Nebraska Mall Has $112 Million Price Tag . . . and $58 Million of Subsidies

Nebraska Mall Has $112 Million Price Tag . . . and $58 Million of Subsidies
August 29, 2013

When a new outlet mall opens in November between Nebraska’s two largest cities — Omaha and Lincoln — shoppers can look around and thank the government for putting up more than half the money to build it.

That’s because more than half the $112 million price tag for Nebraska Crossing Outlets is coming from various government subsidies funded by you, the taxpayer.

The outlet mall is being developed by OTB Destination LLC of Park City, Utah, and Frank Krejci of Omaha’s Century Development. The developers have not yet responded to a request for comment.

Taxpayer subsidies are expected to cover $58 million of the cost, according to the redevelopment plan. The development team is making a $54 million investment.

Residents of the nearby bedroom community of Gretna voted to subsidize the demolition of an old, decrepit outlet mall and construction of a new, bigger, better outlet mall a few miles down the road, even though $4 million will come out of their pockets in the form of property taxes.

The question is, should government be in the business of helping build shopping malls? A national group that promotes smart economic development says no.

‘Not Really Economic Development’

Leigh McIlvaine, research analyst for Good Jobs First, said subsidizing retail is not going to create economic growth in a region unless it’s in an area underserved by retail, such as a food desert in an inner city. In fact, many cities ban subsidies for retail projects, she said.

“Subsidizing a shopping mall is not really economic development,” McIlvaine said. “It doesn’t generate any more disposable money for people to spend.”

Rather, it pirates sales tax dollars from other communities, or even local mom-and-pop shops in Gretna.

“This is really a situation of government sort of picking winners and losers,” she said. “It’s not going to create new money.”

John Green was the city attorney for Gretna when the mall project was in the planning stages, and said every incentive program available in Nebraska was tapped.

“Any time you use the vehicles (incentives) they own …  it’s always going to look like a lot, but basically what you’re doing is you’re subsidizing growth now with future revenue you wouldn’t have had but for the growth,” he said.

Green hired Lincoln development lawyer Kent Seacrest to work on the financing plan and redevelopment agreement. Seacrest’s costs will be reimbursed to Gretna by the developers, he said.

Nearly No Opposition

There was virtually no opposition to the plan in Gretna. A special vote-by-mail election was held in 2011, and voters agreed to divert sales tax revenue to the project by a vote of 1,342-93. Gretna is the fastest-growing city in the state with only 20 percent of its residents working in Gretna, so the city needs to create its own jobs, Green said.

“It’s a huge jump start for a community . . . to create its own job structure and not just be another suburb,” he said.

But McIlvaine said the 500 jobs expected to be created are not good jobs.

“It will be a low-paying job,” she said.

She cited a study by a St. Louis regional planning agency that found that $2 billion in public subsidies for malls and retail projects in the St. Louis area resulted in negligible job growth.

‘Blight’ Designation Miles Away

The Gretna mall is being subsidized with about $13 million in tax increment financing, which diverts property tax revenue from the new development back into the project for 15 years. TIFs are intended to remove blight from inner cities, but Gretna officials declared as “blighted” the unpopular outlet mall that’s several miles from the actual town of Gretna. The mall area, along Interstate 80, was annexed into the city a few years ago.

The mall also will receive:

  • $26 million in occupation taxes. A 1.95 percent sales tax on purchases in the mall will be levied for 20 years.
  • $4 million in general obligation bonds issued by Gretna to fund infrastructure, which will be repaid by property taxes.
  • $14 million in local sales tax revenue. Gretna voters agreed to divert to the mall proceeds of the 1.5 percent local sales tax levied in the mall area for a decade. This tool, approved by the state in 2010, was intended for tourist attractions and blighted areas.

In fact, the redevelopment plan calls for government subsidies to pay for $11.5 million in property purchase assistance, a half-million dollars for demolition, $16 million for “communication and marketing” and $12 million in “tenant improvements.”

Jeff Kooistra, Gretna’s city administrator since January, defends the city’s decision to help redevelop a mall.

‘Money Wouldn’t Exist’

“None of this money would even exist if that mall didn’t,” he said of the TIF and mall sales tax dollars going toward the project. “It’s not like it’s money that we’re pulling from somewhere else.”

But even he acknowledged to another reporter that he wasn’t aware of any other project that made use of virtually every incentive available.

He also said the redevelopment agreement calls for the city to be reimbursed for costs as tax revenue comes in.

Developer's Doubled Returns

The public subsidies, according to the redevelopment plan, will double the developers’ return on investment. The mall would bring a 6 percent return on investment if it weren’t underwritten by the public. With the incentives, the ROI is expected to be 12.7 percent, which a “fair” rate of return for such a project, according to the city document.

McIlvaine said if the mall would make a 6 percent return without public subsidies, “then it is not something that should be subsidized.”

“A lot of these businesses have really made a model out of relying on public subsidies,” she said.

So if the outlet mall won’t produce good jobs, and the new tax revenue will be diverted back into the project, who does it benefit, besides the developers and shoppers looking to buy brand-name purses on the cheap?

A cost-benefit analysis done for the city by a University of Nebraska-Omaha professor concluded the project was “eminently justified” because the mall would generate $7.45 in benefits for every $1 in lost revenue and costs borne by Gretna during the next 30 years.

The redevelopment plan envisions attracting out-of-state shoppers, increasing tourism and housing demand. But McIlvaine is doubtful. The Mall of America in Minnesota also is looking for subsidies to expand, but that’s different, she said. That mall actually does bring in tourists from all over the world.

“Do I think an outlet mall outside of Grenta, Nebraska, is going to be pulling tourists from Iceland?” she said. “I don’t.”

Deena Winter (deena@nebraskawatchdog.org) reports for NebraskaWatchdog.org, where this article first appeared.


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