Reaching for revenue
In Eagle, the quest for sales tax will this year focus on the proposed Red Mountain Ranch commercial/residential project. The project, which currently has concept plan approval from the town, would add as much as 450,000 square feet of retail space and as many as 337 housing units on a 397-acre site immediately east of the town.
All the commercial property and 300 housing units will be built on the parcel east of town between Interstate 70 and U.S. Highway 6. Higher-end homes are planned for property north of I-70 and between Highway 6 and the Eagle River.
Vail resident Merv Lapin, leader of the partnership that owns the property, plans to work this year on a plan that would allow the eventual developer of the property to use some of the sales tax generated by the project to pay for “off-site” improvements such as utility service to the site, as well as an entrance to the project off Highway 6.
Very initial estimates provided by planner Tom Braun, who is working for Lapin, put the cost of those improvements at as much as $8 million. Lapin would like to see as much as half the sales tax generated by the project during its first several years used to repay the project’s developer for those improvements.
Why a rebate?
If the town and Lapin can reach an agreement on a revenue sharing plan, it would be a first for Eagle, but this isn’t the first town asked to give up some short-term sales tax gain for long-term benefit, and towns throughout the state often compete for the privilege of giving revenue back to a developer. The reason is simple: money.
“There are only three ways for a town to generate revenue: sales tax, property tax and user fees,” said Lapin. “Sales tax is the best way to raise that revenue.”
In Eagle, only about 10 percent of the town’s general fund revenue comes from property tax, with sales tax collections making up virtually all the rest. Lapin, who once served on the Vail Town Council, said residential growth simply doesn’t pay for itself, which means towns must look for additional sales tax sources as population grows.
Throughout Colorado, most municipal revenue comes from sales tax, which is why landing large retail centers often sparks competition between neighboring towns. That competition usually takes the form of incentive packages that can include the waiver of various fees for water and sewer service, low-cost land and, often, rebating sales taxes back to the developers after they have paid up-front to make improvements on and around a parcel.
The ultimate example
What many see as the ultimate giveaway to a developer occurred in Avon. In the late 1990s, the Avon Town Council forged a deal with Traer Creek Development, which proposed the massive Village at Avon project, now home to a Super Wal-Mart and The Home Depot. That agreement rebates 100 percent of all Village at Avon sales taxes to the developer until revenue bonds that funded the infrastructure around the project are paid. It could be 20 years or more before the town sees any sales tax from any store built at the Village at Avon.
“If the situation was the same I would still support the incentives we gave them,” said Judy Yoder, who was on the Avon council during the Village at Avon negotiations.
“We had a gun to our head at the time,” Yoder said, adding that town officials feared Traer Creek was prepared to go through the county approval process if it could not reach an agreement with the town.
Avon Town Manager Larry Brooks also stands by the decision to give Traer Creek all the near-term revenues from the Village at Avon.
“The principal thing we got was they paid for an agreed-upon amount of impacts,” said Brooks. Those impacts included water and sewer lines, as well as road improvements in and around the project.
In addition, Brooks said Traer Creek continues to pay the town for the amount of sales tax lost due to Wal-Mart moving to the Village at Avon, minus whatever is generated by a Pier 1 store now in the old Wal-Mart building. If Traer Creek would have stayed in unincorporated Eagle County, the town could have forfeited every penny of Wal-Mart’s sales tax when the store moved, Brooks said.
“It restored stability to the town,” Brooks said.
While those involved with the deal defend it, the Avon/Traer Creek deal is widely seen as an example of what not to do. Every Eagle County resident interviewed for this story said virtually the same thing: “We won’t do what Avon did.”
Other towns in the region have also played the game differently.
A little help
Glenwood Springs has seen its sales tax collections decline by more than 10 percent since a Super Wal-Mart opened in Rifle last year.
City Manager Mike Copp said while the town isn’t actively recruiting new businesses, it is eager to rebuild the tax base, but in a way that protects current residents. To that end, the City Council recently passed an ordinance setting firm limits on incentives to commercial developers.
The ordinance still requires developers to pay all up-front tap fees and other costs. When those projects start generating sales taxes, though, they can get back up to 20 percent of those revenues for five years, or until the up-front costs are repaid. Copp stressed the incentive package is for five years only, meaning if revenues don’t match projections, the developer, not the town, is on the hook.
The first developer to play under those new rules is a project that may include a Target store. That project, located near the town’s new recreation center south of I-70 and the Colorado River, may break ground this year.
Target was also the recipient of an incentive package in Silverthorne a couple of years ago.
Silverthorne Town Manager Kevin Batchelder said the Target project was the first time the town had offered an incentive package to a developer. As in Glenwood Springs, no up-front subsidies were offered, but collected sales taxes will be rebated to the retailer.
Batchelder said the rebates will pay for “public or public-related” improvements spelled out in the town’s “Sales Tax Incentive Program.” The result, said Batchelder, is that Target was able to add, and pay for, a number of architectural and site improvements to its Silverthorne store using sales tax.
Among those improvements were public restrooms, landscaping, snowmelt detention and pedestrian and bike trail improvements on and around the site.
The result speaks for itself, said Batchelder. “It’s a beautiful store, and we were able to put in a lot of extras because of the program.”
Target is the only store in Silverthorne now participating in the town’s incentive program, and others may or may not follow.
Because of Silverthorne’s record of success attracting developments such as the factory outlet stores, Batchelder said he doesn’t think incentives are necessarily a given when working with commercial developers. Other town officials disagree.
“Price of doing business’
Copp, who works for a town long known as a regional retail center, said these days incentives, “Are just part of the price of doing business.”
Eagle Town Board Member Paul Witt agreed, saying “More and more, incentives are the norm. There’s any number of towns with available space, and that want businesses to come. To land one of these large developments, it’s a given.”
Incentives may be even more necessary in a place such as Eagle. Red Mountain Ranch would be Eagle’s first large retail development, and, Lapin said, a commercial developer will need to be convinced his site is a good place to do business.
“A partnership (with the town) allows me as an owner to entice a retailer to choose Red Mountain Ranch over other potential sites in Glenwood, Avon, Edwards and Gypsum,” said Lapin. In addition, Lapin said a retailer building in a new spot will have questions about sales volume and other costs. Getting those costs down, at least in the short term, is crucial.
Questions about big retail development go both ways.
Witt said finding new sources of sales tax revenue is crucial for Eagle’s future, “But the flip side to the revenue is additional impacts. We need to determine how big an impact we’re willing to accept.”
Witt said the town already gets some complaints about traffic on Chambers Avenue, which, at first, would be the primary access point to Red Mountain Ranch. In addition, there are questions about the cost of maintaining streets, the costs of a bigger employee base and other issues.
“There’s a host of positives that come with this, but there are potential negatives, too,” said Witt. “We need to try to find the best balance between all of the impacts.”
If Red Mountain Ranch is built, its impacts promise to reverberate beyond Eagle’s town limits. The town of Gypsum has two sites zoned for potential “big box” development, but no immediate prospects.
Gypsum Mayor Steve Carver said he’d like to see a two-way agreement between the towns to use sales tax to address traffic and other impacts.
“We had talked to Eagle a couple of years ago, and then they just kind of forgot about it,” Carver said. “I would like to keep the lines of communication open, because any big store is going to affect both towns.”
For now, though, Eagle officials are concerned about forging the best deal possible with Lapin’s group.
“The bottom line is we’re going to negotiate with (Lapin),” said Witt. “We hope we come away with an agreement of benefit to both the town and him.”
This story first appeared in the Eagle Valley Enterprise.
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