February 20, 2021 7:57:30 PM
Zack Plair - [email protected]
STARKVILLE -- Aldermen voted 6-1 Friday afternoon to increase the city's tax-increment financing obligation for the redevelopment of the old Garan Manufacturing site from $3 million to $4.2 million.
The city entered a TIF agreement with Castle Properties in 2019 to convert the 10-acre former plant site on Highway 12 to a 90,000 square-foot shopping center. The ALDI grocery store and T.J. Maxx department store chains have already signed letters of intent to anchor the development.
In exchange for the amended TIF agreement, Castle Properties will relinquish its claim to more than $4.1 million worth of remaining TIF obligations for two other developments -- Middleton Marketplace shopping center, which includes Umi restaurant; and the Cooley Center, anchored by The Mill at MSU.
Castle Properties owner Mark Castleberry told the board Friday that increased material costs to meet contractual obligations for his clients, as well as for landing commitments from other national chains, would require more in tax incentives from the city.
Otherwise, he told The Dispatch after the meeting, he would be "losing money on the development" he is valuing at $20 million.
"When I purchased this land in September 2019, the economy was strong, retail was growing, financing terms were stable, and very few people had ever heard of COVID-19," Castleberry told the board. "Since that time, brick-and-mortar retailers are struggling with many bankruptcies occurring, leaving the retailers who have succeeded during these challenging times very desirable."
He also cited material costs and a skilled labor shortage for driving up his development costs.
Castleberry told The Dispatch the few big-box retailers looking to expand often want a more finished facility to move into, "but they don't want to pay more in rent."
"That has made it extremely difficult," he said. "... Because if they don't like (the deal), they don't have to come here."
The amended TIF agreement for the Garan site will not only make it possible for the project to break ground in July or August, Castleberry said, it will also allow him to comply with the city's 100-year flood mitigation requirements.
He said he is in talks with national retailers for pet supplies, shoes, cosmetics and beauty supplies, and a retailer targeting teens and tweens, in addition to ALDI and T.J. Maxx. The development also will include 6,400 square feet for small shops and two outparcels that could bring in restaurant clients, he said.
On Friday, Castleberry said the new development would bring in about 200 jobs and generate $35 million per year in sales.
Castleberry purchased the Garan property on Highway 12 after the longtime manufacturing plant relocated to the North Star Industrial Park off Highway 383.
How the amended TIF will work
With the TIF, the city agrees to issue up to a certain amount in bonded debt to reimburse a developer for certain aspects of a project -- such as water/sewer infrastructure, roads and parking. TIF bonds cannot pay for building construction.
In turn, the city will repay the bonds over 15 years with general sales and ad valorem taxes generated from the development.
Mayor Lynn Spruill said Castle Properties will not get any city tax dollars for the project until after the center is complete and has operated for at least one year. The city will base what it ultimately borrows for the TIF bonds, she said, on the property value and sales tax receipts from a full year of operation. So, even with this amendment, there's no guarantee the development will receive the full $4.2 million from the city.
The biggest change from the city's old TIF agreement is it will dedicate 60 percent (instead of 50 percent) of the sales tax revenue generated at the site to repaying the 15-year bond. Castleberry estimated that extra 10 percent would amount to $50,000 per year.
Under the new agreement, the city still is dedicating 100 percent of its share of the ad valorem property taxes generated from the site until the debt is repaid.
Even so, school taxes, as well as the special city sales taxes for tourism and the parks, are exempt from the TIF. Castleberry estimated Friday the development, upon completion, would immediately generate $101,000 for the schools and $150,000 through the 3-percent special city sales taxes annually. The city's 40-percent share of general sales tax collections not obligated to the TIF would exceed $183,000 each year, he said.
On the other side of the deal, the city would be de-obligated from almost 80 percent of TIF agreements on the books for two other Castleberry projects.
In separate agreements, the city is obligated to issue up to $5.35 million in TIF bonds to assist with Middleton Marketplace and the Cooley Center. To date, it has only issued a little more than $1.2 million for those projects combined, based on property tax values and generated sales tax revenue.
Speaking specifically to the Middleton Development, Castleberry said a hotel planned for that site never materialized. He may still develop one on that site one day, he said, but once the TIF de-obligation is final he "can't get another dime from the city" for it if he does.
"This was a hard ask," Castleberry told The Dispatch after the board meeting. "We were trying to do everything we could to make this deal attractive to the city."
Beatty opposed 'on principle'; mayor praises agreement
Ward 5 Alderman Hamp Beatty, who also opposed the original TIF agreement for the Garan site in 2019, was the lone dissenting vote on Friday.
He called Castleberry a "first-class developer who has done wonderful things for the city," but he voted against the TIF amendment "on principle."
"A retail commercial development should stand up on its own," he told The Dispatch. "Cities, particularly prosperous ones, shouldn't invest in retail developments just so they can get a certain thing to come in. ... Otherwise, we're picking and choosing who you give incentives to."
Beatty said TIFs were originally meant to attract redevelopment for blighted areas in larger cities. Now, he said, businesses often will use the incentives competitively with developers and cities, causing a domino effect that results in cities footing the bill for "a large part of these projects." With this redevelopment, he noted, the city could be on the hook for up to 20 percent of the total costs.
With multiple established grocery stores already in the city, Beatty also worries the ALDI will do more to "cannibalize" existing grocery sales than bring new customers to town.
"We have other grocery stores here that we get full sales tax from," he said. "You have people who shop at Kroger or Vowell's, and we'll lose most of the sales tax revenue from those people who start shopping at (ALDI). So there won't be a lot of net gain for us from that standpoint."
Mayor Lynn Spruill told The Dispatch it isn't about the grocery store. It's about how the grocery store, as an anchor, can draw in other stores Starkville doesn't have and stop retail leakage (city residents spending money elsewhere) to cities like Columbus and Tupelo.
"Right now, we're more of a boutique destination," she said. "This will make us more of a mainstream retail destination and hopefully will really tip the balance for stopping that leakage."
Zack Plair is the managing editor for The Dispatch.