Redevelopment: At what cost?
Editor’s Note: The following is the first in a two-part series on South Lake Tahoe redevelopment. This report aims to conduct a cost-benefit analysis of the Park Avenue Redevelopment Project’s assessed value versus debt, a factor many cities must weigh in proceeding with major projects. Monday’s story will touch on the socio-economic climate of the Park Avenue site.
As South Lake Tahoe prepares an agreement to revamp the east side at Stateline and possibly the southwest end of town, the high price of the city’s first redevelopment project appears to be paying off in tax revenue – if citizens can live with a $112 million debt for the next 30 years.
The land where a swank cluster of retail shops, a $25 million gondola at Heavenly Mountain Resort and two Marriott time-share hotels now reside used to be home to a few small restaurants, motels and T-shirt shops. Much has changed in the three years since the Park Avenue Redevelopment Project rose from the ground.
Value already up $100 million
The property once assessed at $15 million when the plan was adopted in 1988 has increased more than 20 times on the El Dorado County tax rolls, the city’s redevelopment fiscal consultant Don Fraser said. It’s now valued at $346 million – up $100 million from when the complex was completed.
Even John Jovicich has seen the difference on his own tax records. He owned the Cecil’s general store for 30 years before it was demolished and rebuilt. Now he owns the Cecil’s Fountain Plaza next to Heavenly Village.
“I used to pay $2,500 (in property taxes) back then. Now I pay $84,000,” the Carson Valley man said. Even with a heavier tax bill, he views the redevelopment project positively.
The growth of the Park Avenue project is pertinent to the city’s Redevelopment Agency as it plans to sign on this spring with Stateline and Carson City developers to build a $325 million convention center/condominium complex across from Heavenly Village.
The deal so far is: The developers will foot the construction bill and buy the private property on the 17-acre wedge off Highway 50. In turn, the city’s redevelopment agency will give the developer a slice of the 21.7 percent it receives from the state in property tax.
In 12 years, other potential suitors – Harrah’s and Marriott – backed out of city negotiations for the project. But late last year, South Shore developer Randy Lane surfaced with a plan he says will bring a windfall to the area with construction of a convention center/condominium site across from the Park Avenue project.
Its redevelopment staff and its consultants hope to create a development and financial agreement by June.
Since its inception, the convention center idea has evolved. Once proposed to cover 200,000 square feet, the convention center would now be a quarter that size, with a 1,200-seat entertainment arena.
“With Indian gaming, entertainment should be an area the community focuses on,” said South Shore attorney Lew Feldman, who has represented developers from both projects.
Feldman balked at reports that suggest the convention industry has and likely will continue to be in decline going forward. “We’re not sure if we want to make a snapshot judgment when we’re long-term planning,” he said.
The developers are creating a marketing report to study the feasibility of a convention center.
The focus of the project has appeared to shift to eliminating blight rather than constructing a huge convention center comparable to what would be found in a large city. And Mayor Hal Cole said the city would be satisfied to go through with the project even “if we never booked one person in that convention center.” The city will not gain property tax revenue from the convention center operation.
Another dramatic change to the original plan: A time-share hotel no longer appears to be an option. Instead, the developers want to build a 250,000-square-foot condominium complex along with 55,000 square feet of retail space. By comparison, Heavenly Village covers 100,000 square feet.
“The best thing we can do (for the city) is create another Park Avenue and get more (tax revenue) than its debt service. That’s how people get rich,” Feldman said. “It’s a success story. Change is good.”
Like the double-digit growth of property values on single-family homes in South Lake Tahoe, Marriott’s time-share units at Park Avenue are also getting higher prices, according to the county.
The Grand Residence Club’s 796 quarter shares originally priced at $150,000 a few years ago are now selling for at least $50,000 more. Marriott Vacation Club has sold 670 shares in the Residence Club’s 199 units. More than 6,000 of the 7,400 one-week shares in the Timber Lodge have reportedly sold.
“They seem to have a market for both. You can see why (Marriott) started on the next phase,” said Fraser, the city’s redevelopment consultant, citing the construction site next to the swimming pool in back. Time-share owners pay property tax. Their short-term renters pay transient occupancy tax. The former has been greater than the latter at Park Avenue.
The South Lake Tahoe redevelopment zone’s 173 acres spanning Herbert to Stateline Avenue generates $6.7 million annually in property tax revenue from the Park Avenue project to Embassy Vacation Resort – which has also been assessed at about eight times its value in 19 years to $80 million this year.
In 1987, the city by comparison took in $1.4 million. Redevelopment property tax has surged 459 percent in the last decade. The motel room tax has increased 211 percent. Retail has shown 152 percent growth in sales tax revenue, the city reports.
Fraser has used the economic statistics to help the city justify an increase in the bond debt limit from $50 million to $210 million and property tax allocation from $150 million to a potential $568 million. The city has grand plans to extend its redevelopment net.
Investment means debt
The prospect has concerned critics, who fear the city may be getting in over its head. It now pays $7.8 million each year on $112 million in debt service – with only $10 million in principal paid so far. The debt service includes $500,000 a year the agency is paying back from the $7 million it borrowed from the general fund for project cost overruns and delays. The $21 million operating fund pays for public safety and snow removal, services that are near and dear to local residents.
The city-run $6 million parking garage at Heavenly Village has also accumulated an additional $9.3 million in debt. Revenues need to come in at $90,000 a month to break even, but that doesn’t happen very often. Garage revenues fell short this year by $107,000, and the city is growing increasingly impatient with its progress. The debt service this fiscal year ending in October is $762,313. The city may live with this debt until 2027.
“We’ll just have to refinance that,” Councilwoman Kathay Lovell said.
City Manager Dave Jinkens said he understands the concern among citizens, but cited the sheer structure of redevelopment reimbursements as requiring an agency have debt “in order to get the (property) tax increment.”
That’s why the city has come a long way in terms of viewing the next redevelopment project differently. For the Park Avenue project, the city sold bond anticipation notes and borrowed at a higher interest rate with nothing to show for collateral. It now has a completed project and a better bond rating to show investors.
The way the other project stands now, the city will own the convention center and the developer’s flagship hotel is supposed to cover the maintenance of it.
“The risk of the (convention center project) is on the developer. We’re not going to buy property. There will be no public debt incurred from this as we front-ended (Park Avenue’s) Project 1,” Jinkens said. Although the current financing plan calls for the construction and land acquisition to be financed by the developer, the city would eventually take ownership of the completed structure.
Despite triple-digit tax revenue increases, Finance Director Christine Vuletich said that based on projections from Fraser the city wouldn’t start to see a surplus from property and motel room taxes for the Park Avenue Redevelopment Project until 2013. The city is projecting a $2 million surplus at that time.
Former City Councilman Bill Crawford would like to see less debt. He’s not convinced the city management will protect the public good.
“I’m under the philosophy that government should not create debt because the generations inheriting it haven’t even been born yet. Their freedoms are restricted,” he said. “And when you create public debt, you reduce the ability for the city to react.”
Crawford would rather have the streets worked on, public transportation honed and a city hall built.
And even with a lengthy list of erosion control improvements and a rebuilt fire station on Ski Run Boulevard and Pioneer Trail as part of the deal, many critics cite the challenges of redevelopment. These include parking, displaced tenants through eminent domain and a little-used transit station that the city owns.
An environmental condition, the $3 million transit station in the Park Avenue complex lies empty and locked on the weekdays, with the exception of Heavenly Mountain Resort employees leasing one floor for a locker room. But a plan to turn the station into a visitor center will get a $1.3 million grant secured through the California Tahoe Conservancy.
BlueGo bus service board President Mike Bradford, who runs Lakeside Inn and Casino, said the station’s benefits have been unrealized.
“Right now, it’s not significant, but over time it will turn into something. More important, it’s located in the middle of a bed base where people will visit, find out where they need to go and get a shuttle there,” he said.
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