Bacon's Rebellion

Democracy Thrives in Sunlight

Second Battle of Fredericksburg

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by

James A. Bacon
in ,

Wisconsin businessman Todd Nelson wants to invest more than $200 million building a resort, conference center and indoor waterpark in Fredericksburg. The Kalahari waterpark would generate roughly $6 million a year in direct local taxes to the city, plus even more indirectly when visitors patronize local stores and restaurants. But there’s a hitch: He wants big-time incentives. In addition to waiving some $3.5 million in up-front expenses, City Council has all but approved a deal that would rebate 47.5 percent — nearly $3 million a year — back to Nelson over the next 20 years.

The Kalahari controversy is one that raises interesting issues for all Virginians. How much in incentives is too much? To what extent is tourism a “quick fix” for fiscally challenged municipalities? And to what extent should local governments focus instead on spending controls, planning efficient land use patterns, and building an economic base around the knowledge economy?

I’ve addressed these issues in more detail in “The Second Battle for Fredericksburg,” in the current e-zine, than most readers will ever want to know. There are no easy answers. Sometimes you need the “quick fix” to tide you over while your long-term policies take effect. Unfortunately, I don’t see much evidence of long-term thinking in Fredericksburg. The deeper issue isn’t whether local government officials cut a good deal with Kalahari or not, it’s whether citiy leaders are tending to the more profound matter of figuring out what it takes to build a prosperous, livable and sustainable community.

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  1. Larry Gross Avatar
    Larry Gross

    Just to clarify – the “mechanism” for the incentive is a TIF – tax increment financing..

    so.. as long as we are going to consistently call a TIF – an “incentive” … for any other project that also uses a similar arrangement.

    TIFs as incentives are not strange exotic.. exceptions to the rule these days…

    They are common-place… for just about any kind of a project involving redevelopment or new revenue-producing development (as opposed to residential..tax-consuming development).

  2. Jim Bacon Avatar
    Jim Bacon

    Larry, Typically, TIFs are used to pay for infrastructure like roads, water or sewer. That’s not the case here. The Silver Cos. have already installed the infrastructure. The TIF revenues are a pure rebate back to Kalahari.

  3. Bryan Avatar
    Bryan

    In speaking with elected city officials, the long term plan is the diversification of city revenue. This should include the four big ones: Property Taxes (real estate), Retail (the previous big one), Tourism (Kalahari & Convention Center), and Business. According to reports, the city is diligently working on this last item, big business, hopefully high-tech or at least those elusive high paying jobs. They recently voted to create a technology zone, much like the tourism zone that has been in place for some time.

    With diversification of revenue, the plan is that a dip in one will be offset by the others. We’ll see, but right now there is very little in the way of tourism (those historical sights just don’t generate much revenue).

    Yes, the TIF usage is different, although according to the city, within the legal bounds of the state laws governing tifs.

    Maybe not ideal, but the city has no (or very little) up front costs, in return for a revenue based formula for future discounts. It accomplishes a goal that was important to leadership. Not to mention the $200M+ that will be dumped into the economy, much of which will be local (labor, supplies, food, etc).

    Surfs Up!

  4. Larry Gross Avatar
    Larry Gross

    re: TIF’s traditional usage…

    the most traditional use of a TIF by my reading is redevelopment especially in blighted or blight vulnerable/prone areas.

    The developer puts up private infrastructure – a risky venture and in return receives a tax break.

    So the locality benefits perhaps in a major way if future spin-off development ensues.

    That’s one of the key issues with Kalahari and an adjacent Convention Center… nearby Golf Resorts… etc.

    Those additional “amenities” may well snag more Convention Business also…

    right?

    Do a GOOGLE NEWs for TIF and you’ll see a bunch for both redevelopment AND new development.

    For instance:

    “After lengthy negotiations, Spanish Fort obtained a Bass Pro Shops without major expense to the city.

    That means any increased property taxes — much lower than sales taxes — resulting from the development will go toward infrastructure improvements in the area around the Bass Pro property.

    The tax increment finance district in Augusta is issuing $25 million in bonds to support the project, but the debt service on that bond is coming entirely from lease payments by Bass Pro. In essence, the bonds are a financing mechanism that permits Bass Pro to issue a tax-exempt municipal bond at no significant cost to the city of Augusta.

    Other cities — including Prattville and Leeds — have provided substantial incentives to developers to obtain a Bass Pro.

    http://www.tmcnet.com/usubmit/-spanish-fort-reels-cheap-bass-pro-deal-/2008/05/04/3424573.htm

    significantly.. it is rumored that the Fredericksburg Area may have recently lost a similar Bass Pro store for not offering enough incentives…

    Like the Mayor of Fredericksburg said… “I’d rather have 50% of “something” than 100% of nothing.

    The “cost” of Kalahari to Fredericksburg in terms of dollars unless major lies are being told is minimal.

    There ARE perhaps better types of development.. conceivable.. but what is the likelihood of it coming along.. and it’s not like this is the last place for a major employers to locate anyhow… There are multiple major undeveloped locations available… for the “more desirable” development but.. it’s not here.. and it’s not on the horizon..

    ..meanwhile Fredericksburg’s retail base has seriously eroded and their taxes are going up if they don’t find additional revenue generators soon.

    If you are a public official and your job is to help keep taxes low and quality of life high and you send Kalahari packing …I think you could be fairly accused of ignoring looming problems…

    nope.. it’s not the best deal probably but.. is the alternative going to be much higher property taxes?

  5. Bryan Avatar
    Bryan

    Very well written article, very comprehensive. I was a bit concerned about the 10floor hotel, the city has an agreement that development should not be visible from the river. The advantage is a 200ft rise in the bank south of the river. Floors average 12.5ft per floor for most buildings – a little geometry, and it looks like the area near the expo center (which is slightly sunken) it shouldn’t be visible. We’ll see what comes with the site plan.

  6. Michael Ryan Avatar
    Michael Ryan

    He’s naming a waterpark after a desert?

  7. MATT KELLY Avatar
    MATT KELLY

    Its 10:05PM and its been a long day. I would take issue with the premise as outlined that Fredericksburg is just grabing what it can get without looking at the “Big Picture” or the long term. Below is an OpEd I wrote that ran in February 10th covering this point–

    “The impact of the Kalahari project requires a critical review. One that takes into consideration the goals of the community as well as the realities we face.

    Most of us settled in Fredericksburg because of the city’s unique and character and quality of life. We have added to that quality of life by building new schools, recreational facilities, and a new police facility, and we are working on trail and riverfront improvements. Now we must work to ensure that our financial resources are sufficient to maintain and possibly enhance those traits that brought us here.

    The reality we currently face is an over-reliance on real estate and sales taxes and limited development opportunities as we approach build-out. The solution that the city has been working towards over the past 25 years is to increase revenues from two areas—tourism and high-end employment – thereby reducing the financial impact of a downturn in any one area and reducing the tax burden on city residents.

    When the Celebrate Virginia site was rezoned in 1998, there was a community outcry that the zoning was too broad, so the City sought from the Silver Companies a commitment to the tourism campus concept. After three years of negotiations, that commitment was secured. We have held the Silver Companies to that commitment, and the Kalahari project represents the anchor for the promised tourism campus. We have agreed to provide incentives for this project on the understanding that its draw for other tourism-related development would reduce the need for incentives as Celebrate Virginia builds out.

    Located west of I-95, the Celebrate Virginia development is in an area already commercially developed and does not negatively impact the historic core of the city east of the interstate. What it will do is provide revenues that will help achieve our goal to maintain the city’s unique character and our quality of life.

    For those who question the appropriateness of Kalahari in terms of the city’s character, I would point out that Williamsburg has not shunned Busch Gardens or the Great Wolf Lodge and water park and has made it clear it wants the Harley Davidson Convention back. They see the advantage of attracting the widest range of visitors to their city.

    As stated, Kalahari is not the only type of development we are trying to attract. We are looking for high-end business development. However, I would take issue with the belief that just bringing high-end jobs is the answer.

    Like any other type of development there are advantages and disadvantages. Some recent examples of the negatives are close to home. The downsizing of government during the Clinton Administration and the bursting of the .com bubble resulted in significant high-end job losses. As we try to attract this, or any type of development, we must fully understand the pros and cons and how they fit in the bigger picture.

    The Terremark facility in Culpeper has been put forward as the type of development we should be attracting to Fredericksburg. And such a development it is claimed could be ours without large incentives. While I agree with the overall sentiment expressed, and will work to achieve the goal, we must face realities.

    Terremark had specific criteria in mind in deciding where to locate. As stated in VA Business Magazine, “Culpeper’s geography, technology and quality of life were instrumental in attracting Terremark.” Its central location, lower cost of living, and rural setting met their quality of life, business and security goals. And because of the nature of Terremark business they needed to locate outside of the Washington, D.C. 50 mile Blast Zone. The more goals a locality can meet the less they have to offer.

    Higher paying jobs will help the housing market, increase property taxes and provide a temporary boost in the local economy. The trade offs are– Increased demands for services, education, higher expectations for services, and, in the case of Terremark, high water and electricity usage.

    Tourism development brings visitors to the area and provides greater revenue opportunities at less cost. Combined with high-end job development we are creating opportunities for the entire community and generating the maximum amount of revenue to ensure our financial future.

    We are looking to bring higher end jobs to Fredericksburg. To do so we will have to work harder to get it. We are in the fourth largest fastest growing urbanized region in Virginia and are struggling to keep up. To get higher end development will require commitments for infrastructure improvements, including transportation and technology, in addition to other incentives. And we must be realistic in understanding the scope of competition.

    The Virginia Economic Development Partnership noted that in the past five years “the typical project has generated 147 jobs against 30.5 million dollars in public investment. The recent deal between the state and Rolls Royce comes with a 56.8 million dollar incentives package over 16 years for 100 million dollars in investment. A check of area localities will find numerous incentive programs available. The state updates its programs every year. Whether we are looking at a tourism or technology prospect this is the environment in which we operate.

    To ensure Fredericksburg’s unique character and future financial viability we must expand our tax base. Neither high-end jobs nor tourism are by themselves the answer. Through diversity we enhance the advantages and minimize the disadvantages. If there is a downturn in housing market, or major employers leaves, the financial impact on the city is minimized. We must also never forget the need to ensure that there are opportunities for ALL city residents.

    Discussions will, and should, continue regarding the Kalahari project. I would only ask that citizens judge this project in the context of meeting our common goals and on the realities we face. If you feel the City is going in the wrong direction then let us hear the alternatives. Under the circumstances doing nothing is not an alternative.”

    A few more comments—

    There has been an outcry that we should let the free market handle the final development of Fredericksburg. First, most people complain about what the free market has brought us thus far. In regard to high-end development we currently have a glut of office space in the region and the cost of constructing new space exceeds the current rents per square foot. Then there are the current restrictions the Feds have placed on how far out a business can be from the installation it serves. If we are going to wait for the free market to bring high-end office development to the City we will be waiting a long time. We have already been waiting over 20years.

    If we want to get high-end employment we are going to have to go out and get it and play by the rules currently in place. I would question whether there is a, “free market” with all the subsidies, bailouts and restructuring that goes on today at both the State and Federal level. I’m not enamored with incentives I see them as they are—the way business is done today.

    P.S–Bryan: We have already confirmed that the structure will not be visible from the river.

  8. Jim Bacon Avatar
    Jim Bacon

    Matt, thanks for your detailed comments. Sorry you and I couldn’t connect by phone before publication. However, I will add a link in the article to your comment here.

  9. Larry Gross Avatar
    Larry Gross

    “I’m not enamored with incentives I see them as they are—the way business is done today.”

    Correct.

    In today’s competitive environment ..you can remain inflexible and watch other localities snag the economic plums…. or you can get into the game and get “more” than zilch…

    that’s fine.. and JB did keep it to the incentive aspect… but let’s at least keep that part in a larger.. statewide perspective and not hold Fredericksburg and this particular developer .. to a different standard.

    and I am a bit frustrated… with respect to “anti-growth” sentiment that does not distinguish between residential and commercial.

    geesh..Commercial unless it is the world’s biggest pornography shop or some such is generally good…

    and the jobs… geeze..no complaints at all about all the local restaurants … who already employ .. scads of local students and the like – despite the cries of the opponents that we’d be attracting hordes of trailer trash… (said in much more circumspect/polite words).

    When the land-use for this property was first discussed when it was marginal farmland… it was acknowledged that a vision of thousands of additional residential would be a fiscal disaster and that lead to discussions about what WOULD be more appropriate.

    The city COULD have restricted it to office buildings ONLY – but then who knows how long the land would stay unused/undeveloped?
    (and some would say.. that would have been better).

    I DO think there IS a HONEST (much larger) question about how any locality decides that land IS going to be developed – they guarantee that it will by designating it so and then taxing it that way – essentially pre-ordaining the outcome by making ownership of the land uneconomic UNLESS it IS developed. (all 3 local jurisdictions as well as many across Virginia engage in this type of growth policies).

    In this case, the city perceived itself as near the end of available land to be developed (Fredericksburg is a small place – 10 square miles) and made a conscious decision NOT to have this land turned into a giant green space even though many/most folks would have approved such as use as long as it had no direct direct tax consequences to them.

    Finally… if you go back far enough… this land was not originally part of the city…

    if I recall correctly.. it was annexed….

    What DID happen – give the City credit for something the county probably would not have done… – he City AND the developer found a way to protect the river.. both the viewshed AND from stormwater runoff.

    The developer has also gone out of his way to use advanced storm water designs to keep parking lot runoff from getting into the river.

    … and he did this WITHOUT the public breathing down his neck (the public, in general is clueless on this issue)..

    He did the RIGHT THING but opponents don’t seem to know or care.. The only way he could satisfy most of them would be to go out of business and have the land turned into a gigantic green park and/or Homeland Security office towers…

    So this developer not only did not pursue thousands of new costly residential (affordable homes?)… but instead pursued commercial… AND he protected the viewshed of the river AND he protected the river from runoff…

    … I do not think this developer is God’s gift to mankind by any stretch of the imagination.. he DOES have some issues… but he has in the past and continues to maintain a good working relationship with elected officials and the community.. and there are many other developers in the area that you can not say that about.

    The whole Kalahari kerfuffle is in my opinionated .. opnion – a mashup of local political factions…with agendas much larger than this particular development.

    and methinks the reporting of which here.. a somewhat curious thing..

    The Kalahari proposal anywhere else up and down I-95 methinks would be a “yawn” here… no?

    There are at least 5 or 10 local blogs that have devoted 10 times less words to this issue than BR.

  10. Larry Gross Avatar
    Larry Gross

    to the merits…

    We have strong debates about BPOL.

    and sentiment that “charging” business activity is actually counterproductive to commerce…

    that we’re actually putting into place – policies that drive business away

    some folks view all you do when you tax businesses is that you are making the business a “stealth” tax collector… talk about your “transparency” of tolls, etc..

    and I often hear that the optimal of residential to commercial is 70-30.. 30% Commercial…

    you don’t the bucks from taxing the commercial.. you get the bucks by getting the commercial to charge sales taxes…

    why would you tax the business itself.. discourage it.. as a sales tax collector?

    I’m betting that if you gave folks the choice between sales taxes and property taxes – they’d take the sales taxes… anyhow…

    .. and in that case..you’d want as many sellers of taxable products and services as you could get…

    right?

  11. MATT KELLY Avatar
    MATT KELLY

    A few quick points–

    1. It would actually be the Third Battle of Fredericksburg. The second was fought in May 1863 when the Yankees actually stormed to Stone Wall. As a card-carrying member of the 28th Mass, Co. B, Irish Brigade, I could not let that pass.

    2. To imply that what Kalahari is getting is nothing but profit is not correct on three counts. 1. As per the financial viability report the incentives are needed to ensure financing in a now tight credit market. 2. If you go back and look at Wells and Sandusky, Mr. Nelson has, and will here, make significant reinvestments to keep the facility cutting edge. 3. Also remember that if he doesn’t reinvest at least $25M in capital improvements in the first (10) years incentives stop.

    3. I would ask people to compare the Incentives package currently before the City Council with any other—the 20 year Spotsy Towne Centre package (which went through without comment) for example. Whereas most incentives packages are simply agreements to exchange revenue for a project the F’burg agreement includes a series of commitments regarding water, advertising, and visibility restrictions to name a few.

  12. Einstein Avatar
    Einstein

    Full disclosure: would Mr Gross please clarify his relationship with Silver & co., a major backer and beneficary of the Kalahari deal?

  13. Rodger Provo Avatar
    Rodger Provo

    To All –

    There is a body of evidence that
    we may see oil selling for as
    much as $150 to $200 @ barrel
    within two years. 30% of that
    cost due to the weak dollar (oil
    is sold in dollars). We may see
    gas selling for $5 + a gallon
    then.

    The Fredericksburg region has more
    than 50,000 commuters who travel
    great distances for living wage
    jobs.

    The local economy is based on price
    sensitive retail, restaurants, service and travel industry jobs.

    The community will face severe problems in years to come given
    the unstable energy future which
    will have an impact on the travel
    industry it seeks to expand and
    local residents.

    Fredericksburg businesses have seen
    sales drop from 10 to 30% because
    of high energy costs reducing disposable income over the last two years.

    Stay tune – the end of this story
    is far from over ….

  14. Larry Gross Avatar
    Larry Gross

    re: my relationship with Silver

    Zero. Zilch. and I can name a much longer list of developers that I consider one step above pond scum.

    In fact, I’m considered no friend of developers in general. For instance, I support not only proffers but impact fees.

    This particular developer.. with the benign “help” of the city and VDOT managed to totally screw up the road situation near the I-95 interchange..

    but he has also built subsequent developments where he actually improved the existing traffic situation.

    I just believe it does no one good to attempt to demonize and impune a developer especially when they have done a better job in some areas that many other developers.

    I’m weary of activists who refuse to engage the real issues and instead choose to focus on personalities and that is what is going on in this case…

    this is not about the merits.. but rather a campaign against someone.

    He may or may not deserve it in the eyes of some but the public is not served by it.

    What I’m defending is not the developer but an honest process.

  15. Larry Gross Avatar
    Larry Gross

    “Fredericksburg businesses have seen
    sales drop from 10 to 30% because
    of high energy costs reducing disposable income over the last two years.”

    with due respect to Rodger – at least part of what has happened is that major new competing retail has been built across the city/county border in the county .. ironically by the same developer under attack on the Kalahari kerfuffle.

    Additionally a regional mall has been remodeled/upgraded that is just across the road from the City’s cash cow.

    So Fredericksburg has been harmed financially by having the county citizens who used to shop in Fredericksburg (and give their tax dollars to the city instead of where they lived)…

    This has, depending on who one talks to… “freaked out” the City fathers who see a direct correlation between less sales tax revenue and higher property taxes.

    Some have faulted the city fathers for their approach including their relationship with Silver and the Kalahari folks but this morning we found out that only 1/3 of city residents agree and 2/3 support the current approach.

    I don’t see this as a vindication as much as a continuing concern than 1/3 of city voters are still not happy.

    You cannot please everyone but 1/3 is not a small number.. and what our area desperately needs IMHO is a bit more consensus on the kinds of growth and development we want (and don’t want)..but I totally reject debate based on personalities.

    If that is what the 1/3 is about.. no sympathy here.

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