The public’s unanswered questions on Crestpointe
The League of Women Voters forum on the Crestpointe proposal ended before some (most, actually) of the audience-submitted questions could be addressed.
The LWV provided a list of the unasked questions, with the idea that the groups could provide and publicize our answers. It turns out that all of the unaddressed questions were directed primarily at the FOR (pro-Crestpointe) group, so the COR (”vote NO”) group cannot offer much in the way of answers… The public is being asked to provide $10.5 million without having some of the most basic information that should be provided on the project and its finances.
Here are the 22 unaddressed questions, with partial answers where I can provide them and additional answers and details furnished by site visitors:
1. What type of commitment, if any, has Target made to locate a store in Oak Ridge?
A – None that has been revealed.
Cracker says: The city has negotiated with GBT that Target will be a landowner in the project with a committed opening date before the city is committed to be financially involved. Target will be fully committed publicly and financially before we are obligated to participate.
2. In Decatur, Alabama, GBT’s shopping center development did not require 60 acres, nor did it include a SuperTarget, but did include Target. Please explain this situational difference.
3. Who will provide all of the sales projected for Crestpointe? What evidence supports this answer?
A (provided by Cracker) – The retailers project their sales. They know where their sales come from in various competitive environments and have coupon returns and credit card data to accurately project sales. For us citizens, the indication that they will make a profit by matching their products to our buying needs is when they sign a lease to place a store in our community. Stores like Target with a great history of accurate and profitable store openings is a great predictor for the success of CrestPointe.
Comment by Ellen: I agree that Target has a good track record and that Target would not locate here without an expectation of success. I am less confident that the other (as yet unnamed) stores in the proposed development have the same track record, or that they can be expected to remain for the long term.
Furthermore, if taxpayers are going to realize the benefits projected from this center, it is not sufficient for the stores to give their owners the investment return they expect. The city’s tax revenue projections depend on specific assumptions regarding sales; before plunking down $10.5 million in public money, the city ought to have some solid evidence that its assumptions are correct. We don’t have that evidence.The independent analysis done for Waconia, Minnesota (see this blog post) estimated that the SuperTarget there would generate $225 per square foot in sales in the year 2010; meanwhile, Oak Ridge’s revenue projections assume $350 of sales per square foot (for that same year), based on average sales per square foot in the company’s stores.
One conclusion I reach from that: The fact that Target is willing to open a store here does not necessarily mean that they expect the store’s sales to equal Target’s national or regional averages.
A second conclusion: Target sales possibly could be lower than the city’s estimates by more than 40%. I’m not saying that they would be that low — I am saying that we don’t have the information we need to make a realistic estimate.
4. Why does the City of Oak Ridge maintain reserve funds? If they become depleted, how will they be replenished?
A (by Ellen): See #6.
A (offered by Cracker on May 22, added on May 29): The city maintains reserve funds for unexpected events……
Comment by Ellen: The city does maintain reserves, essentially as “rainy day” funds to cover unexpected public expenses. Indeed, we need to maintain a healthy balance in our reserves in order to keep a favorable bond rating. If the city chooses to spend its reserves to assist a private business, on the expectation that over time taxes from that business will provide taxes that offset the expense, the rainy day fund will not be available when we need it. In fact, earlier this year, Council discussed a concern that the city’s reserves are being depleted, and a committee recommended borrowing $3 million to replenish the reserves.
5. What is estimated sales tax, property tax, other revenue –After 5 years? –After 10 years?
A (by Ellen, added May 24): The City has published multiple analyses of this topic, using different assumptions regarding cost of money, new sales tax generated by the new shopping center, future property tax rates, and other factors. None of the analyses account for costs of municipal services to the shopping center.
The analysis that the City currently favors is particularly disturbing because it assumes that when the City borrows money from itself (even to give to a developer), it only needs to pay back the principal. The analysis significantly overstates “return” from the project by treating revenues that replace lost interest income as if they were totally new money.Also see #6 and this earlier blog post on the cost of $10.5 million.
6. Does the City have the $8 million in excess funds? If not, how (and at what cost) will it replace them?
A (by Ellen, added May 24; last paragraph edited on May 29 to clarify confusing wording): At the LWV forum on Crestpointe, Mr. Jenkins had made a statement suggesting that the $8 million was not needed for any city purposes, and therefore was available to be used for the Crestpointe project. During the “Appearance of citizens†session at the very end of Monday’s City Council meeting, where the FY 2008 budget was approved, I asked where this $8 million could be found in the FY 2008 city budget or multi-year model, because I had been unable to find it anywhere.
In subsequent discussion with Mr. Jenkins, I ascertained that the $8 million is in fact the “nest egg†(my terminology, not his) established (ADDED for clarification on May 30: in the City’s debt service fund) as part of the financing plan for the high-school rebuild project. As I now think I understand it, instead of continuing to invest this money in financial instruments, the City proposes to use it for the Crestpointe project, confident in the expectation that future property taxes from the shopping center will replenish the principal amount and that future sales taxes from the shopping center will replace the interest that the money would otherwise earn, all in time to make payments on the bonds for the school project. There does not seem to be any “Plan B” to replenish this “nest egg” if Crestpointe does not yield tax revenues at the level that the City analysis assumes. No matter how optimistic you might be regarding Crestpointe, I think you will agree that it is not the kind of low-risk investment vehicle in which we expected that the school project funds would be placed.
Further, note that the City financial analysis that FOR is publicizing does not impute any interest on the $8 million borrowed from the funds for the school project. Thus, the stated “net gain” (or “return on investment”) to the taxpayers is inflated because this “gain” includes the money that we otherwise would have earned as interest on our own money. To estimate the true gain from the project, the City should only count the money that the City would not receive otherwise.
7. Why Crestpointe and not a different location in O.R. that will require less preparation for building, and much less city $ to subsidize it? Why should the city subsidize a development anyway?
8. To the “FOR†Side: Can you give us 3 examples of Oak Ridge businesses which have already been subsidized by the City and are now successful?
9. What is the relationship between the City’s and GBT’s negotiations on Crestpointe and the negotiations between the museum board and GBT?
10. It has been reported* that, of the approximately $90 million/yr of retail outleakage: $20 million is motor vehicles; $60 million is gasoline. How will Crestpointe address this >90% of the outleakage? [*Demographics USA 2005 and BEA 2003 (TPI)].
11. Why is the analysis assuming 400,000 sq ft at the start when you are now claiming only a 275,000 sq ft commitment?
On May 22, Cracker wrote: You are confusing timing with the project design. The project is committed for 400,000 square feet of retail space and a majority of that space must be open within the specified time parameters.
Comment by Ellen (May 29): The proposed conditions for city funding of the development provide that no funding can be disbursed until there are lease agreements covering 275,000 square feet. Although there is also a provision requiring 400,000 square feet of buildings, there are no provisions giving the city leverage to ensure that this space is leased or occupied. (There is a provision that the space must be leased and occupied in order for the Industrial Development Board to retain ownership, but the arrangement with IDB gives no apparent advantage to the developer – the agreement does not provide a reduction in property taxes.) Thus, although the project is supposed to be designed for 400,000 square feet and the city’s financial expectations are based on sales from that total area of stores, the city has no mechanism to assure that more than 275,000 square feet will be leased.
12. If property tax pays the mortgage what pays for additional fire protection, police, and road maintenance? How much is involved and what is the basis for that amount?
A: [EDITED May 22 to correct an error in the original version] The city has said that fire protection, police, and road maintenance will not increase the city’s costs. One source gives the cost of policing for a retail center at 42 cents per square foot per year, which would be about $189,000 on a center the size of Crestpointe.
Also note that “property tax pays the mortgage” only if you assume that we can “borrow” $8 million from city reserves and ignore the value of the interest that $8 million could have earned. See Bill Grimmell’s letter (”Crestpointe analysis ‘flawed, deceptive’”) in today’s Oak Ridger.
13. If sales taxes have to be shared with the county where the purchaser lives, how much would this affect the projected sales tax revenue for Oak Ridge?
14. It was stated tonight that there must be a Target as part of the deal. Previously, it has been stated that there must be a SuperTarget. Have the rules changed again? And who determined that a Target was the one store Oak Ridge must have? No one asked me!
A: Earlier city officials said that a Super Target would be an absolute condition for city participation in the project, but at the LWV forum only the word “Target” was used. Also, in the Thursday, May 17th, issue of the Oak Ridge Observer, Mayor Bradshaw said it didn’t matter whether the center was anchored by a “Target” or “SuperTarget,” as long as it was “a Target-anchored property” of at least 400,000 square feet.
Apparently the city’s self-imposed rules have changed (the size also seems to have been quietly changed from 450,000 to 400,000 square feet), but the official pronouncements do not acknowledge the changes.
I cannot answer the question about who determined that Oak Ridge must have a Target store.
Nationally, Target seems to be the hottest thing going in retail, and it appears that city leaders want to be part of its growth. A May 7, 2007, feature article in the Wall Sreet Journal reported that Target sales are growing twice as fast as Wal-Mart’s sales, and other retail chains are trying to copy Target, particularly by upgrading their design. (Apparently the changes people are seeing in the Oak Ridge Wal-Mart are happening everywhere.) Interestingly, the article quotes Target’s CEO as saying that just 20 years ago Kmart was “the monster” — that underlines the reality that retail is a volatile business, and today’s go-go company may not remain the industry darling for very long.
15. How many trees will remain between the 50-ft retaining wall and Illinois Avenue?
16. Is the County going to put in this project?
17. While the covenants on the Mall do restrict discount stores over 90,000 sq ft, these covenants do not prohibit the development of any other form of retail development. If all retail is put up on the top of the ridge then we will completely defeat any development in Central City. Mayor Bradshaw: Why have you chosen to abandon the downtown area?
A: At the forum, Mayor Bradshaw said he was tired of waiting for something to happen downtown.
18. FOR Question: If the Crestpointe/Target Bond is such a “slam dunk,†why don’t the “FOR†people pony up to their own ideas and provide their own money?
19. Has GBT offered to buy the downtown property? If so, what has been the response of the current owner(s)? If not, why not?
A (thanks to Jim Nelson): At the LWV forum on Crestpointe, a GBT Realty representative made a statement along the following lines: “We thought about making an offer on the Downtown property, but decided not to because of the Wal-Mart covenants.”
20. Why doesn’t the owner of the property bear some of the costs of the infrastructure? Who is the owner?
A: Nathaniel “Nat” Revis acquired the property through a business several years ago. The owner of record on the city’s 2006 property tax rolls was Revis Family LLC.
21. To FOR, then COR: Has the City contracted for a mapping of the land subsidence rates over the site of the proposed Crestpointe development, as now exists? If this site is appropriate for this development as a commercial project, why have no high tech ventures chosen to locate on this same site as promised with the Pine Ridge project of 5-6 years ago?
22. City reps keep referring to requiring “Target†to locate:
a. Have you changed your prior requirement that the deal contain a SuperTarget?
A (by Ellen, May 29): Yes, the City has quietly changed the requirement from SuperTarget to “Department Store”, “to be purchased by Target Corporation or their affiliated entity,” saying “Target or their affiliated entity will make the final determination on the size and type of store that will be constructed.” (Source: City “Exhibit A”, dated April 24, 2007.)
b. If Target can go elsewhere, why pay $10.5 million for the ridge?
c. Aren’t these retailers that could/would go to the mall?
A (by Ellen, May 29): Target is the only retailer that has been mentioned as a candidate Crestpointe that the Wal-Mart covenants that would be prevented from going to a center on the mall property. All other retailers that have been mentioned appear to be allowed under the covenants, and the owners of the mall property say these same companies are candidates for the shopping center development they would like to undertake there.
If you can answer additional questions from this list, please comment on this post! (I’ll try to add the information above. ADDED: Thanks to several of you for adding your answers and comments. See the comments on this post for several contributions from site visitors that I have not incorporated yet.)
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Ellen-
Question #19 was one of mine, and it was answered (though in a convoluted way) by one of the GBT people (the guy who apparently had nothing else to say). The question was:
“19. Has GBT offered to buy the downtown property?
If so, what has been the response of the current owner(s)? If not, why not?”
In essence, the answer was: “We thought about making an offer on the Downtown property, but decided not to because of the Wal-Mart covenants.”
As I recall, COR elected not to respond to this question.
Jim Nelson
Comment by Jim Nelson — May 21, 2007 @ 7:47 pm
[Irrelevant comment deleted.]
Comment by Cracker — May 22, 2007 @ 12:50 am
Great follow up to what is important for our city. I have a question that was brought up during conversation about proximity of Crestpointe. What does retail on Nat Revis’s property do to help the vacant property and storefronts already zoned for retail in City of Oak Ridge? If the citizens are concerned with retail stores, the empty storesfronts already in place should be number one. In my opinion, Crestpointe will set back the citizens’ fulfillment for more retail.
Comment by Ray Kircher — May 22, 2007 @ 9:53 am
Ray, your idea is a bit too simplistic. For example, the mall is appraised at below the value of the land even though it has a lot of buildings and other improvements. Yet it is largely empty. We have several 10 acre lots with good sized stores on them that are also empty. There are plenty of places for single stores to go, but they aren’t coming. When you answer that question, you will see that there needs to be a critical mass of retail to be attractive and we do not have it without CrestPointe.
Comment by Cracker — May 22, 2007 @ 8:56 pm
Question 3. The retailers project their sales. They know where their sales come from in various competitive environments and have coupon returns and credit card data to accurately project sales. For us citizens, the indication that they will make a profit by matching their products to our buying needs is when they sign a lease to place a store in our community. Stores like Target with a great history of accurate and profitable store openings is a great predictor for the success of CrestPointe.
Comment by Cracker — May 22, 2007 @ 9:01 pm
Question 4. The city maintains reserve funds for unexpected events and normally they do not expect the payments from the reserve funds to be repaid. In the case of investing in commercial and industrial projects, there is a source of income from those businesses that do allow for benchmarking the value of the expense. In general the funds work just like your family’s reserves. If the frig breaks and you buy another you do not expect the payment to be replenished and it is rebuilt from other savings. If your family finds a good deal in buying a rental house, you generally operate it at break-even and only try to realize positive income when you sell it.
Comment by Cracker — May 22, 2007 @ 9:07 pm
Quetion 5. Steve Jenkins from the city has provided a model of the income and expenses of the CrestPointe project that can be found online at:
http://www.citizennetmom.com/PDF/NewFinModel-Crestpointe.pdf
Comment by Cracker — May 22, 2007 @ 9:10 pm
Question 1. The city has negociated with GBT that Target will be a landowner in the project with a committed opening date before the city is committed to be financially involved. Target will be fully committed publicly and financially before we are obligated to participate.
Comment by Cracker — May 22, 2007 @ 9:13 pm
Question 7. GBT has been looking at sites in Oak Ridge since 2004 and has ruled out all of them except the site under consideration. The summary of their search can be found at http://www.foroakridge.org/PDF/CharlieTablev3.pdf
The city’s involvement stems from two sources. The public wants more retail according to the latest city citizen satisfaction survey and the only site available for this project has site improvement and infrastructure costs that exceed the levels that the retailers will pay. In order for us to get this project to meet our needs we must participate financially. It is just the nature of the available land we have here in Oak Ridge.
Comment by Cracker — May 22, 2007 @ 9:21 pm
Question 11. You are confusing timing with the project design. The project is committed for 400,000 square feet of retail space and a majority of that space must be open within the specified time parameters.
Comment by Cracker — May 22, 2007 @ 9:23 pm
Question 13. From the payback of the project it does not matter since the property taxes pays back all of the public funds invested in CrestPointe.
Comment by Cracker — May 22, 2007 @ 9:25 pm
Question 16. County Commissioners indicate that they will once it is approved by the referendum.
Comment by Cracker — May 22, 2007 @ 9:26 pm
Question 9. Since GBT has indicated that they have more interest in their projects here in Oak Ridge than will fit in CrestPointe, I suspect they will offer space on the Museum property as appropriate.
Comment by Cracker — May 22, 2007 @ 9:28 pm
Question 15. However many it takes.
Comment by Cracker — May 22, 2007 @ 9:29 pm
Question 20. The current owner is responsible for site preparation for his project. When the land is sold to Target and GBT, they will be responsible for site preparation for their project. That is why GBT has negociated with the city for participation in this project which meets the needs expressed by the citizens.
Comment by Cracker — May 22, 2007 @ 9:31 pm
Is that no stores are going to fill empty storefronts in Oak Ridge with or without Crestpointe? You are wrong to believe critical mass will start retail in Oak Ridge; thus, Crestpointe will make a desolate city even further desolated with more debt than any city of our size can handle. The sun is full of critical mass, no shopping in there. Maybe you can bring Craig Cole in here and have him answer what stores will make up that critical mass that only you see.
Comment by Ray Kircher — May 22, 2007 @ 10:35 pm
Your answer to question #5 Cracker is a complete lie. Steve Jenkins has stated in council last night that he does not know where the chart of 8 million dollars to be paid back in 15 years came from. Maybe you can bring him in also. This leave the rest of your answers suspect to misinformation.
Comment by Ray Kircher — May 22, 2007 @ 10:40 pm
Ray, that is really funny considering that this chart was the one he used in the League of Women Voters Forum on CrestPointe. Netmom has blogged his email distributing the chart giving specifics that you too can see at: http://www.citizennetmom.com/?p=368 [Personal taunt removed by website owner.]
Comment by Cracker — May 23, 2007 @ 11:30 am
I believe that Ray is referring to the response I received to my question about the $8 million, asked during the “Appearance of citizens” session at the very end of the Council meeting. At the LWV forum on Crestpointe, Mr. Jenkins had made a statement suggesting that the $8 million was not needed for any city purposes, and therefore was available to be used for the Crestpointe project. I asked where this $8 million could be found in the FY 2008 city budget or multi-year model, as I had been unable to find it anywhere. Ray (who apparently was watching from home at that point) describes the response I received pretty much as I recall it.
In subsequent discussion with Mr. Jenkins, I have ascertained that the $8 million is in fact the “nest egg” (my terminology, not his) established as part of the financing plan for the high-school rebuild project. As I now think I understand it, instead of continuing to invest this money in financial instruments, the City proposes to use it for the Crestpointe project, confident in the expectation that future property taxes from the shopping center will replenish the principal amount and that future sales taxes from the shopping center will replace the interest that the money would otherwise earn, all in time to make payments on the bonds for the school project.
Comment by Ellen Smith — May 23, 2007 @ 12:08 pm
That makes perfect sense for reserve funds. You build them and you invest them until the time comes for you to spend them. In this case the project can repay them so that the nest will once again contain a golden egg. In most instances you would rebuild reserves from savings from the current tax revenues or increase the tax rate if necessary to speed the process.
This also fits the earlier statements by Steve Jenkins at Mr O’Conner’s request to describe how borrowed money is paid back by matching it with a revenue stream. The city is doing pretty standard stuff for CrestPointe.
Comment by Cracker — May 23, 2007 @ 12:48 pm
BTW, I’m not sure you got all of the taunts out of the exchange. Even handed is the way to go.
Comment by Cracker — May 23, 2007 @ 12:50 pm
Cracker, I removed your taunts directed at a person who is identified here by a real name. Since you choose to hide your identity behind an alias, I see no need to give you similar protection.
Comment by Ellen Smith — May 23, 2007 @ 1:29 pm
Ellen, in your response to Question #6, you stated:
“Thus, the stated “return on investment†to the taxpayers is inflated because it includes the return of interest that we otherwise would have earned on our own money.”
Did you mean to say “excludes” instead of “includes”?
Jim
Comment by Jim Nelson — May 24, 2007 @ 4:29 pm
Reply to Jim Nelson: I meant to say “includes,” but it looks like my wording was confusing.
The city’s “net gain” actually includes money to replace the interest that the public’s money otherwise would have earned. That should not be considered “net gain.”
Comment by Ellen Smith — May 24, 2007 @ 4:47 pm
I agree the city has definitions for financial terms that do not line up with traditional meanings. This is the communication break down of this plan. To further complicate the issue, the timing of payments for the bond and for the school rebuild project would require further study to ensure both payments would be made on time. What is the city penalty for having late payments, and does Crestpointe have the possibility to open late leaving our school rebuilds project at risk?
I believe this is the exit strategy for our city’s strategic plan: raise taxes, hold expanding on services, and build reserves just in case Crestpointe doesn’t deliver on time but doesn’t default on the collection of bond money. This I believe is the old way of spanking the newborn to get it to breath.
GBT might be a developer and has the city council at their feeding trough, but Target will ensure what mistakes made by GBT will not risk the loss of the bond money to them. Target has more interest in their stores than to let any developer build for them, whenever it opens.
Comment by Ray Kircher — May 25, 2007 @ 10:55 am
The city will meet its debt service payments, even if the tax revenue from Crestpointe falls short of the city’s current expectations.
Both the bonds for the high school and the bonds for Crestpointe would be general obligation bonds, backed by the “full faith and credit” of the city. Repayment comes from general taxes; the bonds themselves are not tied to any particular revenue stream, even though the City may have committed a particular revenue source (such as the local sales tax increase that was passed to fund the high school project) to their repayment.
Comment by Ellen Smith — May 25, 2007 @ 11:17 am
Thanks for pointing out the responsibility of bond payments. What I take of it is the city is insuring the stores built on Pine Ridge; opening date to be determined later, then if nothing is successful leaving more empty storefronts, the recent 10-cent tax hike will help to cover the school rebuild projects? Is that right?
What I am upset about is the .005 cent school sales tax referendum were to go to schools, now that vote seems to be a retail project fund in disguise.
Comment by Ray Kircher — May 25, 2007 @ 11:41 am