Two months ago, when Kalahari Resorts first announced it was coming to Fredericksburg, Mayor Tom Tomzak stood on a stage in the Fredericksburg Expo and Convention Center and said, "I'd rather have 75 percent of something than 100 percent of nothing."
That line of reasoning is pretty common when governments enter into incentives deals to lure private businesses by waiving some of their taxes or fees, as the city has for Kalahari.
While the Kalahari incentives package that was announced this week appears to be the largest such package an area local government has offered from a strict dollar standpoint, it's certainly not the first.
Spotsylvania County has used similar deals to boost two different projects on State Route 3. Elsewhere in the state, different forms of local government incentives have been used.
20-YEAR AGREEMENT
Under the terms of the incentives deal the city released this week, Fredericksburg would return 47.5 percent of Kalahari's local tax payments to the resort on a quarterly basis for 20 years.
The resort has estimated that it will generate $5.9 million a year in new city taxes if it can stay 75 percent occupied and get an average room rate of $220 a night.
If Kalahari hits that $5.9 million mark for the year, the city would get $3.1 million and Kalahari would get $2.8 million.
"Even at $3 million, they are still our single largest taxpayer in the city of Fredericksburg," Economic Development Director Kevin Gullette said.
And in a city with a $79 million budget, they'd be single-handedly boosting revenues by nearly 4 percent.
INCENTIVES used at MALL
In 2006, Spotsylvania County supervisors approved a $17.1 million incentives package to get the owner of Spotsylvania Towne Centre to make several improvements.
For 20 years from the time the renovated mall is 70 percent occupied, the county is to return to the mall's owner half of the new annual local sales tax revenue generated by the expansions to the mall.
In addition, it will return 25 percent of the new sales tax money generated by any expansion of an existing department store at the mall.
Spotsylvania also offered incentives to entice outdoors retailer Gander Mountain to move into the old Wal-Mart building on State Route 3 in 2004.
Under that agreement, the county is to return to Gander Mountain half of its local sales taxes from 2005 until 2012.
Both of the Spotsylvania plans use percentages similar to the city's Kalahari deal to determine the amount of incentives to give their target businesses.
But both of the county plans only use the sales tax as the basis.
The city, on the other hand, will return money to Kalahari that's equal to 47.5 percent of its business license, real estate, meals, lodging, admissions and local sales taxes.
But the Kalahari project is also more than twice as big an investment as either of the Spotsylvania projects.
Kalahari plans to invest more than $225 million in the initial phase of its 700-room resort. Within 10 years of opening, it must invest another $25 million, or the 20-year incentives deal becomes a 10-year deal.
Gander Mountain was required to invest $2 million in the old Wal-Mart building, and the Towne Centre is a roughly $100 million project.
TYPES OF INCENTIVES VARY
These "grants" of a percentage of a business's tax bill are only one type of incentive Virginia local governments use to attract projects their officials believe will benefit their economies.
To entice Great Wolf Lodge to locate near Williamsburg, York County gave it a flat $300,000 grant when it got its occupancy permit, along with $60,000 toward some soil improvement work that was needed.
York County Economic Development Director Jim Noel said the county got its grant back within three months of Great Wolf's opening.
The hotel has since expanded, but the first phase of its project constituted a $64 million investment.
"Great Wolf Lodge was the biggest incentive we've ever provided," Noel said.
Another tool localities can use to help business projects along is what's called a community development authority.
That's what Hanover County created to assist a large retail development on Interstate 95 that will include a Bass Pro Shops.
County Economic Development Director Mark Weiss said the authority includes the entire retail development, not just Bass Pro.
The authority issued about $35 million in bonds that will pay for various improvements around the project.
To pay back that debt over a 20-year period, businesses within the authority's boun-daries will pay a 10-cent surcharge on their real estate taxes, and half of all of their local tax payments will go toward paying back the bonds.
Of course, for that money, the county is getting a $7 million road improvement that will link two interstate interchanges, a 36-acre public park and the parking and stormwater management infrastructure needed for the development.
In Fredericksburg, City Councilman Matt Kelly argues that the city got a lot of those benefits before Kalahari was even part of the picture.
The Silver Cos. used a community development authority to build the road and utilities infrastructure within Celebrate Virginia.
They also donated land for a third city fire station in the development, and have pledged $1 million toward widening Fall Hill Avenue in front of the development if that project can get off the ground by 2010.
Emily Battle: 540/374-5413| WHAT: Public hearing on Kalahari incentives WHEN: Tuesday at 7:30 p.m. WHERE: City Council chambers in City Hall, 715 Princess Anne St. |
| In addition to the Kalahari deal, the city has also used forms of incentives and public-private partnerships on the following projects: SLAVERY MUSEUM: In 2002, the city agreed to give the museum $1 million. That money was to be spent on "governmental services," per the agreement between the city and the museum. Museum staff reported that the money was spent on promotions, educational projects, programs, offices and various engineering and environmental plans. It was paid back to the city, with interest, by the landowners in Celebrate Virginia, through a special tax district. That district did not include the Slavery Museum, which is tax-exempt. INFRASTRUCTURE: The roads and utilities infrastructure in Celebrate Virginia was built by the Silver Cos., using a Community Development Authority. That allowed Silver to access tax-free bonds to build $25 million worth of public infrastructure in the development. The debt is being paid back by the landowners in the complex through a special tax district, not by the city. WEGMANS: Last summer the council approved a deal to waive $1.7 million in business license taxes over 10 years to lure a Wegmans grocer to Celebrate Virginia. EXPO CENTER: Council members are considering granting the Expo Center $225,000 a year over three years, if the center meets certain benchmarks. The grant is intended to help the private center compete with publicly financed convention centers in the state. The council will discuss this at its Jan. 22 meeting. NOT JUST TAXES In addition to the 20-year agreement to return 47.5 percent of the resort's local taxes, the Kalahari incentives package also includes: FEE WAIVERS: The city will waive $3.35 million in upfront development fees for the project. WATER AND SEWER RATES: Kalahari will pay reduced water and sewer rates that basically amount to the city's cost of providing those services to the resort. |