentives on behalf of the cities to ensure the requests are in the best interest of the parties involved.
“Our philosophy on incentives,” says Jolly, “as it relates to working for our partner cities is the message that every city should deliver to the marketplace is, ‘We’re open for business. Bring us the opportunity, and we will vet it and analyze it, and help you in any way that makes sense,’ as opposed to, ‘We’ll provide this incentive.’”
“We’re not big believers in publishing parameters of what a city will or won’t do other than we’re open for business,” says Jolly. “We’ll be a good partner to make it easy for you to develop here.”
Gail Allyn Short is a freelance writer for Business Alabama. She is based in Birmingham.