Developers will be able to recoup up to $25 million of sales and lodgings tax created by The Wharf if plans for the multi-use project are approved
Wednesday, July 14, 2004
By RYAN DEZEMBER
Staff Reporter
ORANGE BEACH -- The City Council agreed Monday to enter a partnership with AIG Baker Shopping Center Properties LLC in which the firm will be refunded up to $25 million of the tax revenue created by a development it proposes.
The project, called The Wharf, is planned for about 215 acres on the southern shore of the Intracoastal Waterway. Designs feature condo towers, a marina, movie theater, more than 700,000 square feet of retail space and about 50 acres of wetlands.
The agreement is the third public-private partnership Orange Beach has entered into in the rapidly developing north side of town where the Foley Beach Express toll bridge lands.
The city also has deals with the bridge's developers, the Baldwin County Bridge Co., and Joe Raley Builders, a local company that is developing a multi-use project on 144 acres of city-owned land adjacent to the bridge's northern landing.
AIG Baker, in the latest arrangement, can recoup up to $25 million of the estimated $40 million the Birmingham-based mall builders expect to put into public improvements -- such as parking decks, roads and a boardwalk -- at The Wharf.
According to the deal:
Orange Beach will begin paying AIG Baker half of the annual sales and lodgings taxes created by The Wharf four years after the firm obtains building permits. The company, however, may choose to initiate the deal sooner.
The maximum annual payment required of the city is $2.86 million, which represents the $25 million principal plus 8 percent interest amortized over 15 years.
Payments to the developer of whichever is less -- $2.86 million or half of the sales and lodgings tax created by The Wharf -- will continue until either 15 years has elapsed or the repayments to AIG Baker reach $25 million plus whatever interest has accrued.
The handover to the city of public improvements at The Wharf will be marked by either Orange Beach's repayment of the $25 million debt or the passing of 15 years.
If AIG Baker invests less than $25 million for the improvements, the city's debt will be readjusted to reflect the lower value.
City officials who supported the agreement hailed it as a way for Orange Beach to secure a development that could help the city capture more revenue from tourist spending.
"I think this is going to be an extremely good deal for the city," said Councilman Joe McCarron.
Deal different from Daphne's:
AIG Baker and the city of Daphne have a similar agreement concerning the Jubilee Square shopping center, with a few critical differences.
In the deal with Daphne, AIG Baker keeps 75 percent of the annual sales tax revenue up to $658,000 until the total the firm reaps reaches $13 million. The length of the agreement is 20 years, but can be extended until the firm recoups the $13 million. And if AIG Baker's portion of the revenue is less than projections, the difference is added to the developer's take the next year.
Preconstruction projections had Jubilee Square generating between $1.2 million and $1.9 million in sales taxes a year. The stores, however, have underperformed, bringing in $545,102 in fiscal year 2002 and $743,730 last fiscal year, according to Daphne financial records.
In Orange Beach's agreement, there is no way for the contract to extend beyond 15 years, no debt is rolled over into future years if The Wharf underachieves, and there are no penalties for the city repaying the $25 million early.
City Attorney Larry Sutley said this last feature of the agreement means that if the municipal bond market is strong and The Wharf is performing as expected, meaning large returns are due the developer, the city could save several million dollars. The city, under this scenario, would likely pay off the $25 million by selling bonds for which it would pay a far lower interest rate than 8 percent, Sutley said.
Savings to the city under this scenario could top $10 million, depending on when the debt is repaid and what interest rate the bonds carry.
Several Orange Beach officials said that they supported the agreement because of these variations from Daphne's deal.
Asked why AIG Baker agreed to more flexible terms in its partnership with Orange Beach than it did with Daphne, the firm's attorney, Gail Livingston Mills, said negotiations with Orange Beach started within the framework of Daphne's, which had been approved by the Alabama Supreme Court.
Declining to elaborate further, Mills said, "Daphne is a sensitive situation."
Deal done, but development not a done deal:
While the deal was approved by the council in a 4-1 vote, it doesn't guarantee that the project or the rezoning necessary to accommodate it will be approved by council.
Designs for The Wharf -- which the developers said were submitted to city planners for review last week -- will be presented to the Planning Commission at its Aug. 10 meeting, said City Administrator Jeff Moon. That body will hold a public hearing on the plans and offer an advisory opinion to the council, which will have to OK the designs.
In the meantime, The Wharf's development deal must be validated by a judge. In those proceedings, which have yet to be scheduled, District Attorney David Whetstone will test the legality of the pact before a Baldwin County circuit judge.
AIG Baker, according to Sutley, must pay for all of its and the city's legal expenses associated with the validation suit as well as the negotiations.
Further, the Birmingham firm assumes all liability and maintenance of the public property until it is deeded to the city when the $25 million is repaid.
Mayoral candidates spar:
While most city officials supported the deal, at least one fought it.
Council members Iris Ethridge, Pete Blalock, McCarron and Mayor Steve Russo voted for the agreement.
Councilman Brett Holk, who is challenging Russo for the mayor's job in the August municipal elections, voted against the deal.
Councilman Jerry Davidson, who attended a meeting prior to the tally, was absent during the vote and a later work session. Davidson's vote either way would not have made a difference in the outcome.
Mayoral candidates Russo and Holk sparred over the deal. Holk has opposed not only the AIG Baker agreement, but also the RiverWalk project and the agreement with the bridge company.
"I don't think that we need to give anything to get people to come down here, to get development down here," Holk said. "I cannot support something that is subsidizing development that in turn competes with our other businesses here in town."
Holk further said he felt that the vote was rushed through the council too fast.
Challenging Holk's stance, Russo criticized the councilman for opposing tax increases as well as the three partnerships that have been aimed at capitalizing on tourist spending that typically winds up in Mobile, Foley or Pensacola coffers.
"To say you were against this project because you were for the residents is baloney," Russo said. "I've never seen a project that will offer so much on so many different levels to our full-time residents than this project."
Source: Mobile Register