Incremental: Waterhouse rises, raises County ire

Crews erected a construction crane over Water Street on Thursday, January 20, a powerful visual symbol of the long-awaited (and scaled down) Waterhouse project, a now six-story, $20 million mixed-use complex of offices, retail space, and apartments atop a parking garage that will span the gap between West Water and South Streets.

Two weeks later, a retaining wall has been poured, and steel girders have gone up over and around the former Downtown Tire building, which will be incorporated into the design. Originally, there were plans for a kind of pedestrian village with 57 planned residential units, but the bad economy turned that idea on its head. Now, Waterhouse will become more of a business park, with only nine residential units, and nearly 50,000 square feet of retail and office space, a huge chunk of which WorldStrides and its 200-plus employees are planning to occupy.

Oh, and one more thing. You, dear city tax payer, are going to help pay for the private development.

Back in August, Charlottesville City Council approved something called tax increment financing (TIF) for the Waterhouse project, a method for local governments to fund re-development and “community improvement projects” that has been around for decades. Basically, a percentage of future real estate tax revenue in the area around Waterhouse, revenue which will presumably rise once the project is finished, will be used to help pay down the loan for the project and lower costs for tenants, which in turn increases the likelihood that the development will get built and tenants can be lured in to sign leases.

In Waterhouse’s case, its been a way to convince WorldStrides, the nation’s leading provider of educational travel programs and one of the area’s largest employers, to leave their digs at Peter Jefferson Place on Pantops and move just 2.4 miles to the Downtown Mall. Indeed, without the TIF incentive, it’s hard to imagine why the company would bother moving such a short distance.

And that has some county leaders smarting.

“I think that tax incentives should not be used to lure businesses from the County to the City or vice versa,” says County supe Dennis Rooker, who points out that the WorldStrides incentive will bring no new jobs to the area.

“It’s a zero sum game," says Rooker. "Employment opportunities for the citizens in our area will not be improved by this use of taxpayer money.”

“That’s not how economic development works,” responds Charlottesville mayor Dave Norris. “It’s not like we get to pick and choose who comes to the City when we’re ready for them to come.”

Norris sees nothing wrong with offering a “relatively modest amount of deferred tax revenue” if it can make the difference for a business willing to invest millions in the city.

However, back in July, County supe Ken Boyd told the Daily Progress that the city move was an “inappropriate” way to attract businesses away from the county, by basically subsidizing jobs with tax payer money, especially since the county had to give the city $18 million as part of the Revenue Sharing Agreement.

“It goes both ways,” counters Norris, pointing out that “a tremendous amount” of taxpayer dollars are being spent on public infrastructure to facilitate the relocation of Martha Jefferson Hospital from the City to the County. Norris also points out that the city works closely with surrounding counties through the Thomas Jefferson Partnership for Economic Development to attract and retain businesses in our region as a whole.

“When you look at the number of businesses that left the downtown for the county, lured perhaps by the latest and greatest in shopping centers,” says City councilor David Brown, "I have trouble understanding the big deal about the City having an interest in promoting downtown developments, using, in this case, tax incentives.”

“The City can’t just sit idly by and watch jobs and investment leave to the surrounding counties,” says Norris. “We have to compete for those employers who are going to bring jobs and economic activity, and the resulting tax revenues, to the City.”

Given that the cost of developing property in a built-up urban area is typically higher than in the suburbs, Norris points out, “tools like TIF can help level the playing field and make us more competitive.”

In addition, Norris points out that there are certain commitments the developer has to fulfill before they get the tax rebate.

First, the developer, Atwood Architects, must make the $20 million investment and make sure WorldStrides agrees to occupy the site. After that, 50 percent of the actual change in real property tax (or the tax increment) from the initial value (land) to the current assessed value (land plus improvements) will be granted to the developer.

“We estimate that to be approximately $81,000 a year for five years,” says Chris Engel, the city’s assistant director of economic development. “The actual amounts are determined by the assessor once the project is complete and fully assessed for the first time.”

The rebate only involves the real estate tax, says Engel, and after five years 100 percent of the tax increment will go to the city.

In addition, Engel says, the city will receive revenue from business licenses, personal property tax,, permitting fees, and utility taxes from the new development. Plus, sales and meals tax revenue are expected once all those WorldStrides employees settle in.

Engel also points out that the tax money to the developer comes from the portion of the projected increase in real estate tax revenue.

“If the project is stalled or never completed for any reason, the increase in taxes is not realized,” says Engel, “and therefore the city is not obligated to grant a rebate.”

While officials from WorldStrides did not respond for comment, Engel says the company approached the city regarding the move. As he points out, the company used to be based in the city but moved out to Pantops to accommodate their growth.

While Engel admits that luring a company from outside the area would have provided a more significant boost to the local economy, he says that WorldStrides was considering locations outside the region.

“If they left the area completely the negative effects would have certainly been felt,” says Engel. “This solution keeps them in the area and provides a spark for our downtown during a difficult time.”

“The amount of tax income we forego in this deal is absolutely dwarfed by the amount of taxes that this project and this employer will generate for the City in the long run,” says Norris. “The only scandal here is that it’s taken the City so long to utilize tools like tax increment financing."