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Lake Forest Plaza developers release economic impact study

Monday, September 14, 2009
By Deon Roberts, Online Editor
New Orleans CityBusiness

When the developers of Lake Forest Plaza mall go before the New Orleans City Council this week to request a subsidy to refurbish the shuttered site, they have a new economic impact study to support their request.

Baton Rouge economist Loren Scott wrote the study, which was released today. On Thursday, the council is scheduled to vote on whether to support the developers’ request to use sales taxes — through a mechanism known as tax increment financing, or TIF — generated at the mall to finance the nearly $200 million project. But the New Orleans-based Bureau of Governmental Research has criticized the TIF.

According to the study, the absence of a mall in eastern New Orleans has forced residents to shop in Jefferson and St. Tammany parishes, leaving New Orleans “as perhaps the only major city in the U.S. without a major shopping mall for its inhabitants. A reasonable argument can be made that one of the reasons for the slow re-population of this area after the storms has been the absence of a significant shopping mall like the Lake Forest Plaza Mall.”

A Lowe’s home improvement store that opened after Hurricane Katrina is the only business operating on the site. The developers, lawyer Cesar Burgos and First NBC Bank President Ashton Ryan, plan to restore the mall in three phases and operate it as New Orleans East Marketplace.

In the first phase, which would begin in January, cost $43.4 million and take 1 1/2 years to build, plans call for a Wal-Mart, 100,000 square feet of other retail, 9,600 feet of food/beverage, a gas station and a police substation.

The second phase, which would cost $109.1 million to build over two years, would begin in July 2011 and involve 500,000 square feet of retail, 45,400 square feet of new food/beverage establishments, a renovated cinema and a 1,250-space parking garage.

The last phase would start in July 2013, take 1 1/2 years and cost $42.6 million to build. It would involve the construction of 50,000 square feet of Class A office space and a 120-room hotel with conference facilities.

The redevelopment will cost a total of $195 million over five years.

About 2,257 people will be employed at the mall, according to the study. During the construction period, temporary and permanent jobs will average about 2,100 per year.

The study also breaks down how much the state and city will lose in sales taxes to fund the project. The TIF would cost the city and state each 2 percent in annual sales tax collections that will instead be used for the redevelopment.

From 2010-30, the parish will give up $172.8 million in sales taxes and the state will forgo about $1.7 million a year in taxes to its budget because of the TIF. But from 2010-30, the parish will collect $83.6 million in property taxes at the mall that it would not otherwise collect if the mall were not revamped, and the state will gain 820 permanent jobs, $22.3 million a year in new household earnings and $68 million a year in new business sales, the report says.

It is expected to take 25 years to retire bond debt backed by the TIF. But Burgos said the TIF debt could be retired in less time.

Despite the rosy economic projects, BGR has raised concerns about the TIF.

One source of debt involves the Lowe’s. When Lowe’s bought the land for its store, it became the holder of the mall site’s roughly $11 million mortgage. The TIF proceeds will be used for all project- and construction-related debt, including money owed to Lowe’s, Burgos said.

TIF dollars are supposed to fund new improvements that otherwise would not occur,” said BGR President Janet Howard. “It’s simply outrageous to use public funds to pay off third-party debt. Too much of this money isn’t even going to New Orleans East. Basically it’s going into private pockets to settle private debt rather than to new investment in the area.”

Councilwoman Stacy Head, who said eastern New Orleans needs more retail businesses, said she is not comfortable with the project.

“There’s some legitimate questions about the way that this TIF was set up,” she said.

Head said the developers, rather than the city, are driving the project. A more palatable scenario, she said, would involve the city controlling the site and using a competitive process to find developers. Such a process could have produced a project with less cost to taxpayers, she said.

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