2/13/2006 2:09:00 PM Guest Column Does Wal-Mart really need those tax incentives?
By ERIC GUBELMAN For The Daily News
If we are serious about attracting a Wal-Mart Supercenter, we should write them out a check for $500,000 as a gesture of goodwill to the largest retail company in the world. We should take that money from our schools, city government, county government, community college and others. Think of it as offering tribute to the Consumer Gods.
Well, that's exactly what is going to happen.
When a Wal-Mart Supercenter is built, the old building will be torn down, disappearing from the tax rolls. The building (not the land) generated $41,601 for 2004 taxes, payable in 2005.
But wait... a new building is being built. The new 153,000 square foot building is 2.55 times bigger than the current 60,000 square foot behemoth. Based on that ratio, the new Wal-Mart can be estimated to generate a property tax check to local governments of $106,082.
Sounds like progress-trading in a $41,601 tax bill for $106,082. Local government stands to gain $65,000 per year.
Not for five years. The new Wal-Mart Supercenter sits in the Enterprise Zone, meaning that it will qualify for a five-year tax abatement on the building, amounting to an economic incentive of $530,412.
(Full disclosure: I am generally both a supporter and recipient of Enterprise Zone incentives. Eagle Theater would not be a reality without that benefit, which enabled us to take an empty building and renovate it.)
The idea of economic incentives is that they meet a "but for" test. "But for the economic incentive, the project would not have happened."
Is that the case here?
Has Wal-Mart chosen to expand because of our economic incentive package?
In many areas, city and county governments cooperate to create ordinances that regulate so-called "big box" developments, requiring them to go through an approval process that guarantees a process of give and take. The scope of ordinances can range from outright prohibition to regulating design features to prohibiting or regulating incentives for them.
That didn't happen here, despite the fact that this was a foreseeable event. Southern Illinois communities do not generally hire city managers or other professionals who have the contacts, experience, and knowledge to stay on top of current governance issues. As an advocate of professional city management, I would observe there is a truism usually said about car maintenance that applies equally to investing in professional city management: "Youse can pay now, or youse can pay later."
Later is arriving.
Perhaps we can take some comfort in the fact that the incentives are temporary, and that schools and other taxing bodies can look forward to higher revenues within a few years.
On the other hand, what happens if Buy-Low is put out of business? That building generated $43,902 in property taxes for 2004 taxes payable in 2005. The current Wal-Mart's property tax bill of $41,601 added to that is $85,503. (To be fair, even if Buy-Low goes under, their building is probably not torn down, but the taxable value would plummet as a result of a vacancy.)
Well then, what about all the additional sales tax revenue that the Wal-Mart Supercenter may generate?
That could be true - provided that it comes from people traveling to Robinson to shop. If Robinson's Wal-Mart Supercenter can beggar Newton, Lawrenceville or Terre Haute, then city and county government can reap some extra sales tax.
Overall, however, the tax consequences are pretty ugly, with the schools taking the major hit (they don't benefit from any potential increase in sales taxes). With Unit 2 taking 54 percent of the property-tax pie, the incentive cost is an annual revenue drop to the schools of about $25,000 (the tear down of the existing building). If you look at it as "revenue foregone" (the amount the school would have gotten with the new building), that figure rises to $64,745 annually for the next five years.
About the only thing we can be sure of getting is a wider selection of goods at an arguably better price. That's not inconsiderable.
But let's not overlook the fact that we are making a half million dollar payment for the privilege.
Wal-Mart should not overlook that, either. It's not very good etiquette to come into the community and create the loss of one to two teaching positions.
A good neighbor would forego the Enterprise Zone benefits. Anyone in Arkansas listening?
(Eric Gubelman is President of Eagle Theater Corp. From 1989 to 1995, he was Mayoral Assistant to the City of Freeport.)