Economic development: Where’s the line on tax breaks?

CEDAR RAPIDS - City officials say the city is seeing a post-flood investment boom here in which city incentives have helped fuel an assortment of private-sector building projects.

But is there a time to say “No” on some property-tax breaks for economic development?

City Council member Scott Olson said Monday that there is, and he said that he will try again this week to convince his council colleagues to establish criteria and to draw a line to better define how the City Council hands out incentives for building projects.

For instance, Olson said incentives for office, warehouse and retail projects that lure companies to the city from outside of Cedar Rapids might make more sense than incentives for projects that simply move existing Cedar Rapids businesses from one spot to another.

Olson, a Realtor with Skogman Commercial, said the latest two incentive packages, which the City Council will discuss on Tuesday, have features that make it perfect time to discuss incentives and property-tax breaks.

He opposes both requests.

Giving advantages

In one, developer Bowling Street Flex-Space LLC is proposing to build two “high-quality” warehouse-office buildings at 4700 Bowling St. SW. The buildings are designed to attract as yet-unidentified local or out-of-town businesses needing space or looking to upgrade their image, Realtor Dave Drown, of GLD Commercial in Cedar Rapids, stated in a letter to City Hall.

In a second, developer Frantz-Hobart Community Investors wishes to expand an earlier approved special urban revitalization area from 18 acres to about 80 acres. The council created the initial revitalization area with incentive support for local firm RuffaloCODY's new building plans at Kirkwood Parkway and C Street SW.

The new proposal lays the groundwork for incentives for a larger planned office development called Prairie Crossings.

Olson said providing incentives to the two projects will give these developers advantages over other commercial properties owners trying to rent out their existing properties. At the same time, incentives here will open the City Hall door for tax breaks to every other developer with a future project in mind, Olson said.

He said others in the local development community oppose tax breaks for the two new projects, but he said they refuse to speak out against them publicly for a simple reason: They intend to ask the council for similar tax breaks for similar projects if the tax breaks are approved for these two projects, Olson said.

“We've got to rein this in before it gets too far out of control,” he said.

Each deal is different

Mayor Ron Corbett said on Monday that he strongly supported the city's incentives for the two new private-sector projects.

“We've had a lot of ribbon-cuttings and groundbreakings in the last two years,” the mayor said. “And we've really turned Cedar Rapids around. It's not time to get complacent.”

Corbett said plenty of private-sector building projects occur without any City Hall incentives. However, he some of the larger ones need some public-sector help, which typically trades some property-tax relief for a number of years in exchange for the investment.

“Each deal is different,” the mayor said. “The fact is we finally have investors and developers who want to invest in Cedar Rapids. ... And our City Council has almost been unanimous in its desire to have an open-for-business policy. I'd be surprised to see a change of direction.”

Olson pointed to the Bowling Street Flex-Space LLC project and said the city should let the private market operate on its own in this instance. He said City Hall incentives will allow the developer to reduce rents to tenants, but he said the developer should build the proposed “upscale” buildings without incentives and charge a higher rent that he said tenants will be willing to pay for a nicer building.

Olson made a similar argument in December 2012 when the City Council agreed to return 100 percent of the revenue from the incremental increase in property taxes for five years on each of six buildings in the $34-millon upscale office and retail development called The Fountains off Blairs Ferry Road NE.

Olson argued then that the council should provide an incentive on the first of the proposed six buildings in the development and revisit the incentive issue for the project after that.

The council voted 8-1 in favor of the incentives.

Juicing the market

Olson said continued incentives for too-wide a range of developments will hurt the commercial property market by driving down values and rents on existing property as more development is supported with City Hall incentives. In the end, he said the city won't see an increase in property value and associated property-tax revenue because overall property values will be dropping.

“I think we've juiced the market enough,” he said.

The incentives under discussion by the City Council on Tuesday will return an estimated 44 percent of the property-tax revenue back to the developer over 10 years.

On the Bowling Street Flex-Space project over 10 years, the project will pay $620,000 in property tax not now being paid and will forego $480,000 in property tax that would be paid without the incentive.