Saturday, February 5, 2011

Incentives--From Where We Came to Where We Are

Some thoughts after reading today's story on incentives in the Free-Lance Star:

Incentives should be used to meet economic development goals. Goals which as originally discussed must look beyond just direct impacts of jobs and revenues to include diversification of our tax base, sustainability, more higher paying jobs, and compatibility with the city's character.

In setting up the incentives program it was important to place benchmarks like jobs , revenues, and capital investment to be achieved before tax dollars and fees would be reimbursed. We have dealt with the direct impacts and seem to have stopped and there have been consequences.
For downtown an existing business creating 5 jobs, and $125,000 capital investment and 10 jobs and $250,000 capital investment, are the benchmark for qualifying for incentives. As for job creation we are not differentiating between a $25,000 a year job and a $125,000 a year job. If we take into consideration the costs associated with those jobs the return to the city could also be negatively affected. In regards to capital investment we are looking at revenues to the city of only from $1,000 to $2,150 a year based on the current real estate tax rate. How much of a return are we actually getting? As for revenues projections we base them only on the business' projections but not on the potential impact on other businesses.

Case in point, a new restaurant downtown would probably have a negative impact other downtown restaurants' revenue. Just providing incentives for one sector, i.e., restaurants for example, can be counterproductive.

The benchmarks for Celebrate VA and Eagle Village are 25 jobs and $500,000 capital investment which seems low knowing what type of businesses are planned for those areas. It should also be noted that we have since tweaked our incentive programs to bring them in line with our neighbors. Based on the first come first serve approach one has to question the validity of the incentives program. It should also be remembered than one of our goals was to get away from our reliance on retail/service.

We are failing on two counts. We have forgotten some significant reasons we had for implementing incentives in the first place--diversity, sustainability, more higher paying jobs, and compatibility with the city's character (I'll deal with the Kalahari comments as they come). Secondly, they were put in place so that the city could pro-actively work towards achieving diversity, sustainability, more higher paying jobs, and fitting the city character. It time to reevaluate where we are with incentives and also take a moment to provide the community with the vision of what is to be achieved with them.

Is there a role for incentives in Fredericksburg?


Mike Fay said...

Good points.

Larry G said...

It makes no sense at all to incentivize restaurants in downtown Fredericksburg.

All it does is unfairly pick winners and losers via cannalbalizing existing businesses.

I cannot imagine trying to run a restaurant in the hyper competitive environment of downtown Fred and having the city subsidizing new competitors.

The best thing the city should do is to encourage all businesses with lower taxes and bare minimum permits and fees for all of them but stay back out of the way to let them compete and let the competition decide who is successful - not inherently unfair treatment.

Sometimes I can't figure out if the city is dysfunctional on purpose or what....

Make the downtown area an enterprise zone for all... not just some.

Charlie Rowe said...

I would love to hear some comments about the incentives for Kalahari, as well as those for the Slavery Museum.

For Kalahari, the occupancy tax was raised to pay for Kalahari's bailout. That seems patently unjust for the motels that compete against Kalahari.

For the Slavery Museum, selected businesses had to pay an extra $1 million in taxes so that City Council could give $1 million to the Slavery Museum. Not only is that unjust, I don't see any supposed benefits coming from the Slavery Museum.

The funniest thing I find about the incentives is that they don't mention the consumer. My goal is a good dining experience at a good price; I could care less about all that other mumbo-jumbo--"diversity," "sustainability," "compatibility."

MATT KELLY said...

Charlie--First, on the $1 million Slavery Museum that was before my time on City Council. That was actually a loan which was paid back with some modest interest. The other caveat for the funds was that it could not be spend on the museum but rather for studies for the entire Celebrate VA development. Yeah, didn't make much sense to me either. Money that could not directly benefit the project to be used by an organization that didn't have the expertise to do what they were asked to do. When I got on Council I tried to get copies of the "reports" done by the Slavery Museum of parking, traffic impacts etc, which have never been made public. Big reason why I opposed any further support to the Museum during my tenure.

The mombo jumbo is important because tax dollars are involved. Council owes residents an explanation regarding the reasons and benefits when tax dollars are involved. What is the outcome, the "mombo jumbo," do we expect from the investment of tax dollars. If it becomes apparent, as in the case of incentives, that we are not getting the outcome planned, then we must reevaluate the use of funds.

On Kalahari--This would be a unique tourism business going into a tourism campus as laid out in the City's Comprehensive Plan. Again tourism dollars know no boundaries and come with less costs. A successful tourism campus takes the heat off of real estate and other taxes and fees paid by city residents. If you Google search Kalahari you will see even under the current economic conditions they are doing well. Kalahari is and anchor business, It attracts other businesses. Businesses that should not require incentives.

And I would again point out that the city has not done a very good job informing residents on the goals and visions of the future development of the city (its more than just restaurants and water parks) and the role incentives play achieving those goals. This should be a community discussion. Not just covered in a work session or retreat.