Paying for Progress
Incentives, as they’re known – the antes that government leaders put up to lure business – are widely used. They’ve been around for years to lure big manufacturing plants and businesses that create hundreds – even thousands – of jobs. But now the trend has extended to big name retailers – seen by local governments as job creators and new revenue producers too.
And we all know jobs and revenue tend to put smiles on the faces of local leaders.
“You know the Edwin Hawkins Singers made a song some years ago, it was called ‘Oh Happy Day.’ Well, today represents that. Oh Happy Day.”
A couple of months ago, on the city’s eastside near I-20, a very happy Birmingham Mayor Bernard Kincaid announced the slick, new Eastwood Village. When completed next year, the new center will replace the old Eastwood Mall, a behemoth box of a building that sat empty the last few years while shoppers migrated to other areas.
The mayor even had the opportunity – the photo opportunity – to, with the help of large machinery, bring down some of the old mall’s big glass atrium.
Developers say the new Eastwood Village will feature hundreds of thousands of square feet of shopping space with retailers such as Old Navy, Ross Dress for Less and Party City. The anchor will be a Wal-Mart Supercenter.
“50 million dollars worth of investments, of which the city only had to put 11 in.
That’s more than 20 percent of the cost of the project. Critics call that subsidizing commerce. Or the not-so-nice term: corporate welfare. As in tax dollars. As in does it go to schools, roads, police or, say, shopping centers?
And that’s OK by Mayor Kincaid – he says he’ll take the criticism for what he says will be the long-term benefit. According to him: 700 new jobs and $4 million in sales tax revenue per year.
“(And) in slightly less than 3 years, that investment will be back to the city and in perpetuity, we’ll be getting those funds. (Does that bother you though that we’re in this age that you have to put money in to get money out?) Doesn’t bother me a bit. It’s priming the pump. It’s the way of competition. It’s a win-win.”
But one economist says that kind of competition spawns something ugly.
“These retailers, they’re gonna encourage this competition, one community against another, and we know where that goes.”
Dr. Ernie Goss is an economics professor at Creighton University in Nebraska. He’s studied retail incentives across the country and says they can lead to in-fighting and regional spats. Locally, the cities of Birmingham and Irondale got into an incentives battle over who would get the Wal-Mart. The current store is in Irondale. It will close and the bigger, shinier Birmingham store will open. So Irondale loses. For now. Until the next incentives battle.
And critics say that is how the big box retailers – the Wal-Marts, Bass Pro-Shops – the really big stores — get what they want. They pit city against city – hoping to get a sweeter deal, even when they may already know where they want to locate.
Ernie Goss argues that many incentives proposals are flawed because they don’t take into account the larger picture.
“The real question is, are you bringing in new dollars into the area? Or are you in fact encouraging individuals that are shopping, say, outside the area to now stay within the area and shop? And that’s the real key. And for most retail developments, that question is not positive for incentives, for providing incentives for retailers.”
“Any economic developer will tell you right off the bat, we all wish there was no such thing as incentives. But that’s part of the business. As long as one person offers them, you’re trapped. You’re into it and you’ve got to offer them.”
Griffin Lassiter is the economic development liaison to the city of Birmingham. He says for his team to offer incentives, there has to be a dividend, money coming back into the city… to put into schools, roads, police – maybe future shopping centers.
“You never make a bad deal. The city itself never loses money on these deals. That I’m aware of; let me put it that way.”
Never is a strong word though; and there is a formula for failure: it’s called capitalism. You know, “if your business is not profitable, then you go out of business.” Say the store never really takes off or there’s a recession or another newer store opens not too far away. Then the scenario can turn bad.
Several court cases in recent years have challenged the constitutionality of certain types of tax incentives used to draw business. In Ohio, specifically, an appeals court ruled that a franchise tax-credit based on a business investment delved into interstate commerce issues that only Congress can constitutionally regulate.
By and large, the types of incentives are as different as the cities offering them.
Just a few weeks ago, the Jefferson County Commission approved a plan to pay $1.5 million a year for 6 years for road work that will traverse a new, mixed-use development at I-459 and Highway 150 in Hoover.
The city of Pelham, for 30 years, will forego half of the sales taxes generated by Hayes Market Place – a large shopping complex planned in the next few years. Longtime Mayor Bobby Hayes, for whom the complex will be named, says it’s a sound deal.
A couple of years ago, in a deal similar to Eastwood — the city of Birmingham put up $10 million in incentives to lure Wal-Mart to Roebuck, another area of town that had seen better days. Other businesses followed – including Ruby Tuesday and Starbucks.
One store that survived Roebuck’s economic rollercoaster was Polly’s Pet Parlor.
Owner Erica Sapp says Wal-Mart was a welcome addition.
“I don’t mind it also because it just cleaned up… you know… the K-Mart was vacant, everything was vacant in that area that they went through and tore down a lot of stuff. Rearranged the whole traffic system and put in a lot of new businesses.”
But shoppers are mixed about the kind of incentives that drew Wal-Mart to Roebuck.
One shopper says she thinks it was a good deal because Wal-Mart is always busy… and that means a good return on the investment. Plus, she says, she doesn’t have to go across town to shop.
“I think it was a pretty wise investment for the city because it eliminates you going to different, other areas.”
If Wal-Mart weren’t there, she says, she’d be spending money at the Wal-Mart in Trussville or on Highway 280.
But others say there are better ways to spend tax dollars, than to give it to a multi-billion dollar corporation or to a developer.
“I don’t like it no, because the other man’s gotta make money too. (Seems like) Wal-Mart’s just getting it all.”
“Rather than giving that kind of money to these conglomerates. Schools for instance. The city needs more free health care centers.”
Back in Eastwood, store owners say the city should be looking out for retailers who have stayed through tough times. Those who’ve bitten the bullet while other chain stores left that part of town.
Akbar Shamsuddin owns Gold City Jewelers.
“They should be taking that money and giving it to areas that really need it. Wal-Mart can survive by itself. And they put moms and pops out of business. Such as me.”
Shamsuddin and Allen Smith of Monogram Unlimited, say making matters worse is the fact that the new Wal-Mart will have its back to Century Plaza, unlike the old Eastwood Mall, which complemented it.
Smith says that could take customers away.
“Nobody goes behind their grocery store to go shopping. Nobody’s not (sic) going to find out about Century Plaza. They’re going to think of it as the same old Century Plaza. So therefore they’re not going to come over here.”
Smith and Shamsuddin, who’ve both been at Century more than ten years, say the city has failed them. That no one’s helping them stay in business.
But City Councilwoman Carol Reynolds – whose district includes Century Plaza and Eastwood Village – says it’s the way of economic development today.
“Do I agree with it? No. Do I have to participate with it? Yes. So we’re just doing what it takes to jump start this area and this region again. It just fell to decay and we had to do something about it.”
Whether that jump will spark new business for other stores and restaurants in the area… whether those new and existing businesses bring in more tax dollars to the city… won’t be known until the new shopping center is finished.
And with all the money the city’s putting up, they’re betting on it.