[Editor's note: Below is a news release from Simon, followed by a letter sent today to Greater El Paso Chamber of Commerce members. For background, read this NPT article regarding the proposal]
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El Paso, Texas – June 17, 2008 – Simon Property Group officials announced today that in exchange for Regency/Foster dropping their request for taxpayer subsidies, they would be willing to help with the cost of demolishing the Farah Building. The Farah building is located across the street from Cielo Vista Mall, making it among the best real estate locations in El Paso. Cielo Vista Mall is one of Simon’s top performing centers and a strong economic driver for El Paso.
Rod Vosper, Vice President of Development for Simon Property Group commented, “With all due respect, Mr. Foster and Regency should not be seeking taxpayer assistance for this project. El Paso has a strong retail market and the prime location of the property doesn’t warrant an unprecedented retail tax subsidy at taxpayer’s expense.”
The development proposal is for a big box anchored strip center with amenities that are becoming standard in the industry today. The center will be anchored by many box stores relocating from within the market, or electing to split their existing sales with the addition of a 2nd, 3rd, or 4th stores.
Regency/Foster proposed that the City and County reimburse them for a minimum of 50% of $21.2 million or $12 million of taxpayer money. Simon reviewed the numbers and concluded that request is more than 4 times the estimated cost related to removing the blighted Farah building. Taxpayers would be reimbursing the developer for a share of items generally paid for by the developer such as on-site grading, utilities, new retaining walls, and soft costs including thousands of dollars of legal fees and tenant buy-outs.
Regency/Foster is requesting a subsidy of any incremental ad valorem taxes and 50-75% of sales taxes generated at the new development for up to 10 years. However, a substantial portion of those sales taxes will be shifts from existing retailers relocating to the new development, not sales taxes generated by new retailers coming to the market thereby risking the city’s current, stable revenue stream derived from existing sales and ad valorem taxes and potentially leading to a property tax increase. The mayor has recently given new direction to the city to come up with another way to fund the project; however, the proposal will still use $12 million of taxpayer money.
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Dear Fellow Chamber Member,
I am writing to you on behalf of Simon Property Group. Simon owns Cielo Vista and Sunland Park malls in EI Paso. Simon has been a member of this community and our Chamber for over thirty years.
You may be surprised to learn that at the June 10thCity Council meeting the Chamber's executive committee endorsed tax subsidies for the Regency/Foster Redevelopment plan for the Farah building on 1-10. The tax subsidy is to offset demolition and sitework for a big box strip center. The tenants will be mostly existing retailers in the region who opt to relocate to the new center or choose to open a 2nd, 3rd, or 4th store in the region Regency/Foster is requesting $12 million (net present value) in tax subsidies.
We're puzzled that neither the Board of Directors nor the Chamber membership including Simon was contacted prior to its leadership's quick decision and announcement of this unprecedented and substantial EI Paso sales tax subsidy proposal. We believe that the proposal needs a closer look and public scrutiny. We have requested that the city conduct a second public hearing; however, at this point we are uncertain as to whether the city will entertain additional public comment. Therefore, we'd like to share some little-known facts with you.
Simon is in favor of removing the blighted building; we are opposed to a $12 million tax subsidy. Regency's supporting cost estimates show approximately $5 million to demolish the building. It is unclear why Regency is asking taxpayers to fund substantially more than that for site construction and soft costs including utilities, grading, tenant buyouts, legal and city impact fees that are routinely paid for by the developer.
Simon is concerned that an unprecedented subsidy utilizing sales tax revenue can favor one developer over others because it provides flexibility to offer lower rent, tenant inducements and other means to attract existing stores from nearby centers.
Interestingly, Regency is requesting the city and county abolish the TIF implemented in 2004. That TIF contains anti-piracy provisions. The prior city administration included anti-pirating clauses that require no sales tax or ad valorum tax subsidies be given to the developer for a tenant that simply movesfrom location A to location B. This anti-piracy clause ensures that all developers are competing on a level playing field. Tenants are free to negotiate and relocate wherever suits them best. That's how a free market works. However, a developer cannot receive a tax subsidy (or incentive) for those tenants.
Regency is requesting the city adopt a new 380 grant (another form of TIF) on the property which eliminates all anti-piracy safeguards. In other words, they are asking to receive a 50-75% subsidy from sales taxes derived from all tenants regardless of whether the sales tax is simply a shift because the retailer relocates or opens another store.
Simon is concerned that if the old TIF is eradicated and a new 380 grant is adopted without anti-piracy provisions, tenants at Cielo Vista Mall and other shopping centers will be fair game for pirating using tenant inducements made possible because the developer will receive the $12 million in tax subsidies.
This is a very risky proposition economically to the city and county because the Cielo Vista area is a robust retail center and a strong economic driver for the city and county. As an example, we project Cielo Vista Mall alone will conservatively lose a minimum of 15% of its existing sales. In addition, sales will be shifted-from other box centers in the area, which comprise the majority of the square footage of the proposed project. Why should the city give up any of its current sales tax from existing stores and a stable revenue stream just because a tenant walks across the street? Unless there is a budget surplus, the loss could necessitate another property tax or sales tax increases.
To summarize, we believe that the proposed tax subsidy is anti-business because it favors one developer over others, requires the city and county to rebate shifting sales taxes from existing retailers, risks the city and county's existing stable revenue stream from sales and ad valorum taxes and in the process creates new blight at existing centers (from tenants that choose to relocate from nearby centers creating new and potentially long term vacancies). The loss to the City from tax revenues merely being shifted from existing locations to the Farah site will necessitate burdensome, additional property tax or sales tax increases on top of the recent storm water fee. It also will open the floodgate for other developers to receive similar retail tax subsidies, unheard of and unnecessary in a robust retail market like EI Paso.
We should add that after listening to public comment at the City Council meeting, the mayor acknowledged some of these issues and directed the city to renegotiate a subsidy that includes only new retailers, and theoretically "new" sales tax and ad valorum taxes to the market. Regency is now working with the city manager on a proposal that would provide a rebate of 100% of sales taxes and ad valorum taxes for 10 years or more on new stores they bring to their big box center. We do not know the status of the negotiations or what the new proposal will look like. Much more analysis needs to be completed to determine if this would be detrimental to taxpayers.
We are still in the process of gathering and analyzing information. Please feel free to telephone me if you'd like to discuss this topic further or have any questions.
Sincerely,
Bill Hammer
Senior Vice President of Development, Simon Property Group
Roderick C. Vosper
Vice President of Development, Simon Property Group
Jessica K
June 18, 2008
Grrrr...this is SO FRUSTRATING. We don't want the SAME retailers...we want NEW ones!! This is to ATTRACT NEW BUSINESS. What is WRONG with El Paso?!
Juan Sandoval
June 18, 2008
Finally we have a corporate good citizen. Simon Properties should be commended. This kind of common sense has long been missing here in El Paso and it is amazing that the common corporate greed is lacking in how Simon does business. The fact is that Foster does not need the money, sure he is in it to make more money but why should the tax payers of El Paso foot the bill for his ventures. If you have the “BALLS” to take those kinds of risk you should be man enough to suffer the consequences, and not involve the average guy who has neither the money nor the ambition for such things. If that was the case we would all invest in the stock market instead of paying taxes. Where would the city be then.
Ken G
June 18, 2008
Simon makes a good case. Existing businesses should not be harmed or to forced to subsidized their competion. This property needs to be developed. The City should consider '
Ken G
June 18, 2008
City should consider emient domain and charge former owners with the costs
joe gutierrez
June 18, 2008
I believe this is a replay of an earlier proposal by the wardy administration. it was a bad business idea then and it is bad business now. the only winner here is the developer. our taxes can be put to much better use than subsidizing this type of private venture. in addition the logistics are a nightmare of which the city would bear the cost of making this site accessible to the public traffic. NO NO NO
DJM
June 18, 2008
Other People's Money (Danny DeVito)? If you have to invest a nickel of your own money, it is not worth it! Other people's money (taxpayer) money is not only how you get rich; but how the rich get richer.
Jessica K
June 19, 2008
Actually - I read the letter more closely as it was received by some of my friends. It dawned on us that Simon is trying to scare folks into not doing the project in fear they'll lose their tenants - that's all this is. And the plan is, in fact, to bring in new retailers. Simon is only looking out for numero uno and it's not El Paso. It will go forward and do this city well. And our City and County SHOULD buy in and be invested in making El Paso a better place and not be part of the problem - I don't want the taxpayer to be responsible for everything but I'd like to see the "leaders" in this community actually do their job and quit holding us back.
Phil Sims
June 19, 2008
It is quite evident by Simon's remarks that they only want a sole corner on the retail market in El Paso. As anyone knows, good stiff competion is good for all concerned, not to mention the additional jobs and sales that will benefit our city as a whole. The Farah site has been an eyesore and vacant for a number of years, and only now when there is a chance to develop it and remove the "blight" in our city, does Simon decide to respond. As the old adage goes, "its hard to remember that your initial objective was to drain the swamp when you're up to your neck in alligators."
la loca
June 19, 2008
Hmmmm... so Simon NOW wants to get off their a$$ and do something about a blighted building? I don't see the "Simon School of Medicine" sign going up any time soon.
Simon has always been a corporation with corporate interests and a huge vacuum that sucks all their profit out of El Paso and invests it elsewhere (how many years did it take them to finally renovate their building?). Working with non-profits I've tried to get them to give cash-mula-bills and the best they ever do are "exclusive shopping nights". Simon spends minimal money on printing; all the non-profits work themselves to the bone selling passes, and in the end the tenants offer measly discounts they usually give on lame holidays.
Simon says… don’t let any new players in town, it’s bad for business.