Friday, October 8, 2010

Kohl's --Part I: What has happened to captalism?

First, let’s look at some key numbers and hope they don’t make our heads swim.

$7,695,500 is the amount Kohl’s says it needs to spend to develop a property in Rolla. I suppose that means they’re going to use that money to buy land, build a store building, lay down a parking lot, put up lights and plant a landscape.

$3,300,000 is the amount Kohl’s wants the City of Rolla to kick in as a subsidy.

23 years is the length of time Kohl’s has given the taxpayers to come up with that $3.3 million.

6 percent is the interest rate Kohl’s will charge the taxpayers as we work to make the payments on that $3.3 million .

And finally, approximately $3,200,000 is the amount of interest we’ll pay over the course of 23 years as we pay back that $3.3 million.

That means we'll pay Kohl's $6.5 million over 23 years.

Is your head swimming? Have your eyes rolled back in your head yet?

I felt like my eyes were doing just that at the Oct. 4 TIF Commission meeting, as new revelation after new revelation unfolded during the public hearing.

Bear with me as I try to explain this to the best of my ability and understanding.

Kohl’s, a Fortune 500 company, wants to expand and make more money for its shareholders, as any good American capitalist company should. To do that, it is asking the city government of Rolla to subsidize its investment. That sounds like the opposite of capitalism.

I learned some things at the public hearing.

Chester Kojro, who lives north of Doolittle so his opinion likely won’t be heeded since he’s an out-of-towner, asked a good question, I thought.

“What is the cost of land aquisition?” he asked, and we learned that it is $1.1 million.

Kojro then followed up with questions about the current owner, the previous owner, previous prices for that land and the real estate agent.

“Who’s making how much money on this land?” Kojro asked. “Taxpayers are going to pay so somebody can make a killing.”

The commissioners didn’t have the answers to that, or wouldn’t say if they knew.

Bob Stewart, who has lived here for more than 50 years and said he has seen businesses come and go, asked, “Why do we need to subsidize them to compete with what we already have?”

There was no answer from the commissioners.

Pamela K. Grow, who described herself as a 20-plus year resident, asked how the subsidy of Kohl’s could be construed as fair. She also opened up a can of worms when she asked about what she perceived as the waiving of the real estate tax for Kohl’s.

Mark Grimm, special counsel for the city, explained that in addition to capturing 50 percent of the sales tax it generations, Kohl’s will also capture 100 percent of the new real property tax. He explained that it works this way:

The property, currently undeveloped, has an assessed valuation. After the Kohl’s-City of Rolla partnership develops the land, it will be reassessed by Phelps County Assessor Kevin Ramussen.
Kohl’s will pay real estate taxes each year based on that new assessed valuation, but it will get back every dollar over the amount of tax based on the old assessed valuation, that is, the assessed valuation for the undeveloped land. that arrangement will continue through the term of the agreement, all 23 years if necessary.

That money--half the sales tax and all the new real estate tax, as mentioned--will be used to pay the city’s $3.3 million obligation, plus the interest.

Ah, the interest. I didn’t know the city would be paying interest, until Councilman Gary Hicks asked how much the interest rate would be.

It turns out the interest rate will be 6 percent, about $3.2 million.

So, the city could pay $6.5 million to Kohl’s over the next 23 years.

In a nutshell, here’s essentially how this business arrangement is going to work, as I see it.

Kohl’s, using the law allowing TIF, has dangled a golden plum before the city. To get that prize, though, the city must pay for it. Kohl’s is willing to lend the money to the city, at interest. The city seems eager to accept this agreement because it believes it can “pay the money back” to Kohl’s with new sales tax money and new real estate tax proceeds. It won’t really cost us anything, because it’s a win-win situation, as our civic leaders like to tell us.

Most Rolla residents, very likely you, dear reader, agree with the city leaders and will be glad to see tax money used to bring more shopping (who can be against shopping?) to Rolla.

I wonder what local businesses who built their stores themselves think about this. I wonder what future Rolla businesses will expect.

I wonder what has happened to American capitalism.

No comments: