|Looking for a $6 million break
Tax subsidy would benefit developer of Halls retail project
By Scott Barker knoxnews.com
Knoxville developer Tim Graham, whose South Grove development reignited annexation acrimony between the city of Knoxville and Knox County a year ago, will ask the County Commission on Monday to take the first step toward approving $6 million in tax subsidies for a $45 million retail project in Halls.
The public money, in the form of tax increment financing, would go toward infrastructure improvements - including roads, traffic lights and a greenway - in and around Graham's proposed Willow Creek shopping center on Maynardville Highway.
Graham wants commissioners to order up a review of his proposal by the Industrial Development Board.
The IDB's staff already is asking hard questions about the project, but Graham has the support of Knox County Mayor Mike Ragsdale and Halls' two commissioners - Chairman Scott Moore and R. Larry Smith. Graham contributed to all three officials' 2006 campaigns.
Graham, who plans to increase his request from an initial $4 million, says the project will be a catalyst for development along Maynardville Highway.
"This obviously will spur other development across the street and down the road," he said in an interview Thursday.
The proposal as written, however, doesn't conform to Industrial Development Board policy because Graham is requesting a 20-year term on the deal.
The IDB's policy calls for a maximum term of 15 years. By Graham's calculations, it would take 15-17 years to pay off the debt.
"The goal is to fund the construction of the infrastructure without existing taxpayer dollars," Graham said. "We're going to ask (for an exception) because of the size and complexity of the project."
Graham's development would house a Lowe's Home Improvement Warehouse and other retail outlets totaling more than 400,000 square feet on more than 60 acres.
The proposal also would create a tax increment financing district. The district's increased property tax revenue, from the Willow Creek development and all other parcels within the boundaries, would pay off the $6 million debt.
County officials say Graham's proposal would result in improvements to roads, including the widening of Quarry Road, the construction of a new connector between Maynardville Highway and East Emory Road, and the addition of three traffic lights on the highway.
To make room for the center, Graham wants to relocate the channel of Willow Fork and build a greenway along its banks. The Tennessee Department of Environment and Conservation has issued a permit to move the creek about 250 feet to the southeast.
"I think it's going to make some infrastructure improvements that will be beneficial to North Knox County," Ragsdale said. "You want to utilize TIFs to make infrastructure improvements the community needs that wouldn't otherwise be possible."
If the commission sends it to the IDB and the board signs off on the proposal, it would return to commissioners for final approval.
The proposal raises some concern at the Development Corporation of Knox County, which provides staff for the IDB, that the deal would set a precedent for taxpayer subsidies for other developments.
Mike Edwards, president and CEO of the Development Corp., casts a wary eye on tax breaks for retail developments. He said developers typically are responsible for infrastructure upgrades because they wouldn't be necessary without the development.
"In other words, the developer is responsible for all on-site and off-site improvements, including roads," Edwards said. "A TIF shifts that burden from the private to the public side."
In his application, Graham indicates that he wouldn't be able to make a reasonable return on his investment without a TIF. He said he's been scouting Halls-area locations for Lowe's for five years and only now has assembled one suitable, provided the site is improved. Graham estimates site development alone would cost nearly $11.5 million. One million cubic yards of dirt and rock will need to be moved, he said.
"This is the most challenging project I've ever done," he said.
Edwards said TIFs historically have been used to fund improvements in blighted or underdeveloped areas, such as the South Knoxville waterfront. Using a TIF for a retail development in an area that's not under-developed could set an unwelcome precedent, Edwards said.
"That's a slippery slope," he said, adding that any developer would argue a project isn't feasible without a subsidy.
Graham said proposals should be considered on a case-by-case basis. He points out that retail developments also generate sales tax revenue and estimates Willow Fork, once completed, would add $2.25 million in annual county sales taxes and employ about 500 people.
"I think ours makes sense," he said.
Smith says granting a TIF to one developer doesn't mean commissioners would rubber-stamp every proposal that comes along because the panel relies on in-house finance staff for advice.
"If they say we can't do it," Smith said, "we'll have to go to the developers and say, 'I'm sorry, you'll have to do the whole thing.'"
One of the reasons local governments use tax increment financing and other financing tools is that it's difficult to budget improvements that go hand-in-hand with private-sector initiatives.
"You can't foresee development," Edwards said.
Graham points to the success of Turkey Creek in West Knoxville as a good use of public money for infrastructure work, adding that Halls doesn't benefit from proximity to an interstate as Turkey Creek does.
Public money has been used at Graham developments before. At South Grove, a Lowe's-anchored development at Chapman and John Sevier highways, the county spent $2 million on infrastructure improvements. After a controversial annexation - one subcontractor's employee listed the site as a residence and cast the lone ballot for voluntary annexation, after which his house was torn down - the city also spent $2 million on improvements.
This time around, even though Willow Fork is miles from the city limits, Graham wrote in his application that he would not seek annexation into the city of Knoxville without County Commission approval.
"We got spanked," he said. "We learned our lesson."