Urban renewal

Don heard that a store in Burlington sold Cheerwine with real sugar, not Nancy Oateshigh-fructose corn syrup, and always one to encourage a healthy lifestyle, I went with him to search. I’d never been to Burlington beyond the outlet stores that used to flourish off the interstate until Tanger Mall lured them away. As we drove past the empty shopping centers toward downtown where the big-box stores and apartment complexes squeezed out the modest neighborhoods of this former mill town, I thought, “This could be Chapel Hill in 30 years.”

Burlington’s town council surely didn’t intentionally approve away any charm the town might have had. Elected officials likely did what our Town Council members are doing: approve projects that bring in more property tax revenue than currently exists for the site, without thought to how the development works with the community now and in the future.

Years ago, the people who lived in Burlington worked in Burlington. Though the mills closed, outlet stores remained, and residents found work in retail. But once Tanger siphoned off the outlet stores and Alamance Center drew the national chains, Burlington retail clerks had to commute out of town to work. Sales tax revenue dropped along with property tax revenue, and Burlington had to take what commercial development it could get.

A healthy town needs to gear development for the people who work there. Chapel Hill is lucky that the town’s main employers — the state-run university and the state-run hospital — are unlikely to go out of business. Still, I have yet to hear a Chapel Hill council member ask who will live in the spate of luxury apartment buildings it has approved recently.

Some will draw students now renting in Durham. Cram enough students in a two- or three-bedroom apartment renting for about $2,000 a month, and it becomes affordable. But who are these mythical “professional” singles and couples we hear about clamoring to rent in Chapel Hill?

Crunch the numbers: To pay $1,800 to $2,400 a month in rent, the tenant must make $65,000 to $85,000 a year. That salary range might fit a tenure-track professor who plans to put down roots and likely wants to own a home, or a full professor in Arts & Sciences who already owns a home and sees renting as a waste of money, or a senior nurse or administrator who may have a family and won’t give up a house in Mebane to stuff the spouse and children in an apartment just to ease the commute.

The developer of The Edge mentioned recruiting a grocery store, an odd choice given that there is a mega-grocery store less than a quarter-mile away, yet that same developer won’t consider a grocery store at 123 West Franklin (not after the SUP was granted, anyway).

Developers don’t seem to be thinking about what would serve the community. All the more important that council members have a vision and shape development they can be proud of long after they’ve retired out of town.
– Nancy Oates

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  1. many

     /  December 21, 2014

    Unlike residential, manufacturing and office rentals, retail net lease cap rates (RoI expressed as rents) and sales price per square foot are already low and are being further compressed.

    Nationwide, YoY cap rates are down by ~50% for the big five segments (casual dining, discount, fast food auto parts, and drug stores) due to oversupply, consolidation and interest rate demand for a conservative investment vehicle by retirees and risk adverse foreign investment through REITs.

    Even as other interest rates rise next year, I think retail cap rates and sales price per square foot will be very slow to recover, if they recover at all. Macro forces such as technology (non store sales are up 58% since 2008), an over supply of space and a looming potential for market consolidation of tenants will keep downward pressure on rates. I believe this lower profit potential is the reason that some developers are back peddling and scaling back on retail space especially where the conditions are most challenging.

    It is interesting to me that at the same time some governments do not seem see this macro trend and continue to believe “if you build it they will come” retail as a solution to tax revenue shortfalls.

  2. George C

     /  December 22, 2014

    A good analysis of some of the factors influencing these rapidly-changing markets. I think the reasons you have noted probably account for at least some of the recent hedging by our local developers on the amount of retail they might be able to support in their projects.

    Much like what occurred during CH2020, we have a pretty good idea of what we would ideally like to have in CH but a less clear vision on what we can get or afford.

  3. Terri Buckner

     /  December 22, 2014

    These are the reasons that many of us oppose the plans for Obey Crrek. We’re worried that the developer’s grand plan will ultimately result in the destruction of a natural area that sits vacant or under utilized once it’s sold off after construction.

    This is especially problematic when you consider the reports from local entrepreneurs that they have to go to Durham for affordable (flex) office space.

  4. many

     /  December 22, 2014

    George C – Exactly. This is why I have been harping on that vision thingie. I fear the “me too” in a metro area that is already over homogenized and where the strengths of the late 20th century may quickly become liabilities in the 21st.

    In my estimation, Chapel Hill and Orange County have a huge opportunity to focus on what makes us special, what makes us different, why people want to live here and how we keep from pricing Chapel Hill out of reach from the very people that make it so. I always chuckle to myself that Chapel Hill politics is one of the least likely places to find group think.

    Involvement was the goal of the central west study group, but the effort was marred. It seems as if there is an perception undercurrent that the whole thing was window dressing. Big (sales) presentations with an insufficient focus is a sure way to achieve this feeling. An honest assessment of what went wrong and a post-mortem would be one way to begin to repair things. http://www.townofchapelhill.org/home/showdocument?id=25231 This document seems incomplete; it is missing a “lessons learned” or “conclusion”, was there one?

  5. bonnie hauser

     /  December 22, 2014

    Many – I couldn’t agree more. I have to add that what makes us special today might be different than what made us special in 1990. The University, surrounding heritage and organic farms, funky Carrboro and Historic Hillsborough still top my list.

    Our schools -which were once the best and drove our real estate values – are losing ground to Wake, Mecklenburg, and other urbanizing centers.

    Of course there’s a growing economic calamity. Four governments, two school districts, three water systems, and a growing cadre of NFP property owners are eroding the tax base and there’s no offsetting commercial growth. I don’t believe we can “grow” our way out of this.

    How can we create the thoughtful conversation that’s desperately needed. Seems that Nancy’s blog is the only place where important issues are getting discussed.

  6. David Schwartz

     /  December 22, 2014

    If it’s going to prove difficult to capture locally the commercial property tax revenue and sales tax revenue associated with Chapel Hill residents’ consumer spending and business development, we might explore a tax revenue sharing approach such as exists in Minnesota, New Jersey, and Virginia.

    Tax-base sharing is intended to:
    • Reduce competition among communities for commercial and industrial properties to add to their tax bases.
    • Create a fairer distribution of tax benefits from properties that impact on and are supported by surrounding communities.
    • Reduce disparities in tax bases.
    • Promote orderly urban development, regional planning, and smart growth by reducing the impact of fiscal considerations on the location of business and residential growth; of highways, transit facilities, and airports.

    This would require more intergovernmental cooperation and coordination than we are perhaps used to, but it seems to offer a way out of the race-to-the-bottom economically distorting pattern of competition between neighboring municipalities.

    Has tax revenue sharing among local Triangle-area governments been considered in the past?

    Read more here:http://www.nyslocalgov.org/pdf/Tax_Base_Sharing.pdf

  7. Terri Buckner

     /  December 22, 2014

    Just to make sure all readers understand, there is already inter-county tax sharing. Sales tax generated in Chapel Hill is allocated based on a population percentage among the county (largest percentage), then, in order of size, Chapel Hill, Carrboro, Hillsborough, Durham County, Mebane.

    However, it’s either the town of collection or the county that pays for the commercial (trash etc) and social services.

  8. David Schwartz

     /  December 22, 2014

    Thanks Terri, for clarifying the situation with sales tax revenue. The bigger prize, however, is property tax revenue, generated in Durham. If Chapel Hill received an allocation of Durham’s property tax revenue proportional to the amount of Chapel Hill resident spending that supports businesses located in Durham, then perhaps we wouldn’t be wringing our hands quite so much over the need to expand the town’s commercial tax base. There are plenty of other reasons why we might want to increase local shopping opportunities—e.g., enabling folks to walk or bike to shopping destinations, revitalizing downtown, etc.—but fiscal considerations seem to get the most attention.

    Is there any benefit that Durham would derive from such an arrangement that would make them at all interested considering it?

  9. many

     /  December 22, 2014

    Terri, That inter-county tax sharing, is it with the entirety of Durham and Mebane. or is it just those portions collected within the Chapel Hill and Orange County jurisdictions respectively? My understanding is that it is the latter not the former.

    What is interesting to me is that as buying patterns shift, sales tax collection is happening independent of local inter governmental agreements. Technology could devolve sales tax to a point of use rather than a point of sales tax or at least provide a more equitable division between sale and use globally.

    As far as property tax sharing goes, appraisals would be interesting to say the least. You have to ask yourself what is the reason you are suggesting it, and whats in it for the other guy? Without equability partners would be hard to find.

    I think the fiscal decentralization approach that is succeeding is tax _base_ sharing in places where municipalities share contiguous borders such as between Carrboro and Chapel Hill, or Durham and RTP. I think we have a lot of that now but it could be expanded. In inter-county development zones such as Buckhorn and Eno inter-county tax base and services sharing is beginning to happen also.

  10. David Schwartz

     /  December 22, 2014

    An excerpt from “A review of regional tax-based revenue sharing programs and the establishment of regional asset districts”:

    “Land use planning and regulations can be heavily affected by the way local governments finance their operations or services. While traditional land use planning is intended to ensure a balanced and comprehensive approach to meeting local economic development and resource conservation goals, “fiscalization” of land use decisions can occur when there is pressure to maximize the revenue generating capacity of land in order to fund current municipal services.

    “For example, in states that allow local governments to levy sales taxes, the result typically can be a bias toward commercial development in order to maximize retail sales. In other states, like Connecticut, where municipalities are reliant primarily on property taxes to fund local services, the bias can be toward commercial, industrial, and age-restricted residential developments that are generally perceived as having a net positive impact on local budgets because of their lower public service costs. While these types of land use decisions can yield positive results in the short-term, they come with a risk that the potential longer term impacts on the community and region, such as traffic congestion, loss of open space and farmland, fragmented ecosystems, and reduced quality of life, are not fully considered in the overall decision-making process.”

    End excerpt

    The full report is here: http://www.ct.gov/opm/lib/opm/igp/org/final_rrs-rad_report_7-13-10.pdf

  11. many

     /  December 22, 2014

    The quote from that link that most resonated with me is: “….Connecticut ranked fifth highest in the amount of property taxes collected on a per capita basis, but that it ranked 23rd highest based on taxes paid as a percentage of personal income.”

    Four years after that paper, Connecticut is still an economic basket case and still has not addressed the inherently regressive nature of the fragmented reliance on property and sales tax.

  12. David Schwartz

     /  December 22, 2014


    Perhaps Connecticut officials are afraid that if they make their tax system less regressive, the corporate titans and hedge fund managers who reside there will move back to New York . . .

  13. many

     /  December 22, 2014

    You mean that living in Fairfield for tax purposes might no longer apply?

    Buy the rumor, sell the news! Round Hill Road and Lake Avenue will never be the same. Westchester beckons!