This weekend, when it seems that most of America celebrates shopping, seems to inspire discussion of the perennial topic of “Oak Ridge retail”. My recent e-mail has included both (1) cheerleading for the 3/50 Project and (2) questions about the Oak Ridge city center development (why did the mall fail? what is the city going to do to get the site redeveloped? etc.). So, what do I have to say?
Start with the city center (formerly the mall). This is private property over whose use the city government has no actual control. People ask if the city could take it by eminent domain and redevelop it. In principle, the city possibly could acquire it by eminent domain as a blighted property, but use of eminent domain is repugnant to most of the community, a court would set the price (often this is more than the acquiring government thinks the property is worth), and more importantly, the city would have to oversee the redevelopment (retail development is not something that small city governments are known to be good at). Redevelopment of the mall requires the skills of a good private developer — and eminent domain for this property would be a bad idea.
The property owners have a good track record on some other developments, but the lack of progress here in Oak Ridge is frustrating for everyone. Redeveloping a mall site isn’t easy. Not only does it mean demolishing buildings, but the redevelopers have to work around the existing anchor stores and the Tinseltown movie theater, existing utility lines, and numerous other easements. An even bigger challenge is that the current economic climate has been hard on the retail sector nationally — and the developer needs to attract national chains to make the plan work. However, Oak Ridge’s economy remains fairly stable, the developers know many times more about how to do retail development than anyone in city government does, and the DOE funding they are getting for a “geothermal” demonstration project is a big boost for the development — both financially and from a marketing perspective. Everyone is impatient, but as I see it, Oak Ridge’s best option still is to hope the owners can pull off a successful development. Revitalization of the city center area will address both public and private needs, so city officials can expect the developers to ask us for help with the project — and we’ll need to look carefully at the request to make sure it is “right” for the city.
As for why the mall failed after doing good business for a few years… I blame this on some poor business judgments by the mall developer (Crown American). The company had been a successful developer of shopping centers in other parts of the country, and was rapidly expanding to smaller markets (such as Oak Ridge) during the period when the Oak Ridge mall was built. Many of the retail tenants that it signed were national companies that wanted to lease space in other Crown American malls. Crown American signed them to bundled leasing packages in which leases for the malls they wanted to be in was tied in with leases for space in some new malls that Crown was opening (such as Oak Ridge). Many of these stores did good business in Oak Ridge, but business here wasn’t good enough to justify the high prices that Crown was charging for the space. When the leases came up for renewal (all at essentially the same time), most of the smaller mall tenants decided not to renew. (City officials learned about this only after the tenants started to desert the mall.) The anchors remain because they pay much lower rents (this is apparently a standard practice in retail development — the developer gives the “big fish” a good deal in order to attract the “little fish” that pay much higher rents). Fundamentally, Oak Ridge’s market size isn’t large enough to generate enough business to justify the high heating, cooling, and maintenance expenses of an enclosed mall, so the mall fizzled financially. Apparently this happened to numerous Crown American malls built in expansion markets that were basically too small for the indoor mall model to work (a few years back on a business trip, I ran across another decrepit Crown American mall in a small city in Pennsylvania). Retailers are superstitious, so once a mall is “dead,” new business will not move in. (And Crown American is now defunct as a company.)
Isn’t the current retail situation the fault of Oak Ridge voters who rejected two referendums? I’m tired of sitting quietly while certain other City Council members complain that Oak Ridge would now be a thriving retail center if not for the voters’ rejection of the referendums in 2002 and 2007 that would have authorized general obligation bonds for retail developments (bonds that would not give the public any ownership interest in the resulting developments). The problems with the 2002 proposal were many. Too many projects (mall property redevelopment, new senior center, new preschool, and new school administration building) were bundled together in a single $23.2 million package (who’s to know what any individual voter was opposed to? I recall that some opposed the package because they objected to the proposed location or design of the preschool and senior center), the financial details were obscure (leading to suspicions about what was really going on), and a few days before the vote it was revealed that Crown American had bankrolled the expensive advertising campaign for the bond issue (leading many to conclude that their suspicions about the finances had been correct).
As for the Crestpointe proposal that voters rejected in a referendum in 2007, Councilman Charlie Hensley has been ranting that if it had been approved, we would now have a big-box development at the Crestpointe site, a thriving retail redevelopment in the city center, dormitories for Roane State Community College, and several other lucrative developments. Those claims are rooted in the same kind of unrealistic thinking that led Crown American to build a mall that was doomed to fail. Mr. Hensley has somehow formed the idea that Oak Ridge could have supported a 450,000 square foot big-box shopping center at Crestpointe plus a similar amount of new retail development on the old mall property plus several smaller new retail developments around town, but no responsible economic analysis indicates that there are enough shoppers (and dollars) around here to support anywhere near that amount of retail activity. Back in 2007 knowledgeable outside observers said that Crestpointe would kill (for at least a few decades) any prospect of regenerating retail activity at the center city (mall) site, and the mall property owners said that the mere existence of the Crestpointe proposal meant that retailers were reluctant to sign deals with any local retail site. (And all that was before the financial meltdown of 2008.) Given the massive amount of site preparation and infrastructure that the Crestpointe project would have involved (both with long time horizons and large dollar costs), plus all that happened with the economy, no one can be sure what would have happened if Crestpointe had been approved. I’m sure that it would not have worked out as advertised, and I think it likely that taxpayers would be stuck paying off a large bill without realizing any value.
In a nutshell, I have my fingers crossed about the city center — I’m hoping that the landowners can finally pull off their plan to redevelop the area around the existing anchor stores, with some of the “town center”-type concepts that Steve Arnsdorff brought to town back in the early years of the decade. Meanwhile, the 3/50 project is a positive development that deserves its own separate post.
Pre-election financial disclosure reports were due Thursday, and the local newspaper has reported cash receipts (including loans) for each candidate and referendum campaign. Because loans are treated as “receipts” and neither in-kind contributions (donations of goods or services; sometimes these donations are large) nor expenditures are included in the article, the numbers in the article could be misleading, but they still attract attention.
Much of the attention this year is focused on the disclosure by Future of Oak Ridge (F.O.R.) which styles itself as a “grassroots group.” People had been asking me if I knew who was funding that group’s campaign in support of general-obligation bond funding for the Crestpointe shopping center development (I didn’t).
The Oak Ridger reported that F.O.R. had received contributions totaling $27,285, including $10,000 from an entity (Franklin Land Associates) that apparently is affiliated with GBT Realty, the prospective developer of Crestpointe. That donation — from an entity with a financial interest in the referendum results — is substantially smaller than the $159,026 that Crown American Properties gave to the “vote yes” side in the 2002 bond referendum, and which was disclosed on July 29, 2002, shortly before the election. (This would not happen in a candidate’s campaign. Tennessee corporations are prohibited from contributing to candidates, and candidates in local elections may not receive contributions over $1000, but there are few restrictions on donations to referendum committees.)
A scanned image of FOR’s full financial disclosure is circulating on the Internet. Commendably (and noteworthy for the extra work it created for the campaign treasurer), F.O.R. reported all contributions received, including those of $100 or less, which are not required to be reported.
While some of F.O.R.’s contributors are genuine “grassroots” local citizens, the F.O.R. report shows that the majority of the group’s funds came from other business sources that do not seem very “grassrootsy.” In addition to Franklin Land Associates (affiliated with GBT), major contributors include:
Oak Ridge Chamber of Commerce — $2000
Bristol Park (Franklin, TN-based developers of the new apartments on Emory Valley Rd next to SAIC) — $2000
Len Hart (local real estate developer) — $1000
Scientific Technical Resources (one of the business interests of Nathaniel Revis, who is the apparent owner of the land where Crestpointe would be built) — $1000
Akins Crisp Public Strategies (Knoxville public relations firm) — $1000
Broadberry Development Company, LLC, Maryville (an affiliate of Rarity Properties, apparently established to develop Rarity Ridge in Oak Ridge) — $1000
Wackenhut Services, Inc. (federal government contractor that provides guards and other security services at local DOE facilities) — $1000
Rogers Group, Inc. (local supplier of quarried rock, asphalt, etc.) — $1000
Those contributions of $1000 and above accounted for fully $20,000 of F.O.R.’s $27,285 in total receipts.
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ADDED on June 4:
Some political jurisdictions don’t look so kindly on the idea of businesses with vested interests bankrolling political campaigns. A recent article in the New York Times reports that New York City is considering a proposal to set special contribution limits for people with city business, including contractors, lobbyists, and developers. That type of limitation would have interesting repercussions here, where some candidates and referendum campaigns are heavily backed by a roster of people who are perceived to have a financial interest (far beyond that of “taxpayer”) in the actions of local government.
Over on the Oak Ridger online forums, there’s been some discussion of the City’s apparent intention to get part of the proposed funding for the Crestpointe (”Target”) shopping center from money collected for the high school rebuild project. (As I explained in an earlier post here, in discussion with Mr. Steve Jenkins of the city staff, I ascertained that the $8 million is in fact the nest egg established 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.)
Pseudonymous forum participant “CrackerNation,” who sometimes represents him/herself as a knowledgable city insider (and who also posts comments here under the alias “Cracker”), has suggested that this is perfectly OK: “Who cares which tax fed money into reserve funds if they are replaced before the money is needed for other purposes?”
It’s not OK. As I pointed out over there, in 2004 Oak Ridgers voted
“…to increase the local option sales tax rate in those portions of the City of Oak Ridge, Tennessee, that lie in Anderson County, Tennessee, from 2.25 percent to 2.75 percent; provided, however, the revenue from such increase shall be appropriated and expended for the purpose of funding and paying for construction, renovation, purchase of capital equipment, and/or retirement of school construction debt service for the Oak Ridge High School…”
Nowhere in that ballot question did it say that the revenue from the tax increase could “be appropriated and expended for some other purpose that city leaders think will probably increase overall city revenue enough to fund and pay for construction, renovation, etc., at such time as the bills come due.”
I believe that if the City Council decides to use this money for the Crestpointe project or another commercial development, the action could be challenged in court — and that legal challenge would have a high probability of success. Furthermore, I am sure that many citizens who voted for that 2004 referendum would conclude that the City had violated the public trust. The tax approved for the high school should not become a slush fund for City officials, and the City’s governing body should not take deliberate actions that subject the City to serious litigation risk.
There are valid reasons for limitations and controls on the expenditure of public money. Without restrictions on investment of public funds, the logical next stop in CrackerNation’s reason would be to say that Oak Ridge citizens should not care if city staff withdraw money from the city treasury and take it to Las Vegas to “invest” at the roulette table, as long as they expect to replace it before the money is needed for other purposes. Subsidizing a private development with money dedicated to a school project is a large step down that dangerous path — let’s not take that step.
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UPDATE on Monday, June 4:
One of our local news outlets (the News Sentinel) has finally picked up the story of the city’s intention to get some of the funding for Crestpointe from money dedicated to the high school rebuild project. Hurray for Bob Fowler! (Hindsight indicates that COR should have gone to Bob Fowler with the story earlier, instead of concentrating on trying to convince The Oak Ridger to run the story.)
It is clear from staff statements in the article that the mysterious “reserve fund” that they would use for Crestpointe is (at least in part) money from the tax increase that voters agreed to accept with the proviso that it be used only for rebuilding the high school. Here are some quotations from the article:
“I am positive you can loan this (debt reserve) money to yourself and pay it back, and that’s what we’re talking about here,” Deputy City Manager Steve Jenkins said.
“Even assuming they’re right, it just changes the mode of financing,” City Attorney Ken Krushenski said. “It’s not a deal-killer.”
City bond counsel Mark Mamantov said the city’s sales tax increase for schools “has been supplanted” by a county sales tax increase approved in a later referendum.
It is interesting that Jenkins said “you can loan money to yourself and pay it back.” Anyone who has ever borrowed money knows that it needs to be paid back with interest. When one city fund borrows from another, the money should be paid back with interest. However, Jenkins has claimed in earlier discussions that this is not really a loan (and therefore need not be paid back with interest).
Krushenski correctly says “it’s not a deal-killer” (presumably meaning that if the bond issue referendum passes, the city could go back to its original plan of borrowing the full $6 million and using it for this project). However, the city continues to promote the idea of a full payback from property tax alone over just 15 years, which depends on (among other questionable premises) the false notion (promulgated by city staff) that the city can borrow $8 million from itself interest-free.
Regarding Mamantov’s comment, back in 2004 it was expected that the county would supersede sooner or later (for example, see my earlier comments at http://www.ellensmith.org/forum/viewtopic.php?t=12), with the result that annual income to the school debt service fund would drop off after the first few years. Unfortunately, the county superseded sooner instead of later… I don’t recall anyone telling the citizenry in 2004 that after the county superseded the tax, the city’s use of the money would no longer be restricted to its dedicated purpose.
A recent letter to the editor referred to a legal judgment against GBT Realty. I was not aware of the judgment, but an article about the issue has arrived in my e-mail inbox.
The question asked was whether GBT is an entity that the city should place its complete faith in, as proposed in the city’s proposed deal with the company…
According to the July 25, 2005, article Judge rejects contempt deal in Target suit, GBT was found in contempt of court because the company ignored a July 2004 court order ordering the company to stop work on development of The Shoppes of Brentwood Hills (a 14-acre shopping center anchored by a Target store). The judge is quoted as saying it was “pretty breathtaking†that GBT president George Tomlin had told crews to keep working when confronted with his restraining order.
With that attitude toward a court order, it is reasonable to ask whether GBT can be depended on to honor the city Industrial Development Board’s proposed legal contract with the company…
Tim Holt has submitted a letter to the editor about a statistical analysis of shopping centers. This post is borrowed/modified from his to-be-published letter…A 1996 paper by by two university researchers, published in the Journal of Real Estate Research, examined the question: “How Critical Is a Good Location to a Regional Shopping Center?” The research used data from 38 regions containing multiple shopping centers and considered several primary variables believed to affect center’s success, including shopping center size in square feet, distance to the customers, and customer income levels.
A multivariate statistical analysis yielded the finding (surprising to the researchers) that a shopping center’s success was very strongly dependent on the center’s size and only very weakly related to distance from the customer. The study’s summary states:
The goal of this paper is to empirically measure the consumer utility trade-off between store location (i.e. distance to a shopping center) and retail agglomeration (shopping area size) in regional shopping centers. Using the Lakshmanan and Hansen retail expenditure model, our findings reveal that the distance specification is of surprisingly little importance in explaining retail sales. Conversely, agglomeration economies were of significant importance in explaining consumer patronage at regional shopping centers. The implications of these results is that smaller regional shopping centers may be dominated by large super-regional shopping centers with the smaller one or two anchor regional shopping centers unable to compete with the larger, many anchored super-regional shopping centers.
What this means for Oak Ridge is that (while additional shopping opportunities here would benefit local residents and increase sales tax collections) a moderate-sized Target-anchored shopping center in Oak Ridge (that is, Crestpointe) will never beat the giant Turkey Creek shopping complex at its own game. Oak Ridgers (and others) will still be drawn to the larger shopping center…
It is unrealistic to plan for the future with the expectation that a new shopping center that features some of the same stores as Turkey Creek will succeed in keeping Oak Ridgers away from Turkey Creek, or will attract droves of customers from Hardin Valley and Solway.
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.)
 As I stated at Tuesday night’s public forum on the Crestpointe proposal (when I spoke on the topic of “site selection and planning”), Oak Ridge is trying to make a decision about spending more than $10 million in public funds on a development project that will have long-term effects on the character of our community, but we have not seen the kinds of siting studies we would expect to see if the city was merely approving a development with completely private funding.
There has been no Planning Commission review — in fact, the site is still zoned for industry and is designated for industry in the City comprehensive plan. The City and developers also have not given citizens a picture of what this center — in a prominent location — would look like when viewed from the rest of town. The image above, which I showed Tuesday night, is an amateur effort to simulate the shopping center’s appearance — click on the image to open a larger, more panoramic visual simulation. (This isn’t perfect. For example, I think the 50-ft retaining wall probably would appear higher than shown in these images. However, since the project proponents have not provided any visual depictions, we need to improvise if we want to understand the choices we are making.)
We also have not seen an independent analysis of the expected sales volume for Crestpointe (the city’s estimates are based on generic estimates of revenue per square foot in various types of stores — they do not consider the buying power of our trade area) and there is no professional assessment of the center’s likely impact on other retailers in the community (like the assessment done for the little town of Waconia, Minnesota). As with the visual simulation, if citizens want to understand how this proposal affects our community, we need to improvise our own analysis.
It is widely observed that shoppers like to shop where there are many stores to choose from. Promoters of this proposal say Crestpointe would increase shopping traffic to other Oak Ridge shopping areas. To evaluate whether this is true, consider the distance from Crestpointe to those other shopping areas.
The nearest existing shopping center to Crestpointe is the Kroger-Kmart center. The tiny version of a satellite image of part of Oak Ridge on the right (click for a larger version of the image) shows the two Crestpointe entrances and the K-K center in the lower left — driving distance between the two centers would be more than a mile. This is about the same as the driving distance between Home Depot and the old (now empty) Food City on the east side (upper right of image). That’s too far apart to have an effect on shoppers’ behavior. (There’s no point in talking about walking distance because it looks like it would be impossible to walk safely to Crestpointe. No matter how high gasoline prices rise and no matter how intent we are to reduce our effect on global climate change, shoppers at Crestpointe will arrive by car.) The distance from other shopping is a major reason (the other is financial return to the developer) why GBT Realty wants 60 acres for its proposed center — Target locates stores in many smaller centers that are near other retail, but if it locates in an isolated shopping center it wants that center to have a large concentration of other stores to ensure a critical mass to draw shopping traffic.
ADDED on May 26: Because someone has objected to the visual simulation, saying it does not show how this shopping center would be configured (see the comments about this post), here’s the conceptual plan (from the city’s January 29th presentation) that the simulation is based on. Note that it shows most of the stores lined up along the ridge on the side facing the city. (Note that the road on the lower edge of the picture, which would connect the development to Union Valley, was later deleted from the Crestpointe plan.)
The “Future of Oak Ridge” group is saying that the city’s $10.5 million input to the Crestpointe project will be paid back in just 15 years by property taxes on the shopping center.
That claim is not consistent with the City’s analysis, as presented in several different public venues and posted on the City website. That analysis shows a 20-year payback period, relying on a combination of both property and sales taxes. The FOR claim that the money can be paid back by property taxes alone is apparently based on a second spreadsheet analysis (attributed to the City, but not published by the City as far as I can determine) on the FOR website.
[ADDED May 16: At last night's forum, it was confirmed that this spreadsheet was actually prepared by Steve Jenkins, assistant city manager. I'm flabbergasted -- I thought we could depend on Mr. Jenkins for a professional approach to financial analysis.]
As near as I can determine, the 15-year “payback” from property taxes alone is based on several exceptionally optimistic assumptions (at least one of which I think is entirely unreasonable):
1 – The City issues bonds for just $2.5 million (but note that the bond referendum would authorize borrowing up to $6 million) and gets a very favorable interest rate of only 4.5%.
2 – The rest of the City input ($8 million) comes from “reserves”. This implies that the City has $8 million of spare money sitting idly in the public coffers for no particular reason. (I don’t believe the City has extra money lying idle. These funds surely are earmarked for another purpose — most likely the plan is to borrow from the “nest egg” that is being established for the high school rebuild project. If the “reserve” money used for this project is diverted from another purpose, it will need to be replaced…)
[ADDED May 16: Last evening, Steve Jenkins said that this is money for which the City has no particular plans, so he considers it to be available for the Crestpointe project. This is astonishing information in view of the repeated City pronouncements that the budget cannot support needed capital projects, such as a new senior center and a new preschool, and that even some maintenance of capital facilities is being deferred for lack of funding.]
3 – That $8 million of city money is essentially “free money” — it can be paid back to the public coffers with zero interest, with most of the payback delayed until the later years when inflation has reduced the value of the money. This is the assumption that I consider unreasonable. There’s no such thing as free money. Good accounting practice requires that when the City borrows money from Purpose A and uses it for Purpose B, it must account for the cost of that money by imputing interest on it. Stated another way, when we borrow money from ourselves, we deserve to pay ourselves back with interest. (After all, if we had not “lent” this money for this project, we could have invested it or used it for something else. See the comment above about the need to replace the money diverted from another purpose…) In the spreadsheets that the City posted on its own website, City staff correctly treated the entire $10.5 million as a loan needing to be paid back with interest. The interest on the $8 million is the main difference between the City spreadsheet and the spreadsheet on the FOR website.
[ADDED May 16: Astounding but true -- we learned last evening that the City staff does consider it entirely reasonable and responsible to treat the $8 million as "free money."
When an individual person lends money to a family member, as a personal favor the lender might allow the family member to pay the money back without interest, but most people who do that are fully aware that by forgiving the interest on the loan they are making a gift to the other family member. Evidently the City staff would like to make a similar gift to the Crestpointe project, using taxpayer money. Taxpayers should demand a full accounting for the value of that gift.]
4 – Property taxes increase 3% every year for the next 15 years. (That is sure to be an unpleasant surprise for taxpayers who have been misled to believe that Crestpointe would prevent their property taxes from increasing. Neither FOR nor the City has claimed that Crestpointe will keep property taxes from rising, but this is what some people believe they have been told…) [ADDED May 30th: It has come to my attention that the new spreadsheet also assumes that the combined city and county property tax rates in the first year would total 14% higher than they were last year. That assumption, which inflates the expected revenue numbers, would also come as an unpleasant surprise to many citizens!]
On the eve of early voting comes a League of Women Voters forum about the referendum for the Crestpointe bond issue:
Tuesday, May 15, 7:00 to 9:00 p.m.
Pollard Auditorium (on the ORAU campus, above the hill from the Oak Ridge Civic Center)
LWV’s announcement says “Representatives of Citizens Oak Ridge (COR) and Future of Oak Ridge (FOR) will discuss topics related to the referendum and take questions from the audience.”
ADDED May 16: I participated in last evening’s forum as one of the speakers representing the “Vote No” (COR) position.
This forum was videotaped. Reportedly it will be broadcast by BBB Communications on Channel 12 at the following times:
Friday, May 18th at 8:30pm
Saturday, May 19th at 8:30pm
Saturday, May 26th at 8:30pm
Friday, June 1st at 8:30pm
Saturday, June 2nd at 8:30pm
This is interesting: “Community Impact Analysis, Proposed SuperTarget Store, Waconia, Minnesota” (PDF file, dated September 2006). This small town in Minnesota commissioned an independent consultant study to examine community impacts of a proposed store. They did this merely to see how the store would affect the town and local businesses; there is no suggestion that Waconia thought about paying for part of the development.
The report provides some of the kind of independent analysis that many of us think the City of Oak Ridge should do for Crestpointe, particularly since we are being asked to sink a huge amount of public money into the development.
In skimming this report I found some interesting nuggets:
– Apparently the Target Corporation is interested in building SuperTarget stores in lesser markets, contrary to the impression that many of us have gotten from their website. Waconia is much smaller than Oak Ridge, on the fringe of the Minneapolis-St. Paul metro area. If Target Corp. is building an SuperTarget there, they might truly be serious about building one here.
 – The analysis indicates that the SuperTarget would increase the geographic extent of Waconia’s retail trade area (potentially benefiting other businesses) by pulling in customers from rural areas and small towns. It would not, however, expand the trade area on the side of town that faces Minneapolis. This is similar to the Oak Ridge situation, in that a new store here would not draw additional customers from the Knoxville side of Oak Ridge. However, a major difference is that Oak Ridge already gets retail trade from a large “hinterland” (places like Oliver Springs, Wartburg, and rural Anderson County). I estimate that Oak Ridge’s current retail trade area extends farther from the city than Waconia’s would after the new store comes in. I don’t believe that there is room for any new store or shopping center here to further expand the geographic boundaries of Oak Ridge’s trade area.
– The analysts estimate total sales for the Waconia SuperTarget at $40 million (in the year 2010). This value, which is based on an analysis of purchasing power in the trade area (unlike the City of Oak Ridge’s analysis, it is not based only on the square-foot area of stores) is noticeably less than the local promotional materials are projecting for the Crestpointe SuperTarget. (However, it appears that there are fewer people in the Waconia trade area than there are in Oak Ridge’s trade area, so maybe a SuperTarget here would have higher sales.)
– The analysts estimate that the new store would capture $12.4 million in sales that are currently going to other Target stores plus $3.3 million in sales currently going to other discount stores. It appears to me that these numbers are not representative of what might happen here, because (1) Waconia currently has no local discount stores and (2) because the Twin Cities metro area is Target’s home town with 47 area stores, many local residents shop at other Target stores in the region. Since there are two major discount stores here already, Crestpointe sales captured from other discount stores would come primarily from local stores.
– The analysts suggested that local merchants should extend their operating hours in order to compete successfully with a store like SuperTarget. (It’s clear to me that extended operating hours are one of the main reasons why big-box chain stores are typically so successful in pulling consumer sales from their locally owned competitors — for example, extended operating hours give Home Depot an important advantage over the traditional building supply stores that operate only during the day Monday through Friday.) Although many Oak Ridge stores extended their hours years ago, I suspect that some Oak Ridge retailers (both local businesses and chain stores) might be able to increase their sales (and our property taxes) with a combination of coordinated retail business promotions and good advice on matters like improved merchandising methods and expanded operating hours.
The analysis predicts that a Waconia downtown department store would close as a result of SuperTarget, but other local community impacts are expected to be fairly modest. This rosy projection is due in large part to factors present in Waconia that are not present here: the lack of existing discount stores in the city, the expectation that SuperTarget would expand the geographic boundaries of the city’s trade area, and the fact that the new store would be close to existing retail.
Consultant reports aren’t the answer to every problem, but if Oak Ridgers are being told that it is vitally necessary to spend $10.5 million on new stores, I think we deserve to be shown an independent analysis like this one to help us make an informed decision.
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