In The News › Costco proposal raises questions about need for, availability of incentives in New Orleans

Nov 10, 2011

Source: New Orleans City Business

Filed under: Economic Development, Orleans Parish, Planning Issues

Costco proposal raises questions about need for, availability of incentives in New Orleans

November 3, 2011
Jennifer Larino
New Orleans City Business

Residents of Hollygrove and neighborhoods surrounding a proposed new Costco Wholesale store on South Carrollton Avenue walked among renderings at an Oct. 20 community meeting at Xavier University like they were perusing a candy store.

Eyes lit up at the tree-lined, 143,000-square-foot discount center proposed for the weedy lot next to Interstate 10 that was once the site of Carrollton Shopping Center. The room buzzed at the mention of more than 200 positions that pay starting wages of $11.50 per hour.

About halfway through the meeting a skeptical middle-aged man threw out a question that seemed to have been on his mind all night. How much would the city, and taxpayers, have to pay in incentives to make it all happen?

“There’s nothing in place now, but that’s not to say that a conversation won’t be ongoing relative to those sorts of partnerships going forward,” Jack Frank, executive vice president of real estate for Costco Wholesale Corp., told the man.

“It’s an ambiguous answer, but it could very well be a condition that there is some form of incentive, if you will, or assistance,” Frank said. “We need to know more information about what things really cost before we get to that point.”

Costco has yet to submit formal plans for the store but residents and government watchdogs are already calling for less ambiguity surrounding the public financing process that might underpin the deal.

On one hand, residents are hungry for the type of discount retail options that have eluded New Orleans for years. On the other, concern is growing around how, when and even why taxpayer money is being used to meet that demand.

If the Costco development moves forward, experts say the project is an opportunity to reverse a tradition of ad hoc city handouts.

Aimee Quirk, Mayor Mitch Landrieu’s economic development adviser, said the city has not discussed incentives with Costco. Both parties, she said, are waiting on project costs, transportation impact and other data to guide the discussion.

“We’re very careful and very cautious with public dollars and have a desire to ensure that there is a strong guarantee on investment and that it’s only used when absolutely necessary,” Quirk said.

Frank said the Carrollton Avenue property has the zoning, road access and utility infrastructure needed for the project. Still, he noted traffic upgrades, flood proofing and 90-foot pilings needed for the foundation site could add to the cost.

Developers traditionally have tapped into a variety of public incentives to jumpstart projects.

A tax increment financing (TIF) district freezes the sales tax base in an area at the pre-development level for a set period of years. State redevelopment and job creation tax breaks are also available.

Janet Howard, president of the Bureau of Governmental Research in New Orleans, said payment in lieu of taxes arrangements, or PILOTs, are more common in New Orleans. They must receive approval from the Industrial Development Board. The arrangement enables the city to take title to a property to facilitate bond financing. PILOTs waive property taxes in exchange for compensation in many cases lower than tax payments. Records show that taxable assessment of the former Carrollton Shopping Center property is $262,980.

Howard said records before Katrina show there were fewer than 10 active PILOT subsidies in New Orleans. Since the storm, there have been 63 requests for the subsidies with 25 active or approved.

Howard said subsidies have been approved on the loose basis of more jobs and more tax revenue instead of consistent market and financial analyses.

In December 2006, the IDB approved a 20-year tax break for the Home Depot in Central City when sales at nearby stores soared during post-Katrina rebuilding. Tax breaks for the Walgreens store at South Carrollton and South Claiborne avenues were approved after developers started construction. Various other projects have received subsidies on top of millions in federal and state funding.

“When you get 60 of these requests, you have a legitimate question as to whether this is becoming part of a business model,” Howard said.

Rodrick Miller, CEO of the New Orleans Business Alliance, said incentives will be part of attracting development in a city with older infrastructure and elevation issues. He agreed that past procedures have led to a developer-driven incentive process.

“(Developers) will come and say, ‘We’ve done this in five other markets and it’s great because of A, B and C. Now it’s going to cost $10 million to do it here, and we think the city should pay for some of that,’” Miller said.

He said the alliance is working with the IDB and the city to build a coordinated and transparent approach to incentives. That overhaul is still in its early stages, but he said Costco will be an opportunity “to rethink how we do some things,” Miller said.

Costco’s Frank said public subsidies make sense in some redevelopment projects, noting a recent store built at a former industrial site in a Los Angeles suburb. The incentives helped Costco overcome environmental remediation and other unexpected costs.

Frank added that project planners aren’t coming to the table with an open hand.

“There’s got to be trust going both ways. We don’t just say, ‘Hey how much can you give me?’ It’s really based on need, on real development premiums, on making it make sense,” he said.

Nov 10, 2011

Source: New Orleans City Business

Filed under: Economic Development, Orleans Parish, Planning Issues

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