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TIF tweaks will pay for Lake Forest retail center

Developers will use bond money obtained through sales tax breaks to pay off debt

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

Developers who plan to overhaul Lake Forest Plaza mall, an 81-acre eastern New Orleans shopping venue that has been shuttered since Hurricane Katrina, envision a sparkling new mall complete with big-box retail, restaurants, a police substation and an amphitheater.

This week, the City Council is scheduled to rule 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 roughly $200 million project.

Although supporters of the New Orleans East Marketplace say it will bring much-needed retail to eastern New Orleans and reverse the loss of shoppers to other parishes, aspects of the project have raised concerns.

The Bureau of Governmental Research is troubled that some of the TIF proceeds will be used to pay off existing debt connected to a previous business on the mall site.

City Councilwoman Stacy Head agrees eastern New Orleans needs more retail businesses but 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.

The TIF would cost the city and state each 2 percent in annual sales tax collections that will instead be used to fund the project, according to project documents. Each year, the 4 percent is expected to generate $15.5 million. It is expected to take 25 years to retire bond debt backed by the TIF.

Cesar Burgos, a lawyer whose partner in the project is First NBC Bank President Ashton Ryan, argues that with the mall closed, the city isn’t collecting any sales taxes. He said he is counting on the project being so successful that the bond debt could be paid off in less than 25 years.

Burgos also highlighted the project’s economic impact. In addition to shopping options for eastern New Orleans, the project will create 2,000 jobs at the mall and 800 related jobs off site, he said.

“I think that the average New Orleanian and most of our elected officials are going to say there’s a need for this … because we are literally giving away our tax dollars to our neighbors,” he said, referring to the retail dominance of Jefferson and St. Tammany parishes.

But the developers will also use tax dollars to pay off private debt, said Janet Howard, president of New Orleans-based BGR.

TIF dollars are supposed to fund new improvements that otherwise would not occur. It’s simply outrageous to use public funds to pay off third-party debt,” Howard said. “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.”

One source of debt involves a Lowe’s Home Improvement store on the site. 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.

The Grand of the East LLC, owners of a theater on the site, owes Lake Forest Plaza lease payments and construction loan payments. TIF proceeds of $1 million will be used to settle the debt and improve the Grand theater.

Burgos said The Grand of the East and Lake Forest Plaza are “two separate entities owned by different individuals.”

Ryan is a minor investor in The Grand, Burgos said, but he and his partner do not have a controlling interest in the theater.

“Like the city, we are owed significant money by the Grand,” he said.

As for the use of TIF funds for the Grand debt, Burgos said, “At the end of the day, I think we’re all going to have to exercise some flexibility. I don’t want an eyesore in the project.”

Rachel Weber, associate professor or urban planning at the University of Illinois at Chicago, said TIFs are often used for land acquisition. Using a TIF to settle previous debt, she said, “strikes me as being in a kind of gray area.”

Tangee Wall, chairwoman of the economic development committee of the East New Orleans Neighborhood Advisory Commission, said she supports the TIF because eastern New Orleans needs the mall.

State Sen. Ann Duplessis, who sits on the state board overseeing the TIF, said it’s worth it because the mall is sitting idle.

“Right now … there are no revenues at all, no tax dollars, being generated at the property,” she said.•

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