That is what a relocating business would have to do in order for local governments to receive the same amount of money from it after it becomes part of the Sales Tax Anticipate Revenue (STAR) bond system.
On Tuesday, the Sparks Tribune reported that the Lowe’s Home Improvement warehouse on Oddie Boulevard will close when the chain’s new location at Legends at Sparks Marina opens in January or February 2012. This according to Steve Schoenberger, the manager of the current store who, along with the existing store’s 150 or so other employees, will be transferring to the new facility.
The Legends development, which has opened in phases over the last three years, was built using the STAR bond financing system, approved by the Nevada Legislature in 2005. These bonds allow for unique tax and tourism districts where retail businesses that show they can draw out-of-towners are eligible to receive tens of millions of dollars in front-ended public subsidies to support their development costs. Seventy-five percent of generated sales taxes are then directed toward repaying bonds.
STAR bonds have been used several times around Nevada. The Cabela’s outdoor store in Verdi, the Reno Aces minor league baseball stadium, the Mob Museum in Las Vegas and the Legends at Sparks Marina have all been erected using this mechanism.
The idea – or at least the sales pitch from developers and city officials – was for Legends to attract out-of-state tourists to the city of Sparks. Retail outlet stores, the enormous Scheels All-Sports, restaurants and a possible hotel and casino all were drawn up to shimmer off the marina’s water, creating a beacon for tourists and their disposable income.
But stores such as discount department store Target, electronics store Best Buy and planned stores such as Lowe’s and Discount Tires don’t exactly fit in with that notion. Adding to that, shuffling non-tourist businesses from another part of town to the marina was not part of the plan.
“Clearly, with the intent of the legislation, this flies in the face of what was intended,” said Assemblywoman Debbie Smith, who represents the section of Sparks just west of Legends.
According to Legends general manager Dennis McGovern, neither Target nor Lowe’s used STAR bond financing to help construct their new buildings. To build much of the rest of the development, $116 million in bonds has been issued to far, according to city finance director Jeff Cronk. The city has made payments on the bond debt of just under $16 million, Cronk added.
Even though the stores do not get bond financing for construction, 75 percent of the sales tax they collect goes toward repaying the bond debt. For stores that did not exist here before Legends, the 25 percent that is left for schools, transportation and other state and local purposes is new money. For stores that were already doing business and paying Nevada sales tax, moving into the STAR bond district redirects three-quarters of their sales tax payments to bonds, leaving just 25 percent for its intended beneficiaries.
Taken as a whole, the idea is for the new stores’ sales tax revenue to compensate for sales tax lost by businesses that move. Businesses that move hope to see a boost in revenue from the more desirable location. And while sales numbers usually are not available for individual stores such as Target, McGovern said his informal conversations with management there indicate the move from Prater Way has resulted in an increase of about 15 percent in total sales.
Marian Henderson, an analyst for the Nevada Department of Taxation, said that generally a store moving from outside a tourism improvement district, or TID, with STAR bond requirements, would have to increase its sales by four times to offset any losses to sales tax beneficiaries.
According to Henderson, Legends’ most recent sales tax generation was about $9.5 million for the fiscal year ending June 30, 2011. Of that, $7.1 million was sent to Sparks to pay bond debt. As for Legends’ effect on gross sales tax in the city, it has been a saving grace in light of the economy, she said.
“Given the economy, I don’t think there’s any use in trying to determine whether the Legends has impacted gross sales tax,” Henderson said in an email. “Everything was down starting in FY 2008; thank goodness the Legends was in business.”
When Nevada pondered implementing the STAR bond system in 2005, the model legislators had to look at was the state of Kansas, where the same system was approved in 1997. Karin Brownloe, now the state’s secretary of labor, was a member of the Kansas state senate for 14 years and sponsored the STAR legislation there. The intent, she said, was to create a mechanism to develop the Kansas Speedway and the 400 acres around it in Kansas City. Just like in Nevada, the target was out-of-state tourists. In addition to the raceway, retail stores, hotels, even a new soccer and minor league baseball stadium have been built as a result, Brownloe said.
All these things added new elements to the region’s tax base, she said, but it hasn’t gone totally according to plan. Brownloe said the legislation included language to prevent the STAR financing from bringing in gambling. That worked for a while, but now a casino is in the process of being built at the speedway – long after STAR bonds were approved for the area.
“Managing the STAR bonds has been a challenge,” she said.
The STAR bond incentive of the tourism districts was never meant to be a draw for big box stores, Brownloe said. There are property tax abatements and other perks for that purpose, she said. Penalties for deviating from the intent of the STARs would be ideal, Brownloe said, but neither Kansas nor Nevada law has any repercussions.
Smith, whose assembly district includes west Sparks adjacent to the district that emcompasses Legends, worked in the most recent session to get legislation passed putting limits on businesses moving to the STAR bond tourism district from other parts of town. As enacted, AB 376 sets a three-mile minimum distance for businesses moving to a tourism improvement district, or TID, created after July 1 of this year. The law also attempts to require stricter reporting on sales from out-of-town visitors and puts limits on use of STAR financing to relocate businesses within three miles of a new TID.
The new legislation makes no changes to existing tourism districts such as Legends.
A difference from the Kansas STAR bonds, where cities are liable in case sales tax revenues are inadequate to make the debt payments, Sparks is not on the hook in case this ever happens. Only TID money can be used to pay off the Legends bond debt, according to Cronk.
Another effect of stores relocating to Legends is the legacy on the area left behind. Since evacuating its store on Prater Way in 2009, the old Target building has sat empty, leaving just one grocery store to anchor the shopping center on the northwest corner of Prater and McCarran Boulevard.
City spokesman Adam Mayberry said Target’s move to Legends actually kept the store in town. Prior to that, Target was looking to close up and leave entirely, he said, and it wasn’t until Legends developers approached the company about the new location that the decision was made to stay in Sparks.
Empty buildings always are a concern not just for economic reasons but also as magnets to graffiti and other crime.
“(Lowe’s) is one of the last big businesses in the area,” Smith said about the Oddie Boulevard corridor. “For everyone left behind, there’s a domino effect.”
City Councilman Rom Smith and Mayor Geno Martini said the vacancies are a concern and called the closures an “unfortunate business decision.”