[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