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Friday, October 12, 2007

Less Store, Same Deal?

Target's developers have scaled back the size of their intended store on Hwy 287 in Lafayette, yet the economic incentives hashed out earlier when they planned a SuperTarget were left unchanged by staff. The City Council asked for some time to review this for their Tuesday October 16 meeting.

I'm sure I can get the scoop on that from the faithful commenters on this blog. I'm not opposed to economic incentives; I would say I start from a place of considering them in general and scaling them to the project as opposed to not wanting them to start with. However to think that the terms of the construction would change - which I perceive as meaning a development that would not bring in as much revenue - and yet the incentives do not scale back proportionally makes me bristle as a tax-payer. Hardball negotiations are necessary! I look forward to Council's discussions and directions to staff next Tuesday.

13 comments:

KERRY BENSMAN said...

Just got the numbers last night so I have to go through them. Typical two business day notice.

But I am shocked to hear you might not be satisfied with the posted staff report.

Just kidding. But when I got the stuff two weeks ago, I replied the staff memo does not tell the whole story. And no numbers were supplied separately, buried in the proposed contract.

It still doesn't. But this EDA is structured differently than any other. (Could that be because of me pushing to have the city protected for a change and getting a piece of the projected revenue first?)

One can argue the city should do no deal with anyone. Let that discussion begin.

(P.S. When the revenue sharing discussion was going on, I argued that if a BC city abuts another county, everything is up for graps. Note the Lifebridge folks saying Longmont or Weld County, they don't care. Isn't that an example?

KERRY BENSMAN said...

P.S.

I know what the papers said but this was on the last agenda. The city told the council that DESCO wanted it deferred to this meeting.

Whether other council members asked for more info, if so, I wasn't told and usually we all would be.

KERRY BENSMAN said...

"yet the incentives do not scale back proportionally". Why make that statement without pouring through the agreement first?

Yes, they do since there are percentage splits involved. But obviously over time there is less revenue (the cannablization affect hasn't been studied either) on a yearly basis.

Also there is no "start" date yet. And retail sales projections can vary against actuals. That's why borrowing ahead for road repaving for 10 years based on sales tax projections is tricky.

Alex Schatz said...

Okay, so let's dig into the terms of the agreement with DESCO and Target.

First, I'd like to see a copy of the estimate of the extraordinary costs estimated by the developer. Or some idea what benefits could be expected to result from the development. It's possible that the loss of groceries at Target is not such a loss to the City.

I find percentage splits in Section 2(C)(iii) of the agreement. I'm not sure what this has to do with the total value of the incentive. The rebate to DESCO and Target is the same as the old agreement, as reported in the Lafayette News and the staff report.

So the question is whether the City wants to pay the same sum to build a smaller C-1 retail center at the site.

Doktorbombay said...

Does anyone really know why Target has decided to scale this store back?

Grocery sales at this location would pull from a much wider area than just Lafayette. Meaning incremental grocery sales would go up for Lafayette. Some loss for KS/Albertsons/WalMart, but not as much as the gain from surrounding communities. This location, at the far south end of Lafayette, will pull from Broomfield, Louisville, and Superior, as well as Lafayette.

Why did Target decide to scale back? If you're going to negotiate you really ought to know the reasoning on the other side of the table. And, you should have your own opinion of why so you can play your opinion against their stated reason.

This may come as a surprise, but Target may not be telling the real reason. Lafayette's hunger for revenue shouldn't blind the town to good negotiating. What are the other options for Target? If this is the ideal location for them, Lafayette's in the driver's seat. What are the other options for this parcel? Could Lafayette find another retailer or retailers for this location that would be as good or better than Target?

If Target is scaling back, the incentive package must be scaled back, or the town is giving away money for no return.

Hasn't a track record of giving money away for no return taught Lafayette anything?

KERRY BENSMAN said...

To fully understand the agreement, one has to spreadsheet it, the first version and the second version. So Alex, you may want to visit city hall to get the details. The major difference is the ongoing percentage splits after each party gets its fixed "cut". What changes is the gross sales revenue to which the percentages are applied afterwards resulting in the sales tax splits to each party. It depends on whether that space is replaced by a retail business that does better than a canceled Target grocery store would.

(Note: this is why I push for the financial analysis from the contractual terms. There are also some what ifs that jump out from analyzing the numbers, i.e. how will this deal really work.)

There are two developments in play here as you know and the deals are different. So if DESCO delivers, the percentage splits benefit the city.

As for why did Target downsize? There could be several reasons but not having sat in the negotiating room, I don't know. But remember at that end of town there is a KS and a few miles east, two new syper WMs plus a new Safeway going in to brackett Anthem CO to the east. And they may not have wanted to hurt their store in Superior to the west. Take a map and plug in all the big box grocery chains. The population is not growing fast enough to consume all that food.

There are two EDA deals that have worked for the city, the KS one and the Vitamin Cottage one. VC was a no brainer and KS jump started everyting around Baseline and 287. The city argues the Albertsons worked but on a balance sheet it hasn't. WM is off to a slow start and is replacing its store manager. Jury is out on the ACE one which depends on how they are doing now and the impact of a Lowes store. As for the Cheese guys, don't get me started again.

D-B, one can also say wait and see who may pop up, pass on a proposal, and wait for the phone to ring. Up pops a hospital, a major office park, etc. and no retail. So how much longer do we wait and for whom?

Doktorbombay said...

Too bad Lafayette has become so enamored of sales tax revenue. The town needs to build a revenue stream that's reliable.

Take a look at Countryside Village and then imagine what the "new" retail developments will look like in 20 years. Maybe Countryside will be redeveloped by then?

Get off the incentive/sales tax merry-go-round. Find a better way to reliably fund the town.

Many Lafayette politicos poke fun at Erie's lack of sales tax revenue, but perhaps they're finding a better way? Maybe they don't want to be tied to the fickle retail business? Time will tell.

Cyclorado said...

That's right, they're tied to the fickle new home development business. I wouldn't look east for a solution.

dreamer-believer said...

It's no surprise that Target is no longer considering groceries at their stores. They don't compete in selection or price with the big boys on the block.

Doktorbombay said...

And that, dreamer, is the real reason for the downsizing of the store. Certainly not because there are too many grocers in Lafayette. If Target thought they could compete, they would, regardless of the competition.

Doktorbombay said...

Cyclo, Erie's current model of dependency on new home permits is unsustainable as well. But, without a sales tax base, they have a better chance of developing a working model than Lafayette.

It doesn't appear Erie will be forking over incentives to redevelop blighted retail centers, or incentives to retailers who abandoned those blighted areas to keep them in town, or incentives to competitors of those retailers who have previously received city incentives.

KERRY BENSMAN said...

D-B et al,

I would certainly welcome your ideas to what businesses to entice and how to do that. The successful ones have real estate divisions out there scouting for locations based on their own criteria and hurdle rates. A location must match up or it's a no go.

As for who does what to whom, it would be great to have that type of discussion with city hall. That's why I'd like to have an Economic Development Advisory Board. Even the concept of trying to understand it all is a verboten topic.

As for Erie, if a good retail sales tax base in not an important asset to cities, looks like Boulder, Longmont, Louisville, etc. have it all wrong too.

Doktorbombay said...

A good retail sales tax base is one thing. Being willing to mortgage the future of the town to attract a sales tax base is another.

There's no question a solid sales tax base is a desirable part of the total revenue picture. It just seems Lafayette is going too far with their incentives. A solid base would not require incentives. The retailers should come because the market supports them, not because of incentives.

I'd rather see all EastBoCo cities cooperating on attracting primary employers to the area. Retailers come and go, Lafayette should know this, but strong primary employers will boost the local economy for years to come. If Lafayette pushed for some good, solid primary employers instead of retail, the retail would follow - without incentives.