San Marcos Mercury | Local News from San Marcos and Hays County, Texas

December 1st, 2008
Freethought San Marcos: Questioning development incentives

Freethought San Marcos: A Column
By LAMAR HANKINS
Mercury Columnist

Longtime San Marcos-area developer Robert McDonald III is not pleased with the San Marcos City Council’s award of an additional $4 million in development incentives to Stone Creek Crossing, the project on Interstate-35 near McCarty Lane that will include the relocated J. C. Penney’s, Bealls, and Target stores, along with some new, smaller additions to the San Marcos retail and fast-food mix. Total development incentives for the project are up to $6 million in property and sales tax rebates, money that would otherwise be paid to the city.

The strongest objection made by McDonald is that once construction has begun on a project, giving the project additional tax rebates is no longer an incentive, but “a bailout.”

To be sure, Mayor Susan Narvaiz has her reasons for pushing for the additional “incentives,” which were approved on a narrow vote of 4-3 by the council on Oct. 21. She cited increased development costs for solving drainage problems at the site and other “improvements” to the project, most of which were requested by city council members, such as a hike and bike trail, reversal of an Interstate-35 ramp in front of the project site, a rock wall, and promises by the developer to seek an “entertainment venue” at the project.

The entertainment venue addition means that we could get another movie theater, arcade, carnival, amusement park, or bowling alley, or perhaps something a bit more upscale, like a museum, concert hall, or live performance theater. While the developer agrees to “diligently pursue” an entertainment venue using “commercially reasonable efforts,” there is no promise to provide such an attraction.

I have to wonder whether giving money that should be flowing into the public coffers for such whims is either wise or responsible. If San Marcos needs another entertainment venue, won’t the market provide it for us? If there is a viable opportunity to make money from entertainment or any other business activity, the market will respond. The real chance to make money is the force that drives the market. There are lots of businesses I would like to have in San Marcos, but they aren’t here because the market for them is not right. No amount of pushing our wishes on developers will change the market potential for any type of business.

The mayor held a meeting for interested citizens at the Price Seniors Center Monday evening, Nov. 24, to discuss this project and explain why the additional tax rebates were given to Stone Creek Crossing. At that meeting, she promised to send me the figures which show how much sales tax revenue is now being generated by the three stores that will be relocating to the new project and how much is expected to be generated at their new location. To date, I have not received that information.

McDonald raises this very issue in a letter to the mayor, objecting to the increase in development benefits to the project:

“This development brought nothing new to San Marcos,” the letter says. “They have three tenants, all of which are currently doing business in town. What is the economic benefit to the community? I believe that all of these retailers would all have expanded their operations regardless of this development or incentive … We are giving up what would have been generated by these retailers anyway, and I believe it highly unlikely that a penny of the sales tax rebates go into any pocket other than the developers.”

Whether one agrees with development incentives at all, if we are going to have them, they should be given out through a fair process. McDonald questioned whether the regular process had been followed in this case. He noted that the city’s economic development staff and a related committee did not review the proposed increase in tax rebates given to Stone Creek Crossing. The mayor did not address this issue during her Monday meeting, but it appears that discussions to grant additional tax rebates or other development incentives do not normally result in further consideration by economic development staff or review committees. Apparently, such matters are left to the impulses of council members.

At the Nov. 21 meeting, the mayor explained that additional tax rebates for this project had been discussed by council members over several months, beginning on July 28. The council discussed the additional rebates during an Executive Session on Aug. 5, councilmembers were asked their opinions about the direction the city staff was moving in negotiating additional rebates. During this closed meeting, council members expressed their views, apparently to the city manager and the city attorney, concerning additional tax rebates for Stone Creek Crossing. Had the result of this discussion been mentioned when the council went back into regular session, citizens would have been alerted to the plans to increase the tax abatements for the project, and would have had time to respond.

As it happened, the agenda item posted for the Oct. 21 meeting did not include any amounts of new tax rebates that were to be considered. The mayor pointed out that a copy of the agreement to be voted on could be viewed on-line by those who wanted to explore the matter more deeply. However, as a practical matter, unless one is alerted that increased tax rebates are being considered, it is doubtful that most people would take the extra time to carefully explore all of the back-up materials that accompany a council agenda.

While the city council may legally deal with the public’s business by writing less than fully informative agenda descriptions, this practice demonstrates a willingness to be less than transparent. Most of the recent city charter amendments amply demonstrate this tendency. The spare wording found on the recent ballot made it nearly impossible to know exactly what one’s vote meant.

Because of his extensive experience in development in the San Marcos area, McDonald’s opinions on these development incentives for Stone Creek Crossing should be given greater weight than those of the average person. He understands the financial problems that can affect a project. He has experienced most of them himself and has never been bailed out by the city when circumstances changed or he has run short of funds.

McDonald wrote, “Cost increases are a common problem with any development or construction activity. It is an issue to be addressed between the developer, the lender, and the tenants. The developers of this project are financially capable of solving their own problems. They simply would rather use your money to solve those problems than their own! In the event they are not able to resolve the problems with their development, another developer will not be far behind, ready to inject new capital and resurrect the deal. Do you really want to set a precedent of coming to the City to bail out projects that are having financial problems? If so, where does the line form?”

The desire for new development in San Marcos needs to be tempered by members of the city council. The Santa Claus mentality about development incentives that has pervaded city councils for the last 20 years needs to be closely examined and changes should be made. One of the best changes would be to seek advice from those critical of such giveaways, rather than take advice only from proponents of development incentives.

While it is comfortable to have unanimity on all decisions, this seldom results in the best decisions. Reaching out to opponents of development incentives, critics of some incentive decisions, and skeptics might bring the consideration of such activities into greater balance.

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17 thoughts on “Freethought San Marcos: Questioning development incentives

  1. The Mayor and council members Porterfield, Couch and Guerrero voted for it; Thomaides, Bose and Jones voted against.

  2. Like it or not, economic incentives are here to stay. Since San Marcos is not a 403b city we have to use the tools at our disposal to compete against cities that are. 403b means cities that collect sales tax and direct it toward economic development. Instead a small part of sales tax collected by San Marcos goes to property tax relief for each of us. The fact is, cities all around us are offering incentives. Either cash from the war-chests built up through their 403b or through creative measures like this one. It has become SOP for developers and big-box retailers to come with their list of demands – tax-abatements, waived impact fees, free land – along with the hint of what they’re getting from the city down the road. It would be temporarily satistying to tell them to take a hike but in the long run the cold reality would emerge that they weren’t bluffing and the plum projects have ended up elsewhere. (Who out there doesn’t believe Cabela’s would have performed better had they located near the outlet malls?)

    I agree that the StoneCreek project, once under way, would have continued. What the optimist in me likes to think is that the build-out will be quicker with the overhead reduced. The reality is StoneCreek got underway during moderate economic times and things went south in a hurry. Retailers everywhere – the tenants StoneCreek was counting on – have stopped expanding or slowed to a snails pace. Those empty pad sites we see aren’t generating any sales tax revenue and precious little property tax revenue. Anything we can do as a city to make StoneCreek more attractive than say, Creekside in New Braunfels or next to Kohls in Kyle is worth considering. Yes, it was a very agressive move but I think considering the national economic condition, especially in retail, it was warranted. All we’ve given up is something we never had to begin with.

  3. Sounds like Robert McDonald has some sour grapes… he’s never been able to catch the “big fish”, I guess.

    YS touches on a lot of the points of why this is a no-brainer. The other points… which I’ve made before, but since some people don’t seem to get it…

    – Property tax (ad valorem) abatement. 20% to the City, 80% to Stone Creek. I wonder how much the appraised value of that property has increased, from being an EMTPY FIELD to a fully developed retail site. Probably enough to where the 20% the city gets to keep will still be an increased amount over the whole of what they’re getting now. And after 5 years, that abatement is gone.

    – Never mind the fact that this was an empty field owned by the STATE, generating NO tax revenue for the better part of the last few years.

    – Sales tax rebates. The City keeps the first $500K. Period. The next $500K gets split just like the property taxes – 20% to the City, 80% to Stone Creek. After that ($1 million +), it gets split 50/50.

    – The TOTAL abatement will not exceed $6 million. And it’s only for five years. The argument about giving this kind of “bailout” during an economic downturn doesn’t hold water – if the center doesn’t perform as intended, guess what, the developer loses. If Stone Creek doesn’t rake in enough income over the course of 5 years, the developer loses. I would bet that the sales tax revenue currently generated by Springtown as a whole (because let’s be honest… once these three bail out, the remaining stores will likely move as their leases expire) is lower than the amount that will be generated by this development once it has an opportunity to fully develop, say year 2.

    And “Can of Worms” – how is this going to result in lawsuits? If a developer can bring a similar project to the table that is going to result in a net tax increase, I’m sure they’ll be presented with a similar package.

  4. Attacking Robert McDonald with an unproven allegation of “sour grapes” really doesn’t address the main points of his argument. As far as the fishing metaphor goes, if you catch your limit of the species you are fishing for, it doesn’t matter that you weren’t fishing for great white sharks.

  5. A few matters that Mr. Hankins did not address:

    — That “empty field” was probably prime agricultural land. Now it is not. This simply highlights that we just don’t have anything in the same universe as land planning based on long-term values to society in this state. And that is quite intentional, because this is a “property rights” state. A truly deluded concept. But that’s another discussion. Back to the point, maybe it wasn’t in actual agricultural production, but it could have been, and in the future that may have been of some value to the community — as many believe that more localized food production will become a necessity in the future. Yet preservation of prime agricultural land appears nowhere in the “values” that guide planning and development here.

    — This abatement promotes sprawl and degrades the inner city. As was noted, the 3 major tenants at Stone Creek will abandon Spring Creek to relocate there, out in BFE. What does this say about the vision San Marcos has of itself? It has no real downtown, no real sense of place except that imparted by the springs/river and the university. It is a series of ever more outlying sterile malls. It would appear that its power structure wants to keep it that way, indeed to speed it along.

    — Related to this … Not that anyone walks or bikes much anyway (but in the future, they might, either by choice or necessity), and not that the Spring Creek site was at all inviting to that, but the Stone Creek location is ENTIRELY auto-centric, there’s not even the possibility of enhancing pedetrian/cycling travel at that site. Unless, of course, someone decides to locate housing around this retail wasteland. But that would consume more prime farmland and further sprawl, unless someone decides to development employment sites near there. Consuming more prime farmland? And of course, in effect relocating the real center of San Marcos to around the retail wasteland. What sort of “downtown” would that be? Something like the village in “The Prisoner”? You know, totally plastic, REALLY devoid of any sense of place.

    Nope, no ability (or, apparently, desire) to plan for anything that remotely resembles “smart growth”. But still, somehow, it was important to grease that particular development. Go figure.

    Finally, the major point that YS makes is that politicians have no balls — so they fall for this we gotta give them what they want or they will go elsewhere, exactly because the politicians “elsewhere” have no balls. Oh, and politicians also have no belief in or commitment to the free market. That whole concept is such an illusion. This matter is merely a graphic illustration of that. The market is ALWAYS being “mediated” by political machinations, large and small — it is not free. Again, however, this is a much larger discussion, for another time and place.

  6. I don’t see any grenades being thrown. People are usually pretty civil on this board. So, as far as “land planning” goes, are you suggesting the government tell us exactly what we can and cannot put on our property, including leaving it for agriculture? I don’t think you’ll get much traction for that. Are you suggesting the Mayor should have issued a decree forbidding Target, Penney’s, et al from ever moving? And what do you mean San Marcos has no downtown?

    What a blessing for you that things are so civil on this board.

  7. I agree that incenting urban sprawl seems counter to the goal of a vibrant downtown and pedestrian-friendly city.

    That being said, cycling on the access road is far better than trying to navigate Hopkins and Thorpe on a bike.

  8. I have said a lot about this issue during the council meetings, but there are a few things I want to add. I would have liked to see the results of denying the additional request. I have a very strong feeling based on many factors that no delay in completion of the project would have occurred. I base this on experience with many incentive requests over the past 6 years and the additional information that I receive as a councilperson. This was not a competition between San Marcos and other cities and was never presented to us as one, so there was no “give us the money or were oughta’ here” type of discussion. We already approved a $2 million incentive in 2007 for the exact reasons that are being used now as reasons to give $6 million. Nothing has changed in the development other than a movie theater was deleted from the plan. Finally, the ramp reversal, drainage improvements, rock walls, and road work with sidewalks were all planned by the developers as their preference or required by development standards and not special requests by council. In the near future I will be introducing a discussion item before the council to consider allowing more time between the posting of a incentive request on the agenda and the final vote to allow for more transparency and citizen participation and comment.

  9. Thanks for your service and logic John. I hope you decide to run again and hope you the best against the Narvaiz machine. I’m sure we will see another Narvaiz backed candidate like Porterfield who surprise, surprise has been another lame duck Narvaiz puppet.

  10. David Venhuizen, you sound like an out-of-towner who’s posing as a self proclaimed expert on growth. Are you trying to drum up a little business for yourself in San Marcos? Why don’t you go drum up some bidness in your own haunts? Anyone from San Marcos knows that Springtown Mall, not Spring Creek(?) is where Target, JC Penny, etc are located. And sorry but water costs too much in San Marcos (ecologically and economically) to to irrigate your proposed gardens to feed the city.

    Sorry, no balls here, my name is Sharon.

  11. I don’t understand the motivations of some of our council members; their ideas about what constitutes a good quality of life must differ from mine. In cases like these, however, I also wonder if their decision-making is based entirely on ideological grounds, as their is nothing logical about this type of incentive. Generally, the idea that growth is inherently positive for cities is understandable, but wrong, particularly when the ‘growth’ is generated by out-of-town corporations with no community ties. Such corporations are fair-weather friends – as soon as they become unprofitable, they split, and leave us with big empty buildings that local businesses cannot afford to move into. I would rather see the incentives go to local entrepreneurs, for whom such tax breaks can actually make a huge difference in their bottom line. If we must cater to big businesses, it needs to be to those that will bring salaried professional jobs to the area, not minimum wage jobs that typically go to students. I was convinced that San Marcos offers the best quality of life for the lowest cost of living, but I can see that era is coming to an end. We need to be thinking in terms of sustainability (economic & otherwise), not tax revenue. Our town has finite resources, and we need not be capricious in how they are used up.

    Mr. Venhuizen, your comments added nothing to this dialogue (except inaccuracies), your language is rude, and its clear you don’t live in San Marcos. By the way, I AM using a pseudonym (not a nom de guerre). Please be polite, this isn’t a contest or a battle.

  12. You might be interested in learning that David once worked as an employee of the City of San Marcos – as an engineer. He specializes in environmental issues and works in the private sector now, since his environmental concerns views were not welcomes by the city at that time. He is right, I believe, to raise questions about haphazard development of land without regard to whether it is prime farmland. However, that is much too complicated a discussion for a “comment” here.

    As to water use in agriculture, I would hope a farmer would not rely to treated water to irrigate crops. What a waste of resources that is, but that, too, is a subject for another forum.

  13. I note that council member John Thomaides posted in his comment that, “the ramp reversal, drainage improvements, rock walls, and road work with sidewalks were all planned by the developers as their preference or required by development standards and not special requests by council.” This is in direct contradiction to what Mayor Narvaiz told the crowd at her November 24 meeting, according to my notes. The significance of this is that the additions were used by the Mayor as justification for the additional $4 million in tax rebates. If these items were the developer’s ideas, then there was no justification for the additional rebates. They were, as Robert McDonald said, a “bail-out.”

  14. I guess as a student I’m kind of bummed that 1. this location is awkward to access even by car, 2. It leaves a large piece of blight in the form of a decaying strip mall in the middle of town.

    Not an urban planner but I have a dim view of anything that isn’t a outlet mall or industry being along highway feeder roads. It doesn’t take a rocket scientist to figure out this will clog traffic and send it up the ramps. It doesn’t matter if they move them or not because the merging will still exist.

    I dunno but my impression of San Marcos coming here as a student was a nice compact town. But maybe the city wants to become another Kyle or Buda.

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