Putting out

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by Nancy Oates on October 24, 2016 • Permalink

Posted in Business, County business, Economic development, Land Use, Lifestyle, Spending, Taxes, Uncategorized

Tagged incentives, Wegmans

Posted by Nancy Oates on October 24, 2016

http://chapelhillwatch.com/2016/10/24/putting-out/

78 Comments

Plurimus
/ October 24, 2016

Nancy, why is it I feel like the town staff comes before the TC trying to sell something rather than presenting analysis?

I believe I have said this before; I do not understand why the town staff doesn’t prepare a SWOT analysis or something like it. That shows their work and that they have actually researched the puts and takes in a fair way.

https://en.wikipedia.org/wiki/SWOT_analysis
Evan
/ October 24, 2016

Why did the council decide to go ahead with the vote if it didn’t have all the information it needed?
Nasty Woman
/ October 24, 2016

The analogy about “being the first girl to put out” is terrible. Really? I sure hope that you talked to that Council Member about less charged analogies in 2016.
.
/ October 24, 2016

If Wegmans drives the Rams Plaza Food Lion out of business, the town will be in the red for the sales tax lost at Food Lion AND the hasty subsidy, minus the amount generated by the new Wegmans.

On the bright side, the town didn’t resolve to take out a second mortgage on Town Hall to finance the subsidy. Yet.
Nancy
/ October 24, 2016

Wegmans and Food Lion have different target markets. If Food Lion goes out of business, I would put more blame on Town Council for approving so many luxury apartments and pushing cost-conscious shoppers, people on a budget, out of town. I expect Wegmans to bring a lot of sales tax revenue to town, so I see some benefit to having Wegmans in town. I don’t support building housing that fits only Wegmans’ target market.
Bruce Springsteen
/ October 29, 2016

People already buy food. The only way a grocery store helps the tax base is if people that had previously been buying groceries out of county start buying in county at the new grocery store, which in Orange County may well be the case but that’s just because we’re so bad at keeping Orange County people in Orange County when making purchases to begin with.

We need less of our local economy to be about food. Frankly, I think Chapel Hill / Carrboro has a dysfunctional relationship with food. Individuals indulging is fine. I like X and I indulge in X and you like Y and you indulge in Y and that’s what makes life enjoyable. Great. But picking something in which everybody is supposed to indulge to the extreme, such as food, and then promoting that indulgence is not fine.

We talk about affordability but then we make expensive food into a fetish even though everybody has to eat food every day. And we talk about being environmentally friendly and then we turn small scale, inefficient food production into a fetish even though inefficient use of land, be it in food production or otherwise, is literally the opposite of conservation.

In an ideal world food would be free, instant, healthy and use no resources. And yet such a prospect would horrify many locals. That a problem.
Betsy Crittenden
/ October 29, 2016

Bruce Springstein, I can tell you that if Wegman’s builds in Durham or Cary and NOT Chapel Hill, my food money will be spent in Durham or Cary, or wherever there is a Wegman’s. You can call it a dysfunctional relationship with food or whatever you want but if there is a Wegman’s within driving distance of my Prius, I’m going to shop there. Until you’ve experienced food shopping and dining at a Wegman’s, I suggest you withhold your judgment.
Nancy
/ October 29, 2016

Evan —

The county was holding its vote the following night. The incentive could not be approved without both the county and town agreeing. Wegmans had options of spaces in Durham. Had we waited, the opportunity might have slipped away.
David
/ October 31, 2016

Nancy,

If the Town Council had to make a decision by October 17, why didn’t the Town open a hearing on the matter prior to that day, to provide adequate time for the public and the Council members to consider the matter?

The chronology of the recruitment effort presented at the County Commissioners meeting indicates that the effort to recruit Wegmans has been in the works since at least last May, and that the Council discussed the project in closed session on July 25 and again on September 12, and that at the latter meeting the Council decided to develop an incentive proposal.

Were you all aware on September 12 that Council would need to formally approve an incentive agreement by October 17? If so, why wasn’t this item placed on the agenda for an earlier meeting, such as October 3 or October 10?

It seems that an entire month passed during which elected officials and town staff—but not the public— knew that the Town was going to offer an incentive to recruit Wegmans, and the public only learned about this arrangement a few days before the October 17 meeting at which, you say, a decision was needed. Shouldn’t the public have been brought into the conversation around September 12 when Council was deciding whether or not to pursue an incentive offer, rather than a month after the decision had already been made?

Could the timing of all this have been handled differently?
Bruce Springsteen
/ October 31, 2016

Sorry for upsetting you, Betsy. I’m not saying you have a dysfunctional relationship with food. I’m saying that if large numbers of people indulge in X at the expense of everything else, whatever X may be, then yeah, that’s kinda dysfunctional.

If you decide to shop across the country line because you like a store better than a competitor in Orange County then the word for you with respect to that particular situation would be “conformist,” which applies to many others around here, myself included. Of course, a better alternative would be to simply put the stores people in Orange County like inside Orange County borders but that’s spilt milk at this point.

Re. your remark about “until you’ve experienced shopping and dining there,” that’s partly my larger point, namely that no matter how good shopping and dining at a grocery store is it just doesn’t have that much importance to some people. No, these people don’t hate food, it’s just that their live doesn’t revolve around it.
Terri
/ October 31, 2016

If Orange Co funds are going for this incentive, will Wegman’s be required to hire a stipulated percentage of their managers and staff from Orange Co?
Plurimus
/ October 31, 2016

Terri,

Excellent point. It seemed like it was a one sided negotiation. I think that more than anything else seems to stick in peoples craw. Feels like we are more accommodating than others and we might be sold short by those that represent us.
Nancy
/ October 31, 2016

To David’s point, council did not know in Sept. that there was a particular date that this would need to be approved by. My understanding was that Wegmans was expanding in the Triangle, and that Chapel Hill’s planning process takes a longer time than in surrounding counties, and we wanted to make a decision on this sooner rather than later. We want to capture as much of the customer base as possible, before other stores are built. Council members saw the news release the same time the public did, and that was the first we knew Wegmans would be on the agenda on Oct. 17.

To Terri’s point, council members brought up that issue and learned that state law prohibits us from requiring that employees come from one particular area. My hope is that because Harris Teeter, at least, pays starting workers significantly more than Wegmans does, that Wegmans may be pushed to raise its entry-level pay.
Bonnie Hauser
/ October 31, 2016

Remember this is pretty new for us – and our leaders are still learning how to bring business into the county/town. It’s easier to be choosy if businesses were breaking down the doors to come here. Wegman’s could begin to move the needle.

Its refreshing to see fast action and a little risk, even if its a little expensive. With performance based incentives, there should be a win in the long term. There are many worse ways for the county to toss $2 million.
CitizenWill
/ October 31, 2016

Nancy, to Teri’s point, I know that we couldn’t require Wegmans to hire a specific number of employees from Orange County but that didn’t foreclose other intermediate options.

For instance, working with Wegmans to set a goal like hiring 50% of OC resident employees or a pledge to go first to the OC Jobs Bureau for applicants or working closely with Hillsborough’s Durham Tech to find/train OC residents as needed.

Generally, the process behind this problematic deal mirrors pretty much every flawed deal the Town has done.

One of the major problems we see from whomever is crafting the deal on the community’s behalf is a binary approach to options; if the law prohibits setting a specific employment goal then don’t do anything instead of looking at a spectrum of lesser steps that could produce the same desired effect.

Again, a tremendous vote of no-confidence in Stancil on this deal.

We shouldn’t be surprised, he is treading the exact same path that got him fired from Fayetteville.
Plurimus
/ October 31, 2016

Not new at all, just maddeningly inconsistent. Chapel Hill and Orange County have a long history of nit-picking good deals to death.

Last 10 or so years the town has over rotated 180 degrees when it comes to apartments which is what the developers want. It seemed as if the town manager was on fire for the developers, not the electorate.

Last year the electorate clamored for more commercial balance which is what Wegmans is, sadly it still seems as if the town manger is negotiating on behalf of the developers. This perception may or may not be true, but the lack of transparency and rush to decisions makes it seem that way to the casual observer.

The manager and staff are not inexperienced negotiators or communicators are they? They must get their marching orders somewhere.

Again, not at all saying Wegmans is a bad deal. I just do not know enough to make an informed judgement form the current level of communication, and that is the problem I perceive.

.
Nancy
/ October 31, 2016

We expressed to Wegmans our hope that many of its new hires would be Orange County residents. That’s all we could do, legally.
CitizenWill
/ October 31, 2016

Nancy, what form was the “expression”?

Was it, “Please, pretty please, hire Orange county residents?” or “Our community is investing in Wegmans success. While we know we can’t legally bind you to a particular goal, how about shooting for 50% local hires? Please let us know how we can partner with you to achieve that goal.”

I agree with Plurimus, residents clearly want more positive tax revenue flows from development. All the Town’s expensive consultancies and studies say we need to focus on commercial to achieve that goal.

But, not all deals are equal. Very little of the published details behind this deal built a case that investing $4M was the best course of action.

As details leak out, I’m still waiting to hear how 1) the Town is going to move expeditiously on creating a real, consistent framework for analyzing and deciding on incentive packages and 2) how the Town plans to deal with the precedent of “buying” commercial development.

Again, this isn’t the first round at the rodeo. Just recently the community mortgaged the old Town Hall for $10M in road improvements to attract commercial, gave away $1.3M to Carraway Village and teamed with the county on the $4M deal.

By my estimation – from deals as “small” as 3Birds to 140 West, the community has put in $60-80M value into attracting development.

Time to get a decision-making process that serves the community.
CitizenWill
/ October 31, 2016

Nancy, was kind of surprised Fred Black didn’t jump in pointing out “hope” is not a plan.

From talking to various folks I’m pretty sure the message has gotten through that it is way past time to get a plan that builds in enough time for community review, is backed by solid analysis (Plurismus’ SWOT), explains trade-offs and describes a range of outcomes instead of touting a “priced for perfection” result.

Guess the best way for me to put this is I “hope” the lesson of the last two adventures in incentives serves as a springboard to making real change in the process.
Del Snow
/ October 31, 2016

Did Morinaga Candy’s incentives require County jobs?
Bonnie Hauser
/ October 31, 2016

Morinaga brought about 90 jobs to the county – but not required to be OC residents. Durham Tech provides the education. (Similarly I hope that OC residents are eligible for the 1000 new jobs at the NC Commerce Park in Mebane)

This article below says that Morinaga got $2.5 million in incentives from OC and Mebane – mostly via deferrred property taxes. That’s for a $48 million investment.

http://www.newsobserver.com/news/business/article10073189.html
Nancy
/ October 31, 2016

$2.5M for 90 jobs, most paying less than $38K. Isn’t sales tax paid to the county/state where the product is sold? If so, Wegmans should bring in more than Morinaga. Bonnie, do you recall the tax revenue projections for Morinaga?
Bonnie Hauser
/ November 1, 2016

I thought Morinaga Phase 1 property taxes were estimated at about $500,000 a year.

On sales tax, the county keeps a small portion of it. Sales tax rate is 7.50%. I think the state keeps 5.75%. That leaves about 1 3/4% for the town/county. 1/2 cent transit, 1/4 cent schools/ED, and 1% unrestricted.

Does the state subsidize any of the incentives?
Plurimus
/ November 1, 2016

Morianga employees are paid an average wage of $37,969.

Adding water and sewer ~$675,000 from the county’s quarter-cent economic development sales tax. (this is hopefully for more then just Morianga).

If Morianga meets the goal of a $48 million investment, the county gives $308,880 over five years in reimbursed sales tax.

I believe the above is offset by State grants of $264,000 from the One North Carolina Fund. I also think that the state provided a Community Development Block Grant of $400,000 for site infrastructure improvements.
David
/ November 1, 2016

Plurimus,

It seems the County is getting more bang for the buck with the Morinaga deal than the Wegmans deal. $308,880 of reimbursed taxes in exchange for $48 million investment works out to $155 of private investment for every dollar of reimbursed tax.

With Wegmans, $4 million of reimbursed taxes in exchange for $30 million of investment works out to only $7.5 dollars of private investment for every dollar of reimbursed tax.

The same people (e.g., Steve Brantley) negotiated both deals, so I wonder why they were willing to settle for such a smaller ROI in the Wegmans case than in the Morinaga case. Are these apples and oranges? What am I missing?
Terri
/ November 1, 2016

The Moringa deal is a totally separate issue from Wegman’s in my opinion. Moringa opens up the Buckhorn redevelopment site, brings infrastructure to allow more development and is located in an area of the county where there is a real need for jobs. $38K in Elfland may not require the degree of social services support that $38K in Chapel Hill would require.
Bonnie Hauser
/ November 1, 2016

This is all not true.

Morinaga is in the town of Mebane on the Orange County Border – NOT the Buckhorn EDD. The county’s water and sewer infrastructure investment does not apply. Mebane and OC provided incentives – including deferred taxes, road infrastructure improvements, education at Durham Tech.

According to the county, Morinaga gets its taxes back for 5 years ($1.5 million from OC; $750,000 from Mebane), That’s in addition to the road, education and other infrastructure improvements.
Bonnie Hauser
/ November 1, 2016

I need to add comments about the Buckhorn EDD – because its a topic close to my heart. There are many land use, ownership, and zoning obstacles – including believe it or not – the Rural Buffer – which prohibits development on the most desirable served by the county’s infrastructure.

Instead of business, the county recently spent $750,000 for more land in the Buckhorn EDD to expand the soccer complex at Gravelly Hill Middle School. Its not a bad idea – but it made the sewer investment even more unnecessary.

The Wegman’s deal and others – and the lack of results in the county’s economic development districts, suggests that the strategy for the county’s economic development districts is seriously flawed and needs some serious focus.

Partnerships with the towns – (Mebane and Chapel Hill) are looking more appealing- and share the expense. There may be better better ways to restructure the deals between the town and the county – but for now, if we hooked Wegmans – lets reel it in.
Terri
/ November 1, 2016

Bonnie–are you saying that the County Economic Development Commission is wrong?

“The confectionary and candy maker has selected a manufacturing site in the Buckhorn Economic Development District for the firm’s first American manufacturing operation.”

“The Orange County Board of County Commissioners’(BOCC) commitment to preparing the County’s Economic Development Zones with utilities, zoning, incentives, and strategic use of the quarter cent sales tax for economic development, played a pivotal role in recruiting Morinaga & Co., Ltd.”

http://growinorangenc.com/news/confectionary-company-to-create-90-jobs-in-orange-county/
Bonnie Hauser
/ November 1, 2016

Yes – its politicospeak. Read it closely. Better yet go see for yourself.

The county’s sewer infrastructure is at Buckhorn and the interstate- Morinaga is 3 miles west on the Interstate in the town of Mebane. Mebane’s ability to provide incentives and infrastructure is what closed the deal.
Terri
/ November 1, 2016

I’ve got a call into the EDD to get this clarified. My recollection from many years back is that the county would be paying to extend Mebane water/sewer to the Buckhorn EDD. Where the service comes from is irrelevant. The fact that the service makes it possible for other businesses to locate in that area is the critical point.
Bonnie Hauser
/ November 1, 2016

exactly. The county spent millions to extend water and sewer to Buckhorn EDD – but Morinaga is not located in the Buckhorn EDD. Its in Mebane.

See for yourself. Morinaga is visible on the south side of I-40, just west of Mebane Oaks Road. The Buckhorn EDD where the county invested in water/sewer is three miles west at Buckhorn road
Terri
/ November 1, 2016

Morinaga (4391 Wilson Rd, Mebane) is on the outer western boundary of the Buckhorn EDD (http://growinorangenc.com/land-opportunities/development-districts/buckhorn/). The county is following the same principle with this expansion as they followed with the Rogers Road sewer expansion. Getting the service to the area is the big cost. Once the service is available, new development pays to expand it throughout the area.
Bonnie Hauser
/ November 1, 2016

Terri – I guess when the facts don’t support your view, its easier to amplify the confusion. Rogers Road vs the Buckhorn EDD. Really?

Once again, the county has invested millions in Buckhorn EDD and none of that infrastructure is being used for Morinaga which sits in the Mebane town limits 3 miles away.

Terri – rather than continuing the charade, why not join those of us who are serious about ED and how the county invests, and insist on a critical look at this. We’ve waited years for business to come to the Buckhorn EDD – and its not happened (for years I’ve heard that there are things in the hopper).

I’m not happy about it – but Morinaga and Wegmans both suggest that county investments in ED work best when they are in partnership with a town. Part of that is the opportunity for two governments to pile on incentives.

What’s most amazing to me is to watch people pile on the town for investing a little money on Wegmans – while the county gets a “pass” on an incredible list of extravagances.
Bonnie Hauser
/ November 1, 2016

BTW – I have the utmost respect for the county’s ED director, and his understanding of the obstacles involved with Buckhorn EDD.

The problem is a flawed plan and as long as we continue to obfuscate the issues, the less likely we are to correct them.
Nancy
/ November 1, 2016

David —
Retail sales tax revenue is one difference between Wegmans and Morinaga. I seem to recall that if Morinaga ships a box of candy to a buyer in New York, New York collects the sales tax, not North Carolina. Whereas all of the tax from the sales that take place in a Wegmans in Chapel Hill would be collected by North Carolina. That collected sales tax revenue would be what we would use to pay the incentive to Wegmans.

Someone asked what would happen if Wegmans pulls a Southern Season, overexpands and goes belly up. Well, we wouldn’t pay the incentive because our payment is based on benchmark revenues that Wegmans must meet first.
Bonnie Hauser
/ November 1, 2016

Nancy – Morinaga is a manufacturer- they ship wholesale. There are no sales taxes. Just property taxes.

The good news is Mebane will provide all the services for Morinaga – so for OC, all the money goes right to the bottom line (once we start collecting it in a few years).

Fast forward to today – the Wegman’s deal is more mature that Morinaga – and if it works, its a big win. As you point out, if it fails, the exposure is limited.
Plurimus
/ November 1, 2016

David,

I concur with your figures. I do not have enough information to comment on Wegmans although Wegmans seems to be able to deploy their markets in Cary and Raleigh without subsidy.

Part of the difference in the deal structure seems to be retail vs. wholesale manufacturing but that’s not all; Morianga deal was well publicized and discussed. Process was open and the deal seemed clear (at least to me). Puts and takes were clearly outlined.
Bonnie Hauser
/ November 1, 2016

Plurimus/David – the correct county/town tax investment for Morinaga is $2.5 million (its over 5 years). That’s about $19.2 dollars of private investment per tax dollar – not counting the sales tax. Of course I have no idea what that number means or why it would be relevant.

Here’s how I’d look at this.
One the incentives are done, Morinaga will produce $300,000 or $400,000 in annual property taxes for OC (more for Mebane) and need nominal services (none from the county). Seems like a pretty good return on a $1.5 million investment from OC.

Wegman’s looks like about $450,000 in property taxes and about $200,000 per penny of sales taxes. (that’s another $450,000 if you include transit and the quarter cent). (vs $211,000 today)

So $900,000 a year in taxes, no school impact, minimal service impact – of which up to $800,000 will be rebated for the first five years. Looks reasonable to me – especially since the downside risk is contained.

Do these numbers jive?
Plurimus
/ November 2, 2016

From Sep 3, 2013:
http://www.thetimesnews.com/20130903/sweet-deal-mebane-lands-japanese-candy-making-plant/309039905
“Brantley said the amount of incentives Orange County plans to provide is “confidential” until the county’s public hearing. Brantley said he planned to provide the Orange County Board of Commissioners with an update on Thursday regarding the incentives.”

As I recall, Public hearing was held in October 2013. Lots of press and information. Infrastructure investment from OC was offset by state incentives I believe.

My understanding is Wegman’s is not requiring any incentives form Cary or Raleigh, but that is hearsay on my part. Public hearing seemed rushed and little information was provided.
Bonnie Hauser
/ November 2, 2016

Yep. Sounds like Wegman’s. Deal is done and one public hearing.

Yesterday Cary announced a second Wegmans with no incentives. One in Raleigh.
http://www.newsobserver.com/news/local/community/cary-news/article111886932.html
Plurimus
/ November 2, 2016

So, questions about the deal are very legitimate then.
Bonnie Hauser
/ November 2, 2016

I’d be asking why we need a deal and Cary doesn’t.
David
/ November 2, 2016

The answer that has been offered thus far is that Wegmans was equally happy to locate on either the Durham side or Chapel Hill side of 15-501, so we needed to offer an inducement to persuade them to pick Chapel Hill. In the other Triangle cities there supposedly were not substitutes for the locations Wegmans wanted, so they had no leverage to extract incentives.
Plurimus
/ November 2, 2016

I guess that the “art of the deal”. It seems to me there are many reasons to be closer to Chapel Hill and the EF district especially since Wegmans is vying to compete in the Trader Joe’s and Whole Foods space.

I expect we will never know what actually took place, but it seems like an unnecessary carrot to me.
Terri
/ November 2, 2016

Bonnie was partially right about Morinaga not being in the Buckhorn EDD. The EDD was set up in 1994. Since that time, the unofficial boundaries of the EDD have expanded to include adjacent lands, which is where Morinaga chose to site their factory. That land is in the Mebane-Orange County water and sewer boundary agreement which is a critical piece of the puzzle as you will see if you read on.

When Morinaga selected the tract of land they wanted in 2012, it had water but no sewer. However, sewer service was available through the $4.9M Efland sewer expansion project (phase 1) that had been completed in 2011 although it did not connect to the property line at that time. As part of the negotiations with Morinaga, the county applied for and received a $750K CDBG grant through HUD to make that connection. That grant required that the county contribute $250K as a match. HUD also requires that CDBG funds guarantee net job growth so Morinaga had to promise to hire people who earned no more than 80% of the current Morinaga wage (those people don’t have to live in Orange County).

In addition to the sewer connection, the County also offered a $1.5M performance incentive and Mebane chipped in $720K. To be paid the incentive requires that Morinaga build its plant and acquire the equipment to total $49M in value (taxable property).

Talking to the ED was fascinating. From the outside it looks like a relatively simple process to recruit new businesses, but it’s harder here in Orange County because of the Water and Sewer Management, Planning and Boundary Agreement. This agreement, known as WASMPBA, specifies where water and sewer can be located and where it can’t. Two of the sites Morinaga looked at were outside the WASMPBA boundaries so they couldn’t get water and sewer services. So the incentives are necessary to compete with neighboring counties like Alamance where land can be approved for rezoning within a matter of months.

I also learned that I may have been too hasty in my negative opinion of some retail growth, like Wegmans. In 2011 as some will remember, Orange County allocated 1/4 cent of sales tax revenue to economic development. The sales tax from a high performing business like Wegman’s will help generate new economic development funds even though sales tax isn’t collected on prepared foods. The other benefit of retail is that those businesses aren’t depreciated like industrial businesses like Morinaga. Morinaga’s value goes down every year after about year 4 or 5 while the sales tax Wegman’s generates will stay steady or grow once it matures.
Plurimus
/ November 2, 2016

Terri, thank you. Depreciation was a key understanding I had not considered.
CitizenWill
/ November 2, 2016

Terri, did you find out what the depreciating asset values were? Presumably there’s some recapture of that lost revenue if the underlying building/land value is big enough and increases in value enough to be a notable offset.
Bonnie Hauser
/ November 3, 2016

Terri – nice that we finally agree.

The changing boundaries of the EDD are a convenience for politicians to save face. It’s a distraction from important planning and investment issues that need attention.

The Buckhorn EDD in question is the area where the county spent $4.9 million on water and sewer to attract business. That’s what’s not working – mostly because of structural problems that you are starting to appreciate. WASMPBA, ownership, and zoning are the tip of the iceberg.

Morinaga is in Orange County under Mebane’s zoning control so they did move quickly (unrelated to incentives). Speed (lack of) is another obstacle that’s keeping business out of the Buckhorn EDD.

If the county doesn’t plan to fix the structural problems, then they should redirect resources elsewhere. Maybe toward more partnerships like Morinaga and Wegmans?

BTW I confirmed with elected officials that the incentives for Wegman’s were to offset the high land prices and remediation that’s needed for the property.

Wegman’s is a great store. I hope our leaders can close this deal.
Bonnie Hauser
/ November 3, 2016

While I have your attention – its worth noting that affordable housing in the county faces similar challenges. In OC, right near Morinaga (in Mebane’s zoning jurisdiction) there’s an abundance of affordable housing. Homes starting at $120,000; apartments starting at $700. No subsidies needed because land prices and zoning supports affordable development.

I’m happy to give a tour if anyone is interested.

For more, here’s a column that’s a couple of years old but still relevant. it refers to the Buckhorn EDD where the $4.9 million was invested.

http://www.newsobserver.com/news/local/community/chapel-hill-news/chn-opinion/article10129580.html