Legendary problem

Andrew Barbano was distressed. There was lots of news happening locally and, he believed, reporters were either missing it or sugar-coating it with an upbeat spin. So the Sparks Tribune columnist and labor activist sent out a mass mailing last week to newsrooms all over the valley.

One line in the message read, “This week, you totally missed that T.J. Maxx and Old Navy will be closing tax-producing stores to score legendary chunks of corporate welfare at the Sparks Marina. Walmart is next in line.”

Eleven months earlier, Barbano had reported in his column that Lowe’s Hardware, after it moved to the Marina, would “close an existing store.” That’s what subsequently happened. So this new message from Barbano prompted some concern, particularly in the case of Walmart, which has a history of shedding its old stores. Locally, Walmart closed its North McCarran store after building stores in Spanish Springs and on Glendale Road.

“I was told that T.J. Maxx and Old Navy are each closing a store [in the Truckee Meadows],” said state legislator Debbie Smith. “And I was told that by a source close to the project.”

Linda Smith, manager of the Reno T.J. Maxx said she has heard nothing about any closing and referred other inquiries to the corporate office. Reno Old Navy manager Leslie Crossley could not be reached for comment.

Outlets at Legends, the commercial name of the Sparks Marina shopping project, was developed by RED Development LLC, based in Kansas and Arizona. Old Navy and T.J. Maxx already have stores at the Marina. Walmart is constructing one.

Legends was developed under Nevada’s Sales Tax Anticipated Revenue (STAR) bonds law. The law, enacted by the 2005 Nevada Legislature, allows the creation of special STAR tax districts in which companies that lure tourists can be subsidized to the tune of 75 percent of the sales taxes they generate.

At the time the Nevada Legislature enacted the law, the bonds were relatively untried—only one other state, Kansas, home of RED Development—was issuing them, and so the technique was fairly uncooked. The Nevada law did not provide for independent substantiation of corporate claims of ability to draw tourists, nor did it provide a remedy if the tourists failed to come—no way to withdraw the subsidy if they failed. Without having a lot of evidence of how it worked elsewhere, the Nevada Legislature decided to try it and see what happened. In addition, without having more versions of other state legislation, Nevada lawmakers did not anticipate everything that might be needed in the Nevada version.

Once qualified for Nevada STAR bonds, a business cannot then be denied if its predictions of out-of-state customers fail to materialize. And license plate counts in parking lots provide little evidence that STAR bonds projects work, except to injure local firms in the same product lines.

The STAR bonds law was enacted two years before the recession got underway. Nevada is very dependent on sales taxes, which become much more important when times are hard and people turn to government for help. The sales tax revenue normally is divided among cities, counties, school districts and state government.

In the case of Legends, which qualified for STAR bonds, a promised hotel/casino was never built, sharply undercutting its ability to draw tourists.

The intent of STAR bonds was to bring in new tourist-oriented business, not shift existing businesses from current locations to tax sheltered Legends.

Not all stores that move into the Marina project benefit directly from STAR bonds. Specifically, they don’t get sales taxes for their bond financing. But 75 percent of the sales tax they collect still is used to repay the Legends bond debt. And they benefit indirectly by the very existence of Legends, which was created by STAR bonds.

None of the dominant anchor stores at Legends are locally based, which means they ship capital out of state, making local benefits far from certain. Names like Target, Scheels and Best Buy provide much of the draw, which means that Minnesota (Target and Best Buy) and North Dakota (Scheels) will be getting more benefit from Legends than Nevada.

Three months ago, RED Development negotiated new loan terms for Legends. The new financing arrangement lets RED make more than $30 million in new investment in the project. RED said the new funds would be used to construct more than 300,000 square feet of new retail space. But if that results in more out-of-state firms that further drain the valley of capital and injure locally based merchants, it could hurt rather than help the local economy.

“It’s highly unlikely that this would be a good deal for local governments,” said economist Glen Atkinson.

“That’s the whole issue around this and that’s why last session we passed a bill to require some reporting,” lawmaker Smith said. “That’s exactly what we wanted was some reporting to make sure it is helping.”

But she said the resulting information drawn from reports by companies operating under STAR bonds has not been all that useful, sometimes consisting of estimates instead of hard numbers.

“It wasn’t contemplated that non-tourist companies would come in as a result of STAR bonds,” Smith said. “It wasn’t contemplated that existing businesses would be hurt by STAR bonds. It wasn’t contemplated that the state would lose money from these projects.”

“How many Californians are saying, ‘Let’s drive to Scheels in east Sparks?’ ” asked Atkinson.

He said that in addition to the quarter cent sales tax and wages paid, the Truckee Meadows will also benefit from property taxes and a business tax calculated on payrolls—which, like the sales tax, are split among various governments. “But that’s about it,” he said.

He said that without the tourist component of STAR bonds, the only thing developments like Legends do is shuttle sales taxes around the valley—and create “unfair competition” for local businesses from big box chains.

“Does this move the sales base from one location to another?” he asked. “Unless they’re bringing in customers from outside the state, it’s the same tax base.”

Some Sparks officials have said that businesses that moved to Legends from other valley locations would otherwise have left the valley altogether. No company has confirmed that.

Meanwhile, RED is also having problems that transcend Sparks—including some in the birthplace of STAR bonds. Steve Vockrodt wrote in the June 8 edition of the Kansas City Business Journal, “RED Development LLC’s local status is cooling after years as one of the area’s hottest retail developers. In the span of a week, its One Nineteen retail project in Leawood sold, and a federal judge appointed a receiver for RED’s signature Legends Outlets Kansas City that will look to replace the company as property manager and explore a sale of the Kansas City, Kan., project.”

The full name of the project is Outlets at Legends and some of the stores have outlet or factory in their names, but few if any of them have the pricing policies that are normally associated with outlet stores. “[C]all them ‘outlet’ if you want, but I’m not paying those prices,” wrote then-Sparks Tribune editor Nathan Orme last year.