BMA authorizes incentive package for mall renovation

Matthew Lane • Jul 1, 2008 at 12:00 AM

KINGSPORT — The Board of Mayor and Aldermen voted Tuesday night to authorize the Kingsport Economic Development Board to negotiate a financial incentive package with the owners of the Kingsport Town Center.

Over the next three years, Somera Capital Management of Santa Barbara, Calif. — the new owners of the Kingsport Town Center — plan to invest about $45 million in renovating and expanding the facility.

The first phase would be a renovation of the mall — upgrading the floor, ceiling, handrails, lighting, new signage and landscaping and the creation of a children’s area and food court.

The second phase calls for the J.C. Penney building to be demolished, with a new anchor tenant building built closer to Memorial Boulevard and separate from the rest of the mall. The anchor building would be connected to the mall with a new lifestyle center — a promenade-style area with a courtyard and shops lined down a sidewalk.

The city and Somera have had preliminary talks about a financial incentive package to help with the project, and following Tuesday’s vote, the KEDB and Somera will now negotiate the amount of incentive.

Deputy City Manager Jeff Fleming said the incentive package would be a PILOT (payment in lieu of taxes) deal where over a 10-year period Somera would pay the city a certain amount of money instead of the yearly property taxes. Property taxes would increase as a result of the redevelopment.

Fleming said the payment would ascend every year for the 10-year period. The incentive package would also be on a sliding scale. Somera would receive a certain percentage if J.C. Penney renovates and an additional percentage if J.C. Penney builds a new building. Any potential outparcels would not fall under the PILOT plan.

Fleming said the total amount of incentive being discussed is $5 million.

“For 30 years the mall has provided a very strong economic base, but we can’t assume that without a major redevelopment they can continue,” Fleming said. “(Somera) really believes in Kingsport. We’ve all had our reservations, but we’ve concluded we have to evaluate each (incentive) on their own merits.”

Fleming said he expects the negotiations would be complete by the KEDB’s August meeting.

During a BMA work session Monday afternoon, city leaders discussed the incentive package, with Aldermen Pat Shull and Ken Marsh voicing their opposition to the move.

Shull presented a couple of handouts with his concerns on the PILOT and the typical taxes small businesses face. Shull said the PILOT shifts the tax burden to small businesses and individuals, distorts the local tax collection system, and causes a perceived favoritism toward large businesses.

“The sentiment is the large guys get tax breaks and the smaller guys don’t,” Shull said. “I don’t think it’s the city’s job to treat them differently as we do all our other businesses.”

The city has several incentive programs in place to help small businesses — the facade grant, several federal and regional loan programs the Kingsport Office of Small Business and Entrepreneurship (KOSBE) works with, and just last month the KEDB authorized a $100,000 Redevelopment Incentive Plan for Kingsport businesses.

Alderwoman Valerie Joh said if the BMA wants people to settle in Kingsport, then the city has to play the game like everyone else.

Shull also included Sam’s Club on his list of concerns. Sam’s Club closed a couple of years ago and opened two new stores last year — one in Johnson City and another in Bristol. Mayor Dennis Phillips said the city spent about $1.5 million on infrastructure work at the old Sam’s site, and City Manager John Campbell said over the past 20 years the property generated over $10 million in sales taxes.

“The bottom line is if we do this it’s an increase in tax collections to the citizens of Kingsport,” Phillips said.

During Tuesday’s meeting, the BMA further discussed the PILOT plan.

“When are large businesses going to stand on their own and stop looking for a handout? Is anyone going to stand on their feet?” Marsh asked.

“I have had the privilege to meet with the new owners, and they have fought very hard to maintain one of their anchor tenants. Part of the reason to keep one of the anchor tenants is the fact (Somera) has promised a complete renovation of the mall,” Phillips said. “I don’t like having to give incentives to get or keep things in Kingsport, but it has become an American way, and each one needs to stand on its own.”

Shull said he doesn’t believe the $5 million would make a difference one way or another to Somera.

“I’m opposed. We’re giving them a tax break not available to small business owners and property owners out there. No one gives them a break on this,” Shull said. “I’m also uncomfortable with the little publicity this has gotten. We should have gotten more information out sooner.”

During Tuesday’s BMA meeting, Shull and Marsh voted against the PILOT plan.

Company officials hope to complete the renovation and expansion project by 2011.

Fleming said this is the first expansion of the mall since its construction. Renovations were performed in 1989 and in 2005. For more information on the project visit www.kingsporttowncenter.com.

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