Eagle aims to avoid mall mistakes
EAGLE, Colorado ” It’s the question asked at virtually every Eagle River Station meeting ” How will Eagle, Colorado avoid Avon’s financial woes with Traer Creek?
The short answer, according to town officials and Eagle River Station developers, is that the deals are very different.
The developers of Eagle River Station have proposed a revenue sharing plan to finance $62.4 million worth public improvements. Their plan calls for formation of a metropolitan district to issue bonds for the infrastructure.
The town of Eagle would not issue the bonds and would not be liable in the event of a default. The bond investors would be assuming the financial risk.
Under the agreement the town would dedicate the 4 percent sales tax generated at Eagle River Station businesses toward paying off the public improvements bonds. When the bonds are paid, the sales tax money would go back to the town. In the interim, a public improvement fee would be charged on Eagle River Station retail purchases. Proceeds from the fee would go to the town.
For shoppers at Eagle River Station, the fee would feel like a sales tax. It would be charged at the point of purchase and collected like a sales tax. That differs from the Traer Creek deal.
According to the town of Avon, under its annexation and development agreement with Traer Creek, the specially formed Traer Creek Metropolitan District is responsible for reimbursing the town for any shortfall in sales taxes revenues resulting from the relocation of Wal-Mart from its former location within the town to its present location within the district.
As of mid-October, Traer Creek had failed to make 11 monthly payments, prompting the town to provide notice of default. The total sales tax shortfall owned through September was approximately $450,000.
Additionally, Avon officials noted that under the annexation agreement the district must remit $2 million for payment of costs incurred by the town for development and construction of various capital improvements. The $2 million is to be paid off in 10 annual installments of $200,000 each, payable on Sept. 1 of each year. The district failed to make its 2008 payment and the town issued a default notice.
For these reasons, the town of Avon ultimately filed suit against Traer Creek Metropolitan District on Oct. 14 of last year.
“It is an unfortunate situation and one which the town would very much have liked to resolved without legal action,” said Avon Town Manager Larry Brooks. “But the money owed to the town has reached such significant levels that we have no other recourse.”
Bill Efting, who was town manager in Avon during the Traer Creek deal, said the agreement was made in good faith to reflect the most relevant concerns at that time. But in retrospect, he believes the deal should have been backed up with more financial guarantees. He said the town should have negotiated for money in an escrow account or a land-as-collateral deal.
“I would have tried to educate the council in different ways, knowing what I know now,” said Efting. “You want to work with people and you want to trust people. But we should have put some safeguards in the agreement.”
What are Eagle’s safeguards for Eagle River Station? A wholly different financial mechanism, says Eagle Town Manager Willy Powell.
“Our set up with Eagle River Station is different. We will collect the (fee) monthly, just like sales tax,” said Powell. He said the mechanism is designed to ensure the town will collect revenue from the development.
Michael Hans of Red Development concurred. “The (fee) goes directly to the town. The metro district won’t touch the town’s money and couldn’t withhold it if it wanted to.”
In addition to the free, Powell said the developer has agreed to complete a minimum of 200,000 square feet of commercial space in the initial construction phase. “That’s the way we are viewing it to cover our costs,” said Powell.
Will it work? Brooks believes it will. “Hopefully everybody is watching what happened here and learning for what they perceive as our mistakes,” he said.
Lesson No. 1 is to provide a mechanism for sales tax or negotiated fees to be collected at the time of purchase and channeled directly to the town, Brooks said. Such deals can be structured in a variety of ways.
At Glenwood Meadows, for example, the 1.5 percent public improvement fee goes to the metropolitan district while the town collects its regular sales tax at the development. That’s what Eagle Town Board member Yuri Kostick would prefer to see happen at Eagle River Station.
Kostick isn’t a fan of the public improvement fee as proposed. His objection relates to bonding capabilities. He noted that it will be easier for RED Development to underwrite its debt by using sales tax financing as its guarantee. Kostick wants the town to keep possession of that bargaining chip.
He noted that in most respects, sales tax and a public improvement fee will feel the same to consumers and generate the same end result in revenue collections. But he’s adamant that the town should keep sales tax from the development.
“Even if its negligible impact ” $100,000 on a $10 million bond deal for example ” I’m opposed to it,” he said.
For Eagle Mayor Ed Woodland, the financial part of the Eagle River Station deal is solid. He believes the financial risk associated with development will be borne by the bond holders, not by the town, while the development could bring some needed infrastructure improvements to the community.
“Can we afford not to examine a project that brings 20 years worth of capital improvements in five years?” he asked. “I am much more comfortable with the financials and the financing package that I am with the larger community character issues.”
But for many people, a finance package don’t address the fundamental issue of whether the plan will end up costing the town.
At hearing after hearing, community members note that retail stores are closing throughout the country. They question whether a shopping center can ever work in Eagle or if the town will be left with empty storefronts.
Last week, Eagle resident Mary Lou Keller talked about recently attending a financial seminar at Stanford University where an esteemed panel of money experts all advised keeping investments out of the commercial retail development because its the next sector poised for collapse.
“I would like all of us in Eagle to consider if this is the right time for us to become involved in this type of development,” she said.