Eagle could reap millions in taxes
EAGLE, Colorado ” Town officials and consultants say Eagle, Colorado would get a good financial deal out of the Eagle River Station project. Critics of the $346 million project, which would bring a Target to Eagle, say they’re still not sure.
The complex would include dozens of stores as well as hundreds of homes and a hotel. It would be built on 88 acres on the eastern end of town, south of Interstate 70.
The developer, Trinity RED Eagle Development, based out of Colorado, Missouri and Arizona, says the town of Eagle would get about $2.5 million in sales-tax revenue until the bonds are paid off, which will take as long as 25 years. After that, they would get $8 million to $8.5 million per year in sales tax per year.
The deal would also use tax money produced by the project to build $62.5 million in infrastructure, including a new Interstate 70 interchange east of town, two new roundabouts, a new water storage tank, sewer upgrades, $5 million to improve the town’s water system
The town would also get millions in one-time fees, including construction use taxes and impact fees.
Consultant Arne Ray, of Ray Real Estate Services, says the developer’s estimates seem to be in “good faith.” Ray, who said he has analyzed about 50 different retail projects over the last 20 years, was hired by the town to examine the financial aspects of the proposal and to ensure that the town’s interests would be protected.
“If the town proceeds anywhere close to what’s been proposed, it will be financially beneficial to the town,” Ray said.
In some ways, the deal is more attractive than other development deals between municipalities and developers, Ray said. Ray said it’s reasonable to expect a 10.4 percent rate of return for projects of this scope or size. The developer’s planned rate of return is lower than what’s typical for projects of this scope and risk, Ray said.
In addition, 18 percent of the cost would come from public funds, whereas comparable projects often use 40 percent or more, Ray said.
Also, under the deal, a metropolitan district, not the town, would be on the hook for the project’s debt. EAgle would not have to worry about defaulting on loans, which could deliver a devastating blow to the town’s ability to secure bonds in the future.
“This is the most preferred structure of any to protect the town,” Ray said.
Critics zero in on the developer’s occupancy projections, wondering whether the mall can achieve the 95 percent that the company expects. That occupancy rate would be critical to ensuring the tax revenue that the developer promises.
The company’s projections of $2.5 million per year have “no substantiation whatsoever,” said Jan Rosenthal-Townsend, an Eagle businesswoman who opposes the proposal.
“That kind of sales projection and occupancy won’t happen in these economic times,” she said.
Rosenthal-Townsend added that the company hasn’t updated its projections in light of the recent deterioration of the economy.
The developer says says it expects 95 percent occupancy at the project, while its best-case scenario is 100 percent occupancy. RED Development’s shopping centers that had been open for a year, which include sites in Lee’s Summit, Mo., and Kansas City, Kan., operated at 91 percent occupancy in 2008.
“Those numbers are lower than what we would typically expect because we’re in a very difficult economic cycle now,” said Mike Hans, development manager for RED Development. “Given that the country is very difficult economic cycle now and tenants are closing stores at a much more rapid pace, occupancy levels today are depressed over what you would typically expect to see.”
The project, now slated to begin in the spring of 2010, wouldn’t start until the economy “turns the corner” toward improvement, Hans said.
Hans said 50 percent occupancy would be an “absolute disaster” and something he “can’t even imagine” but that the town would still realize over $1.25 million in sales tax revenue per year.
The town expects to use much of the revenue to improve local roads, including Highway 6 and Eby Creek Road. Money coming into the town’s capital fund, which pays for road improvements, has shrunk as construction has dried up in recent months. The revenue for the capital fund has diminished from $3.75 million in 2007 to $721,000 budgeted for 2009, said Eagle Town Manager Willy Powell.
Powell also eyes adding additional staff to help the town deal with growth.
“It is a relatively good financial deal for the town,” said Eagle Town Manager Willy Powell. “It obviously gets better after the initial bonds are paid off and we see the full increment of sales tax. It certainly will help the town in the interim, providing for enhanced operating and additional capital projects, many of which we need.”
The Eagle River Station project is expected to cost the town of Eagle about $600,000 per year in municipal services.
The deal is somewhat similar to others that have been struck between municipalities and developers across Colorado.
The FlatIron Crossing mall ” which is about three times bigger than the commercial space proposed for Eagle ” brings $13.5 million per year in sales tax revenue to the City and County of Broomfield, said Rosann Doran, a spokeswoman for Broomfield.
The town floated bonds to pay for $82.8 million in public infrastructure, including water lines, sewer lines and streets. The city and county pay $2.2 million per year in bond payments.
The city and county were able use the extra revenue to build a rec center, buy park land and open space and boost the size of its library, Doran said.
In Avon, the Traer Creek shopping center includes 650,000 square feet of commercial space, including a Wal-Mart and The Home Depot. The Traer Creek Metropolitan District issued bonds to finance $50 million in infrastructure, which includes streets, roads, roundabouts and an Interstate 70 interchange.
The Traer Creek Metropolitan District collects Avon’s 4 percent sales tax to pay off the cost of the infrastructure.
The district will continue to collect the fees until the metro district is dissolved. The metropolitan district is also paying for municipal services such as police and street maintenance until the bonds are paid off.
Also, the developer promised to pay $200,000 a year for 10 years to help reduce traffic and improve roads in Avon. The developer also agreed to compensate for any lost sales tax at the old Wal-Mart site at Chapel Square. The amount of sales tax that was generated by Wal-Mart the year before it moved is guaranteed by the developer.
Those last two promises are the subject of ongoing litigation between the town and the metro district, said Town Manager Larry Brooks.
Ten years after the agreement was finalized, Brooks said he’s personally “not the least bit happy” with the pact. Brooks said the agreement left the town with inadequate methods to address broken promises by the developer.
Glenwood Meadows in Glenwood Springs has 405,000 square feet of retail space, including a Target. The project contained about $18 million in infrastructure, including two roundabouts, a new intersection, other road improvements and water and sewer work, which is being paid for with a 1.5 percent “public improvement fee.”
The town now sees about 22 percent of its sales tax revenue generated from that mall, said Town Manager Jeff Hecksel. The shopping center generated $3.78 million in sales tax revenue in 2007.
Staff Writer Edward Stoner can be reached at 970-748-2929 or firstname.lastname@example.org.