Are We Masters of Our Domain?
Critics are concerned that rather than boosting local shops, a subsidy deal struck by City Council with developers of the Domain is dropping cash into an already successful project, filled with high-end stores
By Richard Whittaker, Fri., Aug. 31, 2007
The Domain retail and residential park was supposed to attract upscale stores and new tax dollars to Austin. But critics are concerned that rather than boosting local shops, a subsidy deal struck by City Council with the developers is dropping cash into an already successful project, filled with high-end big-box stores. "It's the outrage of subsidizing someone like Neiman Marcus or Tiffany's, while locally owned place[s] like By George have lost not only business but employees," said Jeff Heckler, a consultant for Stop Domain Subsidies.
More than 200 local businesses already have signed a petition asking council to cancel the existing deal. "The only reason we've been given if they don't sign is not that they disagree but that they might do businesses with some of the developers, and they don't want to risk that relationship," said co-organizer Linda Curtis.
Located in North Austin between MoPac, Braker, and Burnet Road, the Domain was intended by Austin-based developers Endeavor Real Estate Group to be a New Urbanist environment, combining high-end retail and new housing on a former industrial park. "When we first started, we saw the opportunity for this to be a very dense, mixed-use project," said Kirk Rudy, a principal with Endeavor. With proposals for structured parking and public amenities, costs rose. "We learned, like other developers with this sort of project, there was the need for some investment to make it more viable. It was on that basis we approached the city and the county."
For the city, the appeal of a regional shopping destination, attracting customers from around Central Texas, was simple. "This would help bring in sales-tax dollars to Austin that had been migrating out to surrounding areas," said Fred Evins, redevelopment project manager for Austin's Economic Growth and Redevelopment Services Office. On May 15, 2003, the city entered into an economic development agreement with Endeavor from Chapter 380 of the Local Government Code – which allows municipalities to use public money for loans and grants to businesses that will stimulate local or state commerce – to subsidize the first stage of the site, called Domain I. This provided a 20-year package, calculated as a proportion of property- and sales-tax revenues generated by the site and paid directly to the developer. In part, this was intended to encourage them to spend more on the development, to attract tony tenants like Louis Vuitton and Apple. Working from Endeavor's estimates, the city calculated that, even after a projected $25 million in subsidies, the Domain would contribute $40 million in new taxes. But Stop Domain Subsidies disagreed with these figures, claiming the subsidy could rise as high as $65 million. The group argued that, even though the deal includes affordable housing and $1 million in incentives for small and local businesses to move on-site, Endeavor overstated the economic benefits to the community. "They inflated or diminished claims where that would look good," said Jack Kirfman, a policy consultant working with SDS. "It doesn't take much research to realize that the average retail job in this market doesn't earn $27,000 to $30,000 a year."
One local business that definitely will not see the direct benefits of the agreement is the Endeavor Group. In February 2004, it set up a partnership, Domain Shopping Center LP, with major Indianapolis-based retail developers Simon Property Group Inc. to run Domain I. This year, Simon took sole control of the partnership and, with it, the subsidy. It is Simon's subsidiary that will receive the first subsidy check on Oct. 31, 2008. When contacted, Simon representatives requested e-mailed questions but did not respond to them.
In part, Kirfman blames problems on the speed of the original decision; council voted on the agreement a week after it was initially brought up. "This deal was done in a panic," Kirfman said. "It was a real bad time after the dot-com bust, so sales and property taxes were cratering." SDS has asked council to undertake a full audit of the deal and is considering sponsoring a charter amendment to create stricter regulations for retail subsidies.
However, future councils already have a get-out clause that would allow members to walk away cleanly from such subsidy deals. In May 2004, after being sued in Travis Co. District Court by SDS organizer Brian Rodgers, the developers and the city altered the agreement so that the city is no longer obligated to pay the subsidy. If council ever decides not to appropriate the money, the deal is off. "The beauty of this is that there doesn't have to be a big vote," Heckler said. "They just don't have to give them any money, and that's an easy ask for a politician."
Both Endeavor and Simon are developing other sections of the site, but neither has applied for a second Chapter 380 economic-development agreement. "We've pretty much killed that off," Heckler said. Evins doubted the city would dishonor the existing deal, however. "I cannot imagine council not moving forward with those payments if we find the developer has met all performance-based elements of the agreement," he said.
For Heckler, this comes down to one simple question: With a $27 million budget deficit, should council be handing cash to developers to build a new home for out-of-town retailers with no local ties? "No one's objecting to their right to build whatever they want to attract businesses and people, but it's a whole other kettle of fish to give them taxpayer money, and a lot of it," Heckler said. "Given the furor over the Las Manitas deal, this is giving so much more money away. This is like 65 Las Manitases."
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