Friday, February 06, 2009

'Shop Here!'

The city of Kingman includes a 'news and notes' document along with the monthly water bill. Actually, I'm not sure if the newsletter comes with every water bill or not, I rarely notice it if it does.

This month though for some unknown reason I gave it a glance. I noticed the ongoing promotion of the 'Shop Here!' program that came about heading into the holiday season last year. Now, I'm not a proponent or an opponent of what the city is doing with this. I fulfill my shopping needs locally as best as I can and for the most part I get by just fine. There are occasions though where the shopping experience in Kingman is lacking so I'll head out of the area to spend a few hours in another community that offers more. So in essence the 'Shop Here!' program neither compels me any more or any less based on my wants and/or needs. I suspect that is true for most.

This months newsletter has many program points included on the 'Shop Here!' promotion and there is more than a few blog posts that I could start a discussion on, but for now I'm only going to take on one. I may revisit the newsletter for more later on.

Here is the one I that caught my eye today...

Local retail adds $6M in sales tax revenue to the City budget. If Kingman has a 30% yearly leakage in sales, the City loses $2M in revenue and local businesses lose $200M in sales. That same lost revenue could be allocated to projects like Kingman Crossing and more retail.

I'm sure you can see why this captured my interest.

One could research the actual budget and revenue figures all day if they'd like to present a more accurate view of reality, however I'm just going to use the above program point.

First off the above identifies the problem or concern about sales leakage, the lost $2 million dollars. I can buy the 30% leakage factor in my own case, it is about right. I probably spend 30% of my shopping dollars in other communities. So a problem is identified and a goal is established to close that leakage gap, perhaps to use funds for future projects or simply to maintain city services. The program point speaks directly to adding more retail as a way to close the gap. Using Kingman Crossing though twists the logic to some degree, but the above is merely a sound byte... a talking point... a program point.


Since Kingman Crossing was brought up, lets use that to see if there is a solution to close that gap of $2 million dollars in lost revenue due to leakage.

So what do we know about this Kingman Crossing thingy anyway?? First we do know that landowners and developers have desired to improve the infrastructure along the Interstate by having an interchange built that would allow for easy access to and from the land via the Interstate in order to attract retail and other business interests. We know that in 2005 a proposal was made to the city that had a series of developers paying for the infrastructure needed to accomplish the easy access aspect, but this proposal never made it anywhere.

After the city rejected the proposal made in 2005, the private land on the north side of the Interstate in the area was sold to different party that also had plans to develop a commercial retail area (retail?? you mean a potential for additional sales tax receipts?? Hmmm...). The new (and still current) landowners and developers also wanted easy access to traffic flows on the Interstate but haven't said that they would pay for the infrastructure needed for that easy access stuff.

However, they did make some intimations that they might be willing to enter into a public/private partnership with the city as a possible solution to the infrastructure need, but to my knowledge no details were ever given or debated to the possible solution.

And that folks, is all we know as it stands at the moment. Sure we could delve into other things that muddy up the waters, the politics involved here might make a decent book (or a comedy routine)... but I'll save all that for another time. So let's get back to the issue at hand... the leakage and lost revenues. To do that though, we have to make some assumptions from this point out.

It is no secret, I am intrigued by the concept of public/private partnerships as I think they offer fair solutions to communities all over the world (they are being used all over the world). In this case the current landowners and developers have made a series of these partnerships with communities right here in the state of Arizona. In the last year I have spoken with city officials and residents of communities where such agreements have recently been made. Based on those conversations I feel I can play out a scenario to see if it could combat the issue of leakage and lost revenue.

In my view, a successful public/private partnership means shifting a great deal of risk onto the private side of the agreement. How much risk is determined by the final agreement, but it needs to be at least half the risk (IMO) and certainly could be more. For an example concerning risk, if the citizens of Kingman had to fund an infrastructure project 100% via a bond or a tax increase then the citizens would be on the hook for the entire cost and risk. In this current economy that would be a stupid decision, and one I would not support as it leaves all of us with ALL of the risk.

From here on out I'll refer to the term public/private partnership as a PPP.

Based on other PPP's this is how the concept could work in Kingman.

First, the private party agrees to fully fund the infrastructure project, in this case we are talking about an interchange offering access to and from the Interstate as well as an alternative crossing from one side of Kingman to the other. There have been many different dollar amounts attributed to this infrastructure project in the past, for this example I will use a round about number of $30 million dollars.

While the private party seems to be nice enough to front the cost, they aren't buying everyone a free lunch... they will want that money back. So how might that happen??

Like other PPP's, the private party is willing to take repayment in installments... okay but at this point the risk is still on the citizens of Kingman. So how do we shift the risk??

Well the city simply agrees to make annual payment to the private party out of a portion of the sales tax dollars that are generated at their development. For this we'll just use a 50-50 split of those sales tax receipts. Okay, the risk has started to shift but has it gone far enough?? Probably not.

So now the city and the private party agree that these installment payments, from the sale tax receipts generated at their development, will only happen for a certain period of time. For this we'll use a term of 20 years. So is this enough risk?? Well, lets take a look at the numbers.

The infrastructure project costs $30 million dollars and now the developer has 20 years to recoup that outlay of funds. So if we divide the $30 million dollars by 20 installments, it would mean that they must generate $1.5 million dollars a year in installment payments. I'd say yes, the risk is more on their side now than it would be on the citizen of Kingman.

Let's also not forget one other thing... if the developer is recouping 50% of the tax dollars generated at the development, it means the city is also putting $1.5 million dollars in the treasury every year. Clearly closing the gap caused by leakage. (at this moment, zero dollars are being contributed to the treasury from that property)

Shop local you say??

Clearly this sort of PPP is a performance risk squarely on the developer. No citizen of Kingman is compelled to risk any of his or her dollars towards the project, ever. Surely there won't be a law that forces anyone to actually shop at the development and therefore generate sales tax dollars. If the developer can't appease your shopping tastes (or entertainment and maybe dining pleasures that require exchange of fundage), then you won't be a patron at the development... yet you still could use the Interstate access or even just get from one side of town to the other on the infrastructure they built at no charge.

There are other possible benefits I haven't touched on either. On the south side of the Interstate directly across from this proposed commercial development is 168 acres of land. The interchange would increase the value of that land... cool for the owners of that land. Just who owns that asset anyway?? Oh yeah, the City of Kingman. Just south of city owned parcel sits a section of land owned by the state of Arizona that has yet to be developed. My guess is that land would also end up with a higher value than the value it has currently. The future sale of that land would help fund education in the state.

I realize the above scenario that I've painted is just one persons view, but it was based on information shared with me by online resources and conversations with citizens and elected officials in other communities that have entered PPP's with developers. I also realize that what I shared was a rather simple example.

There will be a gazillion details likely to hammer out to reach an agreement that could offer the basic fundamentals of this sort of PPP. That is what lawyers are for, and elected officials, and without a doubt -- public input.

A PPP similar to the scenario I outlined was even approved by voters in an election, so yes the public must play a vital role.

And yes, there is always the politics to be worked out but I'm only a 'wannabe' politician so I'll leave it to the pro's. There obviously could be other competing solutions that appear that may even offer the community something better while addressing the need to 'Shop Here!'. I'm all ears and not playing favorites. Whoever can get it done without sticking it to the citizens of Kingman is good in my book.

Reading this newsletter that came along with my water bill, the city is telling me they have a concern with me spending money outside the cozy confines of the city limits. That city services could be threatened and maybe even the quality of life offered by Kingman. I don't want that so I'll do the best I can... and while I make some adjustments I hope the city does all it can to find a solution to the problem they face. The leakage is NOT my problem. City revenues based on sales tax receipts is NOT my problem. The fact that I have always seen another person from Kingman when shopping at the Target in Bullhead City is NOT my problem.

I'll loosely paraphrase the following and substitute characters from a favorite movie of mine...

Todd: I told my wife I wouldn't drink tonight. Besides, I got a big day tomorrow. You guys have a great time.

Kingman City Council Member: A big day? Doing what?

Todd: Well, um, actually a pretty nice little Saturday, we're going to go to Lowe's in Bullhead City. Yeah, buy some wallpaper, maybe get some flooring, stuff like that. Unfortunately we didn't like what Home Depot in Kingman had to choose from. Then Maybe Bed, Bath, & Beyond, Sam's Club, and Target, I don't know, I don't know if we'll have enough time.

If I knew that within a couple of years that it could be possible to pull this off above right here in Kingman... I might delay that wallpaper and flooring purchase.

For today though, at least I paid my water bill.

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