Posted by on Apr 12, 2012 in Blog Article | No Comments

 

Over the past few months the media has covered stories about several high profile free agent signings and teams handing out big contracts to keep their biggest attractions in town.  The Angels lure Albert Pujols from St. Louis with an offer worth hundreds of millions of dollars, Derrick Rose extends his contract with the Chicago Bulls, Peyton Manning leaves the City of Indianapolis for Denver, Sears recommits to Illinois. Wait what was that last one?  Sears was essentially a free agent, shopping the market for the best offer much the same way that a sports star weighs offers from other teams.  It happens on the big stage, LeBron James “taking his talents to South Beach” and in suburbia; Home Depot moves a quarter mile away on the same commercial corridor, but to a neighboring municipality offering tax abatement.  

As with team owners, municipalities need to weigh the potential benefits and downsides of long-term financial commitments to developers and retailers.  Equally, there are pressures from fans/residents that demand that leadership attract the best players/businesses.

In both worlds, commitments that are performance based are the safest.  When tied to job creation, sales or tax revenue generation there is some level of assurance that both parties have some skin in the game.  If things do not work out as planned, the risk of loss to the municipality is not as great.  However, in a competitive world, nonguaranteed or front loaded contracts and incentives are needed and/or necessary.  In today’s economy, the need for exhaustive due diligence is critical.  Regardless of how attractive that “free agent” may seem, municipalities need to make sure that the project and deal is properly vetted through eligibility studies, market analysis, fiscal or economic impact analysis, detailed review of proformas and other appropriate methods.  In the end, a win for the municipality will be measured in dollars, jobs and collateral development.  A loss will be omnipresent in the form of a partially developed or vacant site providing little or no benefit to the taxpayers.

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