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Tax Incentives at Aquia Towne Center: Are they the right move?

June 28, 2017

WARNING: This post is a bit dense.  I tried to streamline it as best as possible but it is a complicated topic.

 

With all of the confusion swirling this last week regarding TIF's and tax incentives, it seemed like a good subject to investigate.   I have been doing a little research to help elucidate exactly what our Board of Supervisors is contemplating.  If you don't know what in the world I am talking about and would like to, please read the BTW write-up regarding the proposed 18.25 million dollar tax incentive the BoS is considering giving to Mosaic, the owners of the Aquia Towne Center, to develop the property.   This is a $12 million increase to the $6.25 million already promised to Mosaic back in 2015. At the time, the BoS approved the deal in closed session without it ever having appeared on the agenda or having had any public discourse on it (or honestly any awareness of it). 

 

It is important to note that at the BoS meeting on June 20th, the county lawyer Rysheda McClendon clarified that the ATC deal is not a TIF.  It is a "donation" that will be given to Mosaic through the Economic Development Authority (EDA).  This is perfectly legal under Virginia and county code.  The deal was referred to as a TIF in the FLS article released last Sunday but our board did none of the things required to establish a TIF. It is rather complicated but Tax Increment Financing is a way for cities, towns and other localities to syphon tax revenue towards stimulating new development in blighted areas.  It is particularly appealing because it does not require a tax increase on residents. The system involves funneling new tax revenues from a blighted redevelopment area or "TIF zone" into a TIF Fund.  Money from the TIF fund doesn't go back to the locality for schools or roads. It is money that elected officials can use at their discretion for development in the TIF zone.  How this fund can be used varies from state to state but they typically can be used to pay "financing and interest subsidies for the loans a developer takes out to pay for a project."  If you are dying to know more about TIF's, (how can you be?) click that link which will take you to the Cook County Clerk's page in Chicago.  They do a lot of these projects there and their explanation of how the basic system works is very good. 

 

However, the ATC plan isn't a TIF  because our BoS did none of the things required to start one:  they did not establish a boundary or TIF zone, create a plan, present it to the pubic and approve it. No TIF fund will be created, this is simply a donation.  The county is using the tax increment model from a traditional TIF to predict what revenues and annual incremental payouts to the developer could be.

 

An actual TIF and the "gifting" deal created by the county ultimately serve the same function: to subsidize development.  In the ATC deal,  Stafford County will receive 20% of new tax revenues as property values increase. The remaining 80% of the new tax revenue from the project will go back to Mosaic until the 18.25 million is reached, which could take up to 30 years.  It is important to remember that the amount Stafford would actually end up spending is projected to be between 30 and 40 million dollars.  That is the true cost to the taxpayer. 

 

Politicians love to establish TIF's because they supposedly pay for themselves and a similar argument is being made here.  The assumption is that by providing these incentives, the new development will increase property values, which will increase revenue at no further cost to the tax payers,  a win-win scenario.  I am sure this is what Mr. Milde meant when he said the deal is a "no-lose proposition" to the Free Lance Star.  

 

One of the key considerations for utilizing a TIF that I keep running into is called the "but for" test.  This test involves determining,   "that but for the TIF, no development would have occurred in the TIF district and property values would have remained unchanged" (according to the subsidy watchdog group GoodJobsFirst.org.) This is extremely important because if economic development would have occurred in the area anyway, not only is there no reason for a subsidy but it is impossible to tell if the subsidy is really the cause of the improved property values. We must be absolutely certain that no development would occur without this subsidy.  From the Elected Officials Guide to Tax Increment Financing , "Local government leaders should not view the but for test as a hurdle to overcome. Rather, it should be treated as an important safeguard for protecting local resources." SO many words...how about a palate cleanser?

 

 

We can all agree that ATC has been vacant for a long time, which might fit the "but for" test.  However, it seems as though the entire project has been mismanaged.  While Mosaic has owned the property since 2015, Ramco owned the property for over a decade prior. They are the ones who ended the leases of all of the businesses like the coffee shop and the paintball place, then tore down the buildings. Mosaic then doubled down and tore down the movie theater, which is moving to a new site on Garrisonville.  According to an Aquia Town Hall meeting on the subject on March 22, 2016, Eron Sodie from Mosaic stated, "We gave various options to our anchor tenant (HT)...(they said) we want to be here, at the back of the site and that's where the movie theater is...There isn't a scenario where we can keep the movie theater."  Mosaic tore down the movie theater before they had actually inked any deal with HT.  Now only the sad, lonely Rite-Aid remains (the office building remains in the hands of previous developer Ramco.)  

(Image taken from the FLS article,photo by Peter Cihelka)

 

But what about Rite-Aid?  Why is it still standing?  And why has it been such a challenge to get anything in the ATC to begin with?  BTW went the source and asked Mosaic execs, Isaac Pretter and Eron Sodie.  To read the full post detailing our conversation, click HERE.  They explained that one of the major hurdles in getting a grocery store into ATC is the fact that Rite-Aid has a long lease with low rent and exclusive pharmacy rights.  This makes it tough to bring in a grocer that also has a pharmacy inside, like Harris-Teeter.  A deal was finally struck but then in April Kroger, the parent company of Harris-Teeter, ceased all plans for expansion on the east coast.  Mosaic was able to get H-T back to the table but to strike a new deal, they needed more money.  The end result was the recent request to the BoS for $12 million more in tax incentives.  

 

So, what happens if the BoS doesn't approve the 12 million extra dollars?  Well, there are really only two viable options: either it sits as it is or it gets sold.   My feeling when I talked to Mosaic was that they aren't interested in continuing to bang their heads against this particular brick wall.  Could Mosaic sell ATC with it's peculiar issues?  Maybe...developers routinely purchase empty land to build on but this land is even better than open space because it already has water, sewer and electricity: it is ready to be built on.  In fact, Mosaic got a very sweet deal on the property, they only paid 6.1 million dollars for the entire 25 acres, as this document from the Commissioner of Revenue shows. There is a possibility that another developer could purchase the property with no intention of bringing a grocery store with a pharmacy to ATC.  

 

Mosaic told me they have tried everything they can to get the project going.  But I keep coming back to the "but for" test.   According to an article in the Free Lance Star just yesterday, "Nearly 209,000 residents are expected to live there (in Stafford) by 2040, which would make Stafford the state’s 12th largest locality, according to state-funded data released this week by U.Va.’s Weldon Cooper Center for Public Service." If these projections are correct, that site will definitely not sit empty for long.  It just doesn't seem feasible that the project couldn't get off the ground "but for" the tax incentives. Maybe not with Mosaic or Harris Teeter.  There is a potential that if the BoS had not arranged for this incentive in 2015, which was approved before Mosaic bought the property, another developer would have come along and scooped up the property without promised tax incentives but for county interference.  

 

Let's also remember, Mosaic is attempting to increase this tax incentive to secure a Harris-Teeter grocery store.  According to our conversation, this extra $12 million is going straight to Harris-Teeter.   The store will essentially be getting a tax break that other retailers in the area will not.  Other retailers who will be competing with H-T for the same customer base, like Giant, Shoppers, and Weis.  Mr Cavalier made the comment at the BoS meeting that new growth coming to the county will help offset any "leakage" and even referenced the newly approved Winding Creek development.  But new growth also costs the county money because we have to provide infrastructure for these new families..... which we could partially get from the revenue generated at a new ATC but-for the "donation" to Mosaic / Harris-Teeter.   Tax incentives for businesses can be offset by new growth, which requires tax revenue to support, which requires new businesses who want tax incentives that can be offset by new growth....seems like a circular argument to me.

Keep in mind, the most ideal projections state that this project will generate 72 million over 30 years, with at least 30 million of that money going back to Mosaic.  Some would say that $40 million in revenues over 30 years is better than remaining stagnant.  Current revenue projections as ATC stands now over 30 years is $4 million.   But Stafford is growing by leaps and bounds, should we be giving tax incentives to anyone? Maybe, if the BoS had stayed out of this issue to start with,  ATC would have thriving businesses already without tax incentives...but we will never know. And what happens when other developers and businesses come to the area, will they too, want tax incentives?  This deal could set a terrible precedent that could hamstring Stafford for years to come.

 

Questions to ask yourself as you decide whether to support this deal:

1) Does it pass the "but for" test?

2) Does it matter that the initial deal in 2015 was done behind closed doors without the public's knowledge? Do the ends justify the means?

3) Could other area grocery stores suffer or close due too the increased competition? Wal-Mart is about to open a new neighborhood market on Garrisonville that has a free personal shopper service with drive-thru pickup.   Also, new programs like Amazon Fresh allow you to order your groceries and have them delivered right to your door. If we bring Harris-Teeter and the market can't bear it, are we just moving the potential for blight to another area?  

4) Should we bring development to ATC regardless of any of the stated concerns and let the chips fall where they may?

 

I do have one other unrelated thought: I am President of the RTMS PTO board and I can't make any determinations about what gifts the PTO will give to the school in the future.  Every new board has the ability to choose what gifts they do or do not give, a prior board can't put a noose around the necks of future boards.   And that is just a PTO....I wonder if this Board of Supervisors is different than my board.  Can they make decisions about "gifts" to be given for the next 30 years of boards? ( According to reader Cindy Lee this is not permitted, her comment: "Under Virginia law the Board of Supervisors can't legally make financial commitments that extend to future Boards of Supervisors without referendum."  Thanks for the info, Cindy!)

 

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