County Commissioner Mike Ritz sees flaws in the Bass Pro/Pyramid Deal and sent the following article. FfOR has not been involved in the City's search for ways to reuse the Pyramid and has not taken a position on the current Bass Pro/Pyramid Plan. We are posting Mr. Ritz's comments for educational purposes.
For information about Commissioner Ritz’s background and experience, click here.
The Bass Pro Deal Is Deficient
by Mike Ritz
The current proposal for Bass Pro to control and become the primary tenant of the Pyramid has many deficiencies. These deficiencies have been known and identified for months and have been ignored or glossed over by the City staff and others working on this matter.
First my opinion is that Bass Pro is a great company with a very good retail concept but the company is privately owned and thus their financial conditions and trends and management are invisible to the public. I have no problems with Bass Pro as a business, retailer or user of the Pyramid IF the public’s risk is low and the public gain is maximized.
An initial letter of intent was signed by the Mayors and Bass Pro in late 2005 with a 2nd letter signed in June 2007. Finally in February of this year a third letter was revealed to the County Commission containing conditions for a possible lease. This was the first time the County Commission, sworn in September 2006, was asked to review or consent on any matter related to Bass Pro. The proposal now in front of the Commission is essentially identical to the February letter.
The Deal’s major deficiencies as I see them:
1. RKG Associates, the City’s consultant, says that Shelby County will receive annually $10,448,787 from the County’s 7% sales tax. If this were only the case?! The County does not have a 7% sales tax rate. That is the State rate! This error has been in their report since 2005. We must assume there may be similar RKG errors.
2. Bass Pro will lease the Pyramid from a to-be-formed non-profit entity. This will assure Bass pro will not ever pay any property taxes for the 55-year lease term with options. Nor will any of the ancillary uses like a hotel or restaurants on the 31-Acre Pyramid site pay property taxes. The rent is limited to 2% of sales. If retail sales average $90,000,000 a year over the first 20 years, annual rent will be $1.8 million. On the other hand if we sold the Pyramid, or even gave it to Bass Pro, the current City, County, and CBID property tax rates would annually produce respectively $1,950,000, $2,424,000, and $390,000 on a realistic $150 million property valuation after improvements for the store, hotel and restaurants. This annual total tax of $4.764 million is 2.65 TIMES the rent Bass Pro will pay. If the tax rates go up the property tax receipts would go up. What is fair about a no tax deal? We have PILOTs to handle issues like this. Center City PILOTs are limited to 15
3. Bass Pro expects a gift of $30,000,000 from the City and County when they sign the lease. The money is a gift because they do not have to pay it back.
(a) Based on some personal inquiries with experts in this subject area, only about $10.0 million of federal funds (Brownfield and New Market Tax Credits) are reasonably available to backstop this gift.
(b) If we borrow $20,000,000 to give Bass Pro, over 25 years we will pay $35 million in principal and interest. That is 1 cent annually on the County tax rate.
(c) The City proposed another source of money for this gift to be incremental property tax growth in the Uptown Tax Increment Financing (TIF) District. However, the property tax increments in that District are already committed to the Uptown Development, not the Pyramid.
(d) The best place for backstopping the $20 million will be State Sales Tax revenues (See # 1 Above!) from the downtown Tourist Development Zone (TDZ) subject to State consent. Some parts of the current TDZ state sales tax are committed to the Convention Center bonds and another portion is committed to the FEDEX Forum bonds. We do not need to put at further risk our ability to repay either of these bond issues which is why I asked County Attorney Brian Kuhn and our County Finance office during the Bass Pro presentation to identify our risk of using TDZ funds for the Bass Pro gift.
Is it any wonder why Bass Pro proposed this rent, tax and gift arrangement and why the president of Bass Pro was here asking for our approval? The question on these most obvious points is why did our representatives on this matter agree to this deal and ask us to concur. Why have the benefits to the County been so grossly misstated? Why didn’t someone from the County catch these mistakes?
At our February meeting in joint session with our City Council colleagues, I suggested, with some general agreement (we could not vote in that setting), that we employ real estate expertise and legal counsel experienced in deals of this type and complexity to negotiate on our behalf. We did not and here we are!