On September 17th, the New Orleans City Council is expected to take up a proposal from a politically-connected developer to use sales tax money collected at a new mall to help the developer pay off his mortgage. The proposed site is at the closed Lake Forest Plaza mall. The parcel would be converted into the “New Orleans East Marketplace,” but it will take a big chunk of public welfare to make the project fly. The proposal, which includes a Wal-Mart supercenter, has attracted the support of a majority of city council members, and the project has not even reached the council. The property is owned by the Chairman of the Regional Transit Authority, Cesar Burgos and the CEO of First NBC Bank, Ashton Ryan. “The mall will serve as an anchor to the revitalization of New Orleans,” Burgos told The Times-Picayune. Burgos is a major supporter of New Orleans Mayor Ray Nagin. Burgos has said his mall is an investment “that will pay for itself many times over,” yet he wants the taxpayers to help pay for it. But the head of one watchdog group, the Bureau of Government Research, sees the project as just a massive form of corporate welfare. “Too much of the money isn’t going to New Orleans East; it’s going to private investors to service private debts. That’s money that could otherwise be used for services, infrastructure or other redevelopment projects in the area,” said Jane Howard, head of the Bureau. The project owners have asked New Orleans taxpayers to help underwrite the project by granting it tax increment financing district (TIF) status, which would put future tax revenue from the site back into repaying the bonds issued to pay for construction of new stores. Burgos wants 2 cents of the city’s share of sales tax collected at the mall for up to 25 years, including sales tax from the existing Lowe’s big box store which is already operating at the site. If the city goes along, state taxpayers would kick in another 2 cent sales tax, leaving the owners with roughly half of all sales taxes to go into their pockets to offset their development costs. Burgos and Ryan would use the money to pay off their $11 million private mortgage on the property. The owners have indicated they want to build a Wal-Mart superstore on the site, plus other retail stores, restaurants, and a gas station. The plans also call for a police substation at the mall, to save the cops time chasing back and forth in response to the many incident reports that will be filed. Burgos later wants to add another half a million square foot mall with more of the same sprawl. “We have lots of support from the community,” Burgos told the newspaper. But the New Orleans East Marketplace is likely to have lots of opposition from local residents who have had enough of suburban malls in urban New Orleans. The Times-Picayune said that the ordinance changes needed to make this mall happen are “short on many details.” Burgos claims that using public money to paying off the Lake Forest Plaza’s mortgage is reasonable because cities often buy the land in TIF projects. Critics worry what will happen if the project can’t be completed for any reason. Burgos responds, “Unfortunately, we can’t guarantee anything. It’s all market-driven.” But the TIF plan makes this project taxpayer-driven. Burgos will make a whopping 15% development fee on any investment in the site, according to the newspaper. The value of the corporate welfare for these owners is estimated at an incredible $42 million. As much as $23 million of that amount would go to paying off their mortgage. Part of the budget for the project includes selling part of the parcel to Wal-Mart for $5 million. Ryan told the newspaper that “there is no way” the overall plan will happen unless Wal-Mart or another big-box retailer opens on the site. But its not clear that Wal-Mart has made a commitment to the project. Jane Howard from the Bureau of Government Research, told the Picayune, “I think it’s just shocking. I have serious concerns about using public funds to pay off private debt.”
This deal is even more convoluted than it appears. Burgos and Ryan own the Lake Forest Plaza, and they owe New Orleans taxpayers $1.6 million in an overdue loan, plus $1.4 million in additional interest and penalties. Mayor Nagin agreed to a deal that allows Lake Forest Plaza to put $1.6 million in escrow, to be released to the city only when the TIF deal is signed. If the city ever wants to see the overdue loan, it has to create another welfare deal to the same developers for the TIF. The public money would be used to pay off a debt that a closed movie theater at Lake Forest Plaza owes Burgos and Ryan. The Mayor’s agreement allows the TIF funds to cover that debt. Burgos and Ryan are working on an economic impact study that Jane Howard says the Bureau of Government Research may challenge. In the meantime, at an August 11th hearing on the TIF, four city councilors expressed their support for the use of public dollars for private debt. Readers are urged to email City Council President Arnie Fielkow at afielkow@cityofno.com with the following message: “Dear President Fielkow, I don’t think the Lake Forest Plaza, and its owner’s debts are something that the public should pay for. Their Marketplace project should be able to make it in the marketplace on its own — without a massive infusion of public welfare. We don’t need more Wal-Marts, and we don’t need to give more bail outs to private developers who already are delinquent on their debts to the city. If Mayor Nagin wants to loan them some of his own private funds — let him become an investor, but don’t force the taxpayers of New Orleans to underwrite these big box projects. Wal-Mart can pay its own way — they don’t need subsidies. This TIF deal looks more like a political payoff than an economic development project. A Wal-Mart will largely draw its sales from existing merchants, so your constituents will not see any major change in jobs or revenues. As Council President, you can lead growth, or follow it. Passing out welfare to developers is not showing much leadership at all. New Orleans lives and dies on revenue from tourists. If the city starts to saturate its neighborhoods with big box suburban sprawl, you are going to find many tourists looking for alternative venues.”
