How Much is the City Paying Walmart to Build in the Triangle?


by John Kiljan

Dear CLRC members and friends, 

How big a check is Arvada sending to Bentonville, Arkansas to get Walmart to build a new outlet in the Arvada Plaza?  The answer may surprise you.  Read on to find out more and be prepared for some big numbers. 

On June 21st, the City-sponsored Arvada Urban Renewal Authority (AURA) released a surprisingly open statement of its planned financial incentives to encourage Walmart to locate a reduced-sized Supercenter in the Arvada Plaza.  The Plaza is the most-blighted part of the shopping centers at Ralston Road and Independence and it is where Ace Hardware now sits. 

RichMonopoly2

I don’t want to shock anyone, but Walmart is in the business of making money for its shareholders.  Many Arvada residents have been expecting a substantial public financing incentive would be needed to get Walmart (or any other retailer for that matter) to take on the risk of investing millions of dollars in a location where other grocery and retail outlets have already failed.  The total bill for this investment is expected to be about $25 million.   

A market analysis by the Urban Land Institute (ULI) has said that the only way to encourage smaller neighborhood businesses to locate in and around the Triangle is to first get an anchor tenant to occupy the Arvada Plaza part of the shopping area to increase customer traffic.  They also said that the most viable tenant would be one that offered grocery or retail.  For ten years AURA has been looking for that tenant without success — until now. 

So how much is the City subsidizing Walmart’s investment to build a new outlet in the Plaza?  Here’s the short answer:  Walmart gets paid nothing from the City or from AURA to build or open up a new outlet in the Plaza.  That’s right.  Nothing.  Zero.  That’s the surprise. 

WMCheck001

For those who have been objecting to the thought of giving any public financial assistance to Walmart to locate in the Plaza as some form of “corporate welfare” for the world’s largest and richest retailer, that non-number should be a relief. 

IRG, the industrial brownfields developer who bought most of the Plaza six years ago as an investment, does get a financial incentive.  IRG may get as much as $5.8 million from AURA in sales rebates.  That money will only come from new tax and fee revenues that first have to be earned by Walmart, or as AURA puts it, “new money that doesn’t exist today”. 

But don’t be too fast to think IRG is getting a $5.8 million windfall.  That rebate won’t come to IRG very easily.  It will be paid over many years and IRG is going have to spend $9.1 million in up-front infrastructure improvements to the Plaza to be eligible for the rebate.  

It’s hard to make a profit when you have to spend $9.1 million to earn $5.8 million. 

$3.3 million of IRG’s required improvements will not be paid for by AURA or by the City.  Either IRG will be taking a big hit on its Arvada Plaza investment or the company is hoping to make up the difference when it sells its property to Walmart — in which case it will be Walmart that is covering that cost.

MonopolyBroke2Even if IRG manages to do that, IRG may still show a big loss for its Plaza investment.  Records show that IRG paid $9 million when it bought its Arvada Plaza property in 2007.  Today, the County Assessor’s records value that property at only $7.5 million.  During a Planning Commission meeting, IRG testified that it has lost money on the property every year since they first bought their part of the Plaza. 

If, back in 2007, IRG had invested its $9 million in conservative 10-year US Treasury Notes (then earning 4.5% interest) instead of in Arvada, the company and its backers would now be about $4 million wealthier instead of being $4.8 million in the hole on its Plaza investment. 

IRG also seems to be taking on a lot of the development risk.  IRG could end up getting paid less of a rebate.  After 12 years, rebates to IRG will be cut off — whether Walmart has earned $5.8 million in additional fees for the City or not. 

It’s going to be expensive for any retailer to build in the Arvada Plaza.  Many citizens were expecting AURA, and the City, to have to foot the bill for a lot bigger public subsidy if we were ever going to get a new anchor for the area.  I certainly was. 

Asbestos insulation removal in an old building

Asbestos insulation removal in an old building

There are asbestos-contaminated buildings that need to be cleaned and then pulled down. The water and sewer lines in the Plaza have reached the end of their useful life and need to be replaced.  Tons of old broken asphalt have to be scraped away and hauled off.  The ground looks like it may have been used as a small landfill when the Van Bibber Creek that ran through the parking lot was filled in, and the uneven parking lot surfaces will need regrading.  To add to the misery, there may be gasoline-contaminated soil on the property from the old filling station located just outside of the development. 

And, not to put too fine a point on it, the areas in the Plaza right next to Ralston Road, Independence and 57th Avenue are downright ugly.  They might only be partially on IRG’s land, but they are in need of some serious new street-side landscaping.  The overhead power lines also need to be moved underground.  All of this work has to be done before new development can take place.   

WalmartCreekside

Lakewood Walmart at Colfax and Wadsworth Blvd

I checked with Lakewood’s urban renewal authority and found out that they are expecting to pay the developer of the Walmart shopping center at Colfax and Wadsworth Boulevard $22.5 million in rebates on a project that cost $51 million to build — or 44% of the total.  Lakewood has bumped up their effective “sales tax” by 1.5% at that shopping center to help cover the cost of the $22.5 million.  Westminster is reported to have given Walmart a $5 million tax rebate to the company to locate their store at 72nd and Sheridan. 

Attracting commercial development to Arvada’s blighted areas can be difficult.  When the discount warehouse Costco wanted to build an outlet at 52nd and Wadsworth, AURA had to pay Costco $9 million to help them to do that.  Most of the money was spent to mitigate the flood risks on their lot.  AURA also had to invest $15 million in the Arvada Ridge project to clear away the rest of the old Ridge Homes, improve the drainage and to upgrade the roads.  AURA then spent another $3 million to get Target to build a store below the same hill.

So why are IRG and Walmart accepting such a relatively small incentive from Arvada to build in the Plaza?  I put that question to AURA and others when the new incentive data was released. 

Question

So here, in a question-and-answer format, is what I found out: 

Q:  The low incentives?  A:  IRG seems to believe Walmart will be successful in bringing in new revenues faster than expected, and that they can earn back their entire $5.8 million in rebates in only six or seven years instead of 12 years.  For its part, Walmart is well funded and doesn’t seem to need a subsidy to build here. 

Q:  So just how much additional sales revenue is Walmart expecting to pull in for the City every year to help pay off that debt?  Estimated sales figures are proprietary and Walmart won’t share that information with AURA.  Even if the City or AURA had those numbers they would not be allowed to give out that information to the public.  For the same reason, the City is not allowed to release sales tax revenue information for each existing business in Arvada.

So what AURA  seems to have done is to get an independent outside estimate of what Walmart should be earning in new sales taxes.  You can find that number in the current City Council packet.  Our 3% City sales tax should bring the City $1.5 million a year in new revenues.  AURA is proposing to pay IRG (not Walmart) about $900,000 a year using an improvement fee (aka a PIF) on sales instead of a regular sales tax.

Q:  What happens if the store doesn’t do well and Walmart closes in, say, five years?  A:  The risk is carried by IRG and Walmart.  If there are no increases in sales by the improvement district, IRG does not get its hoped-for tax rebates. 

Q:  Is the City or AURA sponsoring tax-free municipal bonds to help IRG or AURA finance this deal?  A:  No they are not.  AURA did do that to help the developers at the first AURA redevelopment site at 52nd and Wadsworth, but the Plaza project is well funded and neither IRG nor Walmart are expected to ask for or need government support for them to issue new debt.

Q:  What is a PIF?  A:  A PIF is a Public Improvement Fee assessed on every retail purchase.  It works just like a sales tax.  PIFs are sometimes called a fee-in-lieu-of-taxes.  Shoppers at the Kipling Target [and] its  adjacent shops have been paying PIFs for years.  The only way to find out if you are paying a PIF instead of a regular sales tax is to look at your shopping receipt or to look for a small notice on the stores’ cash registers. 

PIFs are only put in place for a limited number of years after which they are replaced with a regular sales tax of the same amount. 

Q:  Does this mean shoppers will have to pay a higher “sales tax” when they shop at this Walmart?  A:  No, this PIF is only an accounting substitution for part of the current sales taxes.  The overall cost of taxes and PIFs (8.06%) will be exactly the same for each purchase in the Triangle as it would be anywhere else in the City. 

However, that’s not true for all PIFs in other parts of the Denver-metro area.  For example, in order to finance the development of Belmar, Lakewood used a PIF to increase the overall cost of every purchase at Belmar by 0.5%.  In the same way Lakewood used PIFs to increase the cost of making a purchase at the Walmart at Colfax and Wadsworth by 1.5%, and by 1.4% at the Colorado Mills stores near Colfax and I-70.   

Arvada is not doing that.  It won’t cost more to shop at the Triangle than it does anywhere else in the City.

Outdoor dining at Belmar

Outdoor dining at Belmar

Q:  It seems like Lakewood shoppers are paying a lot for their new developments.  So how much of a public financial subsidy is Lakewood providing to the developers of Belmar to get them to locate there?  A:  $175 million. 

Q:  Isn’t that a staggering amount of money — and a lot for any suburban city hoping to pay that debt back out of its sales receipts.  A:  It is, but Lakewood thinks they can afford it.  Also consider that Belmar is a $750 million project and that $175 million investment amounts to only 23% of the project’s total cost.

Q:  What percent is Arvada contributing to the cost of IRG’s development in the Plaza then?  A:  AURA thinks that will be between 20% and 25% of the total cost.  And that range is considered normal for most of these types of development projects.  Remember, the money to pay off Arvada’s investment only comes from the increase in revenue that Walmart itself will be generating.  No other Arvada City taxes or other income will be used or obligated to make rebates to IRG, and no rebates will be made to Walmart. 

Q:  So, will the PIF go away after IRG has received its $5.8 million rebate?  A:  After AURA has paid off its IRG obligation, the PIF will continue for at least a total of 12 years and possibly as long 25 years overall.  The exact time is still being negotiated with the City as a part of the “Cooperation Agreement” between AURA and the City. 

Q:  So where does that extra PIF money go to after IRG gets its rebate?  A:  That’s the best part.  It goes back into providing financial incentives to redevelop the remainder of the Triangle.  Walmart is not the end.  It’s just the beginning of AURA’s effort to redevelop the entire Triangle and to improve the surrounding neighborhoods.  There will be no other place that AURA is able to spend the money from that increment except in our own neighborhood.

Indeed, AURA was created by the City of Arvada for the very purpose of using increment financing to clean up the most blighted areas of the City.  And AURA’s track record for successful urban renewal projects is one of the best in the State of Colorado. 

Q:  What kinds of things will AURA use that money for then?  A:  That will be determined by the AURA Board of Commissioners and the City of Arvada.  Best uses for the Triangle could include additional streetscaping, other retailers complimentary to Walmart, boutiques, restaurants, cafes, offices, apartments, artist studios, small parks and plazas. 

And even a recreation center with a pool to replace the one lost when the Fisher Pool and adjacent ice skating rink were closed down years ago.  The City has already set aside $3.1 million in its budget for its share of the cost of a new recreation center in or near the Triangle.  But that set-aside money is contingent upon at least some significant development in the Triangle.   

Q:  If property tax revenues in the Plaza are fixed for the improvement period, won’t other public services for things like schools, libraries, fire and police suffer?  A:  No they won’t.  Except for the police department, they will all keep the same funding levels that they had before this area was declared blighted and set up as an urban renewal area by the City Council.

Q:  The Arvada Police Department?  A:  Yes, their special 0.46% voter-approved sales tax amount to put more police officers on the streets will be excluded from the PIF.  The Arvada Police Department is expected to receive additional funding from this development because of the exclusion. 

Q:  Could our neighborhood residential property taxes go up?  A:  Yes, they might.  There won’t be any direct increases because of the development, but residential property taxes are set by Jefferson County and based upon the market sales of similar homes.  The restoration of the Triangle to a viable pedestrian-friendly retail area is expected to increase property values for nearby residences over the coming years.  The increase, when it comes, will be gradual.  The County values homes by averaging the last three years of its sales data.     

Q:  Would AURA be requiring these same kinds of improvements if another retailer other than Walmart wanted to locate in the Plaza?  A:  Yes, the demands being made on IRG are pretty much the same requirements that AURA asked Safeway to do for the site when they were considering a new store for the site some years ago.

Q:  Having trouble getting a handle on large financial numbers?  Just how much money is $5.8 million and what else could that kind of money buy?  A:  To put that amount in perspective, Apex estimated it would cost $6 million (or more) to build a replacement for the Fisher Pool when they closed it.  The park flood control project at what is now called “Ralston Central Park” was originally estimated to cost $16 million. 

Apex spent $23 million to build the Apex Center on 72nd Avenue.  Apex is now asking the City to let it build a brand new recreation center on the open-space part of the Arvada Center for the Arts and Humanities campus at 68th and Wadsworth.  That facility has been estimated to cost between $18 million and $25 million. 

The tax and incremental finance authority for the original AURA development at 52nd and Wadsworth expired a few years ago.  So AURA no longer receives money from that site, but that very successful development is now reported as bringing the City in about $10 million a year in new sales tax revenue.  That new revenue goes into the general fund and is spent everywhere in Arvada for things like road improvements, parks maintenance and snow removal.  That development is one of the reasons the City is as financially healthy as it is today.

Q:  What can go wrong?  A:  Lots of things.  Here are three that immediately come to mind.  The City Council could say that IRG may not use the land for the purpose for which it has long been intended — even though the Walmart proposal essentially meets the “use” requirement of the Council’s 2011 Outline Development Plan (ODP).  IRG was never guaranteed a return on its investment.  But if the Council says IRG may not put a Walmart on its property just because they don’t like Walmart, IRG may consider the Council’s action to be a “taking” of private property and demand compensation through  the courts — a lot of compensation.  That would also effectively end any prospect of new development in the Triangle for many years to come. 

Or, the Council may require enough additional modifications to the proposal that Walmart no longer thinks it makes enough economic sense to build anything in the Triangle after all.  If that happens, Walmart would withdraw their proposal and the Plaza could sit empty for many more years to come as the City waits for another developer to show an interest in taking on the risk of building there.

Fenced off parking lot waiting for Gold Line development

Fenced off parking lot waiting for Gold Line development

Or, the proposal may fail for some unanticipated reason — such as another recession.  If that happens, whoever or whatever ends up owning this part of the Plaza could decide that closing down entirely is the best option.  With a facility this old, even minimal maintenance and insurance costs may not make it worth doing anything other fencing it off as a public hazard.  That would be a sad ending to a once-thriving shopping center and for a once-proud neighborhood.

WHERE TO FIND OUT MORE

There are lots of links to go with this article and some are must-reads if you are following this issue. 

The full two-page “Public Investment/SUMMARY OF LEGAL DOCUMENTS” release that this article talks about can be found by going to this City website:

https://arvada.org/about-arvada/public-investmentsummary-of-legal-documents

Definitely worth reading is Sara Van Cleve’s Arvada Press article on the same subject at

http://www.ourcoloradonews.com/arvada/news/pact-between-developer-urban-renewal-district-would-lay-groundwork/article_bd7abf2c-f709-5534-9d81-e2f818dde390.html

As is YourHub’s article by Emilie Rusch which can be found by going to

https://yourhub.denverpost.com/arvada/arvada-city-council-vote-5-8m-walmart-incentive-package/IiaALWEvOp3GlebX6NlyLN-story

The proposed PIF agreement between the City and AURA is in the July 1st Arvada City Council packet which can be found by going to

http://arvada.org/government/city-council-packets/

07.C.02. CB13-026 has a lot of contract language, but there is a nice short summary of what is going on in the City Staff summary at the beginning.

The City of Arvada doesn’t make available the video recordings of its Planning Commission meetings, but the audio recordings are available online.  You can download the Walmart application recording at

http://static.arvada.org/media/130604_planning.mp3

It was a long 3-1/2 hour meeting.  Opposition comments start at the 1 hour 48 minute mark on the recording.  The Commissioners’ comments start at 2 hour 49 minute mark. 

YourHub.com has a writeup about that meeting by Emilie Rusch that you can read at

http://dpo.st/13YO41X

or at

http://yourhub.denverpost.com/arvada/walmart-anchored-project-arvada-might-get-public-aid/StohHM4ZExUMjOe7cchfdJ-story

The Arvada Press also has a nice writeup of the Planning Commission meeting by Sara Van Cleve.  You can find that article by going to 

http://www.ourcoloradonews.com/arvada/news/planning-commission-oks-walmart-plans/article_e2f46524-d512-11e2-b3d2-001a4bcf887a.html

For information on Walmart’s temporary employee hiring practices — both good and bad — try this link:

http://www.reuters.com/article/2013/06/13/us-walmart-hires-temps-idUSBRE95C05820130613

And if you want to read an article that proclaims, “Studies have demonstrated that the typical American household saves as much as a few thousand dollars a year because of Walmart’s influence over retailing, whether they shop at Walmart at all . . .” then click on this link: 

http://www.forbes.com/sites/dalebuss/2013/05/14/its-about-time-walmart-waged-an-ad-campaign-like-this-one/

King Sooper delivery truck driving in the gutter on Ralston Road

King Sooper delivery truck driving in the gutter on Ralston Road

Having trouble imagining a Walmart 53-foot trailer going down Ralston Road?  Have a look at this 30-second video on YouTube at

http://www.youtube.com/watch?v=6KDfA4QSqsA&feature=youtu.be

Sorry, but the CLRC Neighborhood Update #14 has been held up for this article.  But it will be coming in a week or two.  Look for information on lots of subjects of local interest for our neighbors located along the central Ralston Road corridor. 

The Citizens for a Livable Ralston Community regularly posts information on its website at http://www.ralstoncommunity.org/ as it becomes available.  Or you can friend us on Facebook.  Our Facebook name is “CLRC Arvada”.

PHOTO CREDITS

The Monopoly images are ‘fair use’ copies from several sources.  

The asbestos remediation photo was taken from

http://mesothelioma-symptoms-lung-cancer.blogspot.com/2013_05_01_archive.html

The Belmar and Creekside photos were provided by the City of Lakewood.

John Kiljan, CLRC Notes: 303-423-9875 or jpkiljan@yahoo.com

June 30, 2013

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