Eastland Maul
Congratulations, Queen City taxpayer, you’re the brand new owner of 81 acres of blight, courtesy of the Charlotte City Council and its unanimous vote to shell out $13.2 million to purchase the dilapidated and decaying remnants of Eastland Mall.
But not to worry; the council has a reason for jumping into the speculative real estate business as its latest perversion of the free market, pinning it hopes and a considerable wad of your cash on a bet that the city can recoup its investment your money when a bevy of film and TV production studios, which city officials say have expressed interest in setting up shop in Charlotte, rush to redevelop the shuttered mall.
The city has until the end of the month to put up $750,000 in non-refundable earnest money as part of the deal approved this week, and officials hope to begin receiving bids for parcels from potential developers over the course of the next several months with contracts signed by early 2013. Hope being the key word.
“I am hopeful that our best expectations are achieved by taking this action,” said Democrat Mayor Anthony Foxx. “I’m also mindful that we have to take in mind what is the worst-case scenario.”
And what is the worst-case scenario Foxx says we have to take in mind? The mayor didn’t offer any specifics, but let your imagination run wild with thoughts of financial calamity in line with the tradition of the NASCAR Hall of Fame, Whitewater, a floundering Scaleybark light-rail transit station, a defunct trolley line, CityPark, City Fair, and any one of Charlotte’s three arenas.
And lest anyone forget the fiscal folly of Johnston and Mecklenburg Mills as an example of the city’s fortunes when it jumps into the real estate market and tries to start guiding and planning development. The city spent or loaned nearly $7 million trying to redevelop the NoDa housing complex, and in 2007 had the chance to sell the property for $4 million to a developer who wanted to rehab the units as market-rate housing. Councilmembers balked and instead pursued a deal to sell the property for $475,000 to a developer who promised to include a mix of affordable housing. That deal ultimately fell through and the city recently sold the property to another developer for $1.2 million.
The process to unload the property, at a considerable loss, stretched out for years.
“I want the community to be prepared for the possibility that this might take longer to play out than has been discussed,” Foxx said of the city’s plan to attract and guide redevelopment of the Eastland site. “We have to have the understanding that this might be a longer scenario than we originally discussed.”
And Foxx is one of the project’s biggest cheerleaders. Others were less enthusiastic, but still voted to approve the deal.
Republican Councilmember Warren Cooksey said his decision was swayed by a bond referendum voters approved in 2008 that included $16 million dedicated for revitalizing Eastland. What Cooksey and other councilmembers who used the bonds as a crutch to support the purchase of Eastland didn’t say, however, was that voters approved the bonds to fund neighborhood and infrastructure improvements in the Eastland area, not for city council to use the loot to jump into the speculative real estate business.
“I think we have to do something,” Cooksey said of purchasing the Eastland wasteland, minutes after explaining that, “as much as I’m cautious of the politician’s fallacy that something must be done, this is something, therefore we must do this.”
“I approach it pessimistically,” Cooksey said of the deal. “The contract values of the parcels have been public long enough now that if there were film studios interested they ought to be buying them directly, not waiting for us to purchase them. But we are.”
Much to the delight of dozens of Eastside residents and film industry boosters who supported the deal and filled the council’s meeting chambers, cheering the latest dose of city largess.
“I think this is the single best thing that has come before this new council since it was sworn in in December,” said Democrat Councilmember Beth Pickering.
“We all came here to do this,” Pickering said of council’s newest members, including herself and Democrats LaWana Mayfield, Claire Fallon and John Autry. “That’s what we talked about on the campaign trail; get something going on the Eastside, on the Westside. And Westside, you’re next; stay tuned.”
So taxpayers have that to look forward to, along with something else: what happens when the mystery production studios that city officials say have expressed interest in the abandoned mall property actually materialize. Proponents of the Eastland deal claim that the studios as a catalyst for redevelopment will be, in Pickering’s words, “the first step to something big for the East side.”
Officials in Allen Park, Michigan, had similar visions of prosperity when they pinned their community’s revitalization hopes on film and television production studios to anchor redevelopment. The city spent millions to secure property to lure the industry. But two years after Unity Studios and its promise to bring 3,000 jobs to town moved in, the deal went wildly wrong.
A similar scenario unfolded in Pontiac, Michigan, with equally troubling results. This from the HuffPost Detroit:
So much for Michigan’s economy-boosting film industry. The financial struggles now have a Pontiac production studio gouging the state pension fund, and demonstrating the negative effects of the state’s film incentive cap.
Raleigh Studios wasn’t able to make its Feb. 1 payment of $630,000 to out-of-state bondholders, the Macomb Daily reports — instead, the guarantors of the bond, the State of Michigan Retirement System (SMRS), paid $420,000 of the total.
Raleigh lost business after cuts to the state’s film incentive program deterred film crews from setting up shop in Michigan.
In 2010, the state gave out $115 million in rebates to film productions. After the incentive program was capped at $25 million in October, there was a steep drop in companies applying to film in the state. December legislation instated a new system of cash subsidies for films, with an easier application process, but the cap on total spending remains $25 million.
The relevant ties between public subsidy and movie productions and studios, coupled with the absence or reduction of subsidy and its impact, should prove troubling to local taxpayers, particularly as it relates to Eastland.
North Carolina’s package of kickbacks – a.k.a. incentives – for the film industry offers income tax credits of 25 percent refunds from the state for qualifying production expenses (capped at $20 million per project) and employee compensation (up to $1 million per person). Last year the state coughed up $30 million worth of incentivizing bribes for film companies. State legislators this year added $60 million for film incentives.
It is, in a nutshell, one of the more egregious rackets of crony capitalism to be found. Jon Sanders, director of regulatory studies for the John Locke Foundation, spells it out in a new report:
“The problem with these incentives is that the lower tax burden on film productions comes with the consequence of keeping tax burdens high on nonfavored businesses and industries,'” said report author Jon Sanders, JLF Director of Regulatory Studies. “When government chooses one industry or business for special deals and breaks, there’s a good chance that cronyism is at work.”
…
Many states are rethinking their film incentives, Sanders said. “Eight states ended, suspended, or stopped funding film incentives from 2009 to 2011,” he said. “Others either cut back incentives or considered ending them. States are making these cutbacks as several studies have found that film incentives return to state coffers mere pennies on the dollar spent.”
North Carolina’s refundable film tax credit causes a special concern, Sanders said. “If the film production company’s tax liability is smaller than the credit, the state writes the company a check for the difference,” he explained. “This is a classic example of corporate welfare. It’s been described as choosing movie stars over teachers.”
With its speculative purchase of Eastland, city council runs the risk of being left holding the bag for 81 acres of taxpayer-purchased wasteland if no film studios rush to sign contracts; if production companies do fill the redevelopment void, Charlotte stands to play a leading role in exacerbating the crony capitalism shell game.
And what happens if North Carolina wises up and trims or eliminates film incentives, as other states have done; where does that leave the flock of studios that will have supposedly migrated to Eastland? Possibly in the same pinch as Raleigh Studios in Michigan, and local taxpayers feeling the same sting.
Eastland: Pontiac of the Piedmont?
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