Monday, July 28, 2008
Editorial: Salem should support retail development
A $3 million tax incentive deal, the city's first, would benefit the city in the long run.
From the RoundTable blog
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Salem City Council tonight will consider whether to give a developer $3 million to build a big-box store at West Salem Plaza. Governments must tread carefully when subsidizing private profits, but in this case, the investment of tax dollars appears worth it.
The development group BET Wilkinson Salem Venture LLC wants to put a new store on the site, but it has kept mum about who the tenant would be. The rumor mill says it will be the home improvement chain Lowe's.
Whatever it is, it will be an improvement. The site's current structures are falling apart, and the land retains pollution from an old tannery. Other developers have toyed with building there, but their projects never panned out. Instead, the vacant site is an eyesore and dead spot in a developed part of town. A large retailer could reinvigorate surrounding properties and serve as a commercial anchor.
It would also contribute a fair amount to the local tax base. The city expects that once built, the new retailer would pay about $600,000 annually in taxes. In its current state, the land generates only a fraction of that. The best recent year was 2005 when the owner paid $109,000.
Before that money can start flowing, though, the project has to get off the ground, hence the tax breaks. The proposed deal would have the city collect about $109,000 worth of taxes each year, returning anything more than that until $3 million has been paid out.
That means taxpayers would subsidize a private development, at least in the short term. If everything goes according to plan, though, the subsidy will last only five or six years. After that, more money would flow into the city's coffers to pay for services.
If things do not go as planned, the deal protects the city. If the project cannot generate $3 million in additional tax revenue in 10 years, the city would be off the hook.
The only question is whether the developers genuinely need this money to make the finances work or whether they simply seek to pad their profits. If council members are satisfied that the former is the case, they should support the tax break. If they are uncertain, then they should postpone action and ask for more information.
This is Salem's first use of tax incentives to bring in a retailer. The city has only one chance to make sure its first tax incentive is a good one.
