Mertens on Eastview Expansion – Hobart and William Smith Colleges \
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Mertens on Eastview Expansion

Jo Beth Mertens, associate professor and chairwoman of the economics department, was recently quoted in an article about the proposed expansion of the Eastview Mall in nearby Victor, N.Y., which, according to the article, would “use property tax revenue generated by these mall improvements to pay for the $21 million in borrowing needed for the project.”

The article presented a number of examples of similar payment in lieu of taxes situations in area malls and the viewpoints of a number of experts speaking about the impact of such an arrangement on the region.

In writing of Mertens, the piece noted she “raised other concerns. Industrial development agencies, she noted, are typically used to promote economic growth, but she wonders if this is the case with Eastview’s proposal.”

“If a person comes to Eastview to shop and stops going to another mall, that’s not economic growth,” she said.

The full article follows.

Democrat and Chronicle
“Not all favor Eastview Mall plan”
James Goodman • Staff writing • January 26, 2009

Eastview Mall has undergone several expansions since opening almost four decades ago, but the proposal that will be aired at this morning’s public hearing in Victor won’t make the mall any bigger, just more upscale.

The plan is to lure one or two “signature retail tenants” – high-priced, big-volume retail stores not now in the region – to relocate in existing mall space, presumably taking the place of less-upscale stores in the Victor mall.

Wilmorite Management Group has teamed with Ontario County Industrial Development Agency for this project, which calls on Wilmorite to spend $12 million on its mall.

But the proposal also would use property tax revenue generated by these mall improvements to pay for the $21 million in borrowing needed for the project.
That money would be coupled with about $20 million that the signature tenants – yet to be selected – would invest to this venture, according to Shawn Griffin, a lawyer who represents Wilmorite.

“Some of the clients we’re going after, you might have to give them huge inducements,” said Griffin, who likened the possible changes, such as rebuilding the area in the mall where the signature stores would be located, to providing a new stadium to keep the Yankees from leaving New York City.

But concerns and questions have surfaced.

“The underlying issue is fairness for all taxpayers,” said Victor schools Superintendent Timothy McElheran.

He wonders why Eastview should get a tax break while other taxpayers don’t, noting that the tax break takes money away from schools and local government.
He also questions whether Eastview is properly assessed, since its assessment is only slightly more than The Marketplace mall in Henrietta, even though Eastview has about 325,000 more square footage.

Costs and benefits

The $21 million in borrowing would be financed by diverting funds over a 25-year period from the Victor Central School District, Ontario County government and the town of Victor. Some of the tax revenue they would have received from the mall improvements would instead go to pay off the debt for the borrowing. These governing bodies have already lost $12.4 million in tax revenue to help pay for borrowing related to a 1994 expansion of the mall. And they are slated to lose another $6.6 million by 2014 under the 20-year agreement.

About two-thirds of this money would have gone to the school district.

When the latest proposal was announced in December, Dennis Wilmot, vice president of leasing and development for Wilmorite, said he wanted to “solidify Eastview’s prominence in the retail landscape of western New York.”

At a subsequent workshop held for the Victor Town Board, Peter Fairweather, an economic consultant for the county’s Industrial Development Agency, said that the benefits outweigh the costs to the community.

If the proposal were shelved, $41 million in property and sales tax would be lost to the community, not only because the planned improvements would not happen but also because Eastview would lose customers to other upscale malls, according to Fairweather’s analysis.

Approval for the financing must come from the Victor Board of Education, as well as the Victor Town Board and Ontario County Board of Supervisors.

Victor schools get hit especially hard because, unlike the town and county, the district doesn’t get a share of the sales tax revenue generated by the mall.
Jo Beth Mertens, chairwoman of the economics department at Hobart and William Smith Colleges in Geneva, raised other concerns. Industrial development agencies, she noted, are typically used to promote economic growth, but she wonders if this is the case with Eastview’s proposal.

“If a person comes to Eastview to shop and stops going to another mall, that’s not economic growth,” said Mertens.

Wilmot said that the customers expected to be drawn to signatures stores would include nearby residents who now go outside the area to other upscale malls, as well as shoppers from as far away as Buffalo and Syracuse.

He said that the improvements wouldn’t be possible without the kind of financial arrangement proposed but that the community comes out ahead.

“What we are asking for creates a net positive benefit,” said Wilmot.

But David Cay Johnston, a Pulitzer Prize-winning former New York Times tax policy reporter and author of books on fairness and taxation, said that to divert tax dollars to Eastview is nothing more than a form of corporate socialism that won’t create jobs.

“If there is a demand for these stores, the market will provide them. There is no need for these subsidies that take from the schools and government,” said Johnston, who lives in Brighton.
Malls elsewhere

The arrangements for financing some of the improvements at Eastview are a form of “payment in lieu of taxes” that is growing in use by malls. Previously, such arrangements were more commonly allowed for individual businesses.

In 2005, developer Adam Bersin bought Irondequoit Mall, which he renamed Medley Centre, by striking a deal with the County of Monroe Industrial Development Agency, the Irondequoit Town Board and the East Irondequoit school board. Instead of paying regular property taxes, Bersin Properties was allowed to pay fixed amounts to these taxing authorities, beginning with no taxes but increasing to a total of $100,000 a year and then $225,000 annually.
The agreement then provides for annual payments over the next 10 years by applying existing tax rates to an assessment of $5 million.

Without that agreement, the taxes on the mall would be much higher, since the property is currently assessed at about $29 million.
But the revitalization of the mall expected from the tax breaks has not happened.

Last year, Syracuse-based developer Scott R. Congel bought the beleaguered mall and has a $260 million plan to turn the property into a massive multi-use complex, including 330 apartment units, a 350-foot-tall hotel, retail shops, restaurants and a movie theater complex.

Congel is seeking additional tax breaks, totaling $8.5 million.

In Syracuse, Congel has built and is now expanding Carousel Mall with payment-in-lieu-of-tax agreements.

The megamall was completed in 1991 under an agreement that shielded Congel from paying any taxes on the mall, which was assessed at $319 million.

A “junkyard tax” – a reference to how the land was used before being converted into a mall – is paid to local government each year based on what the land was assessed before becoming a mall. That amounted to about $378,000 in 2008. The city and county also are getting about $80 million in fees and payments related to the project, said Ken Mokrzycki, director of administration for the city of Syracuse.
But this money pales in comparison to the tax dollars lost.

Under the first 15-year agreement, the city and county were forgoing about $12 million in taxes and under the second 30-year agreement, they are losing about $15 million in taxes a year, said Syracuse officials. The second agreement remains in effect as long as Congel continues to expand the mall.
Eastview’s formula

What is being requested for the Eastview expansion builds on the diversion of tax dollars still in place from the mall’s 1994 expansion, which brought in Lord & Taylor, J.C. Penney and 62 other new stores.

The earlier agreement applies to the mall, along with the Lord & Taylor and J.C. Penney stores, which are assessed separately but are part of that agreement.
Victor schools, Ontario County and the town of Victor tax the mall and these stores based on their mid-1990s assessments of about $32 million, instead of their current value of about $78 million.

That means about $1 million in tax revenue is being diverted from these governments to pay the debt service on that expansion.

Under the new plan, the 1994 formula will continue until it expires in 2014. Eastview then will be taxed at its real value.

But in 2014 a formula also would kick in that increases the tax payments by just 2 percent a year for the next 25 years, according to Griffin.

The anticipated growth in tax dollars above this amount would not go to the schools, the town and the county but rather to pay the debt service on the $21 million that would be borrowed for the improvements.

As evidence of the value of payment-in-lieu-of-tax agreements, Griffin noted that the sales tax revenue generated by the mall for Ontario County increased from about $6 million in 1995 to about $9 million in 2007.

But while employment at the mall jumped from 2,800 in 1995 to 3,600 in 2007, the new signature stores are projected to create only 100 new permanent jobs.
Within 60 days, Griffin hopes to have agreements in place with the town, the county and the school district. The proposal will have public hearings before these government bodies.

McElheran urges close scrutiny because much is at stake.

“Fairness understands that when taxes are deferred 20 or 30 years for this project, those are dollars not available to reduce taxes for local homes and small businesses,” he said.

Additional Facts
If you go
A public hearing today on the proposed changes at Eastview Mall will be held at 9 a.m. in the main meeting room of the new Town Hall, 85 E. Main St.