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FAULTY ANALYSIS OF NEWPARK / ROUSE SUBSIDY

FAULTY  ANALYSIS  OF NEWPARK / ROUSE  SUBSIDY

 

By:  Fed Up in 94560

 

 

 

 

Newark’s city officials are promoting a faulty economic and legal analysis of tax subsidies the people are expected to give to a developer.  The people of Newark are set to give an estimated $30 million in sales tax rebates to Manhattan-based, for-profit corporation Rouse Properties to pay for improvements to Newpark Mall.  This plan to pay Rouse government subsidies with the intended benefit of increasing tax revenues relies on the presumption that Newark’s retail sector will expand. 

At any given time, any given market is saturated.  This holds true for Newark’s retail sector.  As of now consumers (C) spend retail dollars ($) and are charged sales tax (T) when they make purchases.  Those retail transactions can be described as (C $ T):

 

C = benefit to consumers when they make purchases

 

$ =  revenue benefit to retailers when they make sales

 

T =  tax revenue generated for the City of Newark

       when retail transactions take place

 

If and when Rouse is allowed to build this retail development that is funded primarily through sales tax (T) rebates, this new retail development will draw (C $ T) away from existing retail due to market saturation.  The belief that the new development would expand retail sales and therefore would not draw sales away from existing retailers is speculation.  It is not the role of government to fund speculative ventures.  Wall Street has far better financial analysts than the City of Newark.  Private capital would have funded this venture if a market opportunity had been identified.  Research demonstrates that government funded speculative ventures such as sports arenas and conference centers usually fail.

Because Rouse would receive an 80% sales tax rebate, the new retail development will generate only (0.20T) for the next 18 years or until Rouse is repaid 75% of the development costs.  The total cost of the development is estimated to be $40 million.  Therefore the total value of the government subsidy is estimated to be $30 million.  This $30 million subsidy will be paid from the City of Newark’s treasury over a period of 18 years. 

If the development is completed, existing full-tax-revenue-generating retail transactions (C $ T) will SHIFT to Rouse retail transactions (C $ 0.20T).  Notice that the Rouse retail transactions would generate only a fraction of the tax revenue compared to existing retail transactions:  (0.20 T) for Rouse retail transactions verses (1.0 T) for transactions made at existing Newark retailers. 

All of Newark’s retail transactions do not take place at Newpark Mall.  More importantly according to section 5.3.1 of the agreement, the $657,000 sales tax revenue baseline or hurdle that must be crossed before the subsidies are paid only involves, ‘Core Tenants’ and not, ‘Anchor Tenants.’  Anchor tenants are the large stores at Newpark such as Sears and Penny’s.  This means that if sales shift from Anchor Tenants to the new development, less sales tax revenue will be generated due to the tax rebates.  This means that the City of Newark could expect to generate as much as $30 million less in tax revenue over the next 18 years. Under any circumstances Rouse will be the $30 million beneficiary. 

Because of market saturation there will be a SHIFT from full-tax-revenue-generating retail transactions to reduced-tax-revenue-generating retail transactions.  Again, the idea that the development will expand an existing retail sector is speculation.  

The information in the following paragraphs describes why the tax rebate for Rouse is essentially a tax increase for the people of Newark.  Therefore the sales tax rebate is illegal because California State law requires that the voters approve any tax increase.  

Because of Newark’s odd-year municipal election cycle that has since been replaced with even-year elections, there were no municipal elections in Newark in 2010.  Without a municipal election in 2010, city officials were first required to vote to declare a fiscal emergency to have Measure U, the utility tax placed on the ballot.  City officials voted unanimously to declare this fiscal emergency.  Next, city officials, namely the city attorney created deceptive ballot language for Measure U and then voters approved Measure U.  The City of Newark now collects about $3.5 million in utility tax revenue each year as a result of Measure U.  The subsidy for Rouse means that the tax burden will be shifted from a for-profit corporation to utility users, which are mostly ordinary residents. 

Because the utility tax was promoted as a remedy for a fiscal emergency, and, because residents are still paying utility taxes, the City of Newark continues to operate in a state of fiscal emergency.  Giving an estimated $30 million tax subsidy to a for-profit developer is not consistent with a state of fiscal emergency.  This is another reason why the tax subsidy that city officials voted to give Rouse is illegal.  

A public interest lawyer needs to ask the court to enjoin the City of Newark from giving this tax subsidy to Rouse Properties. 

  

“The only thing necessary for the triumph of evil is for good people to do nothing.”

 

Fed Up May 31, 2014 at 04:53 PM
In about 2 weeks I will write a follow-up item. I will provide detailed reasons why retail dollars will SHIFT from full-tax-revenue-generating businesses in Newark including the Anchor stores at Newpark to reduced-tax-revenue-generating stores at Newpark. The answer is due to market saturation and added retail capacity. All of that added capacity will be reduced-tax-revenue-generating stores. Crossing the $657,000 tax hurdle specified in the agreement doesn't make any difference if crossing that hurdle means retail sales are siphoned from the full-tax-revenue-generators. More details in about 2 weeks. In the meantime, those that are concerned should try to locate a public interest lawyer that will ask the court for an injunction to stop this $30 million giveaway during a time of city-declared fiscal emergency.
Troll Mcgyver May 31, 2014 at 06:08 PM
Good, let the city work with the mall ownership and see what happens, let the chips fall where they will. Look at the bright side if it doesn't work out the detractors can dance around singing nya nya I told you so on the other hand if it does work out great.
Nadja Adolf May 31, 2014 at 11:01 PM
I wouldn't refer to the critics of the program as "detractors" - I'd refer to them as having an understanding of economics. Tesla latest CA company to diss Golden State By Joseph Perkins, Calwatchdog, 5/29/14 Tesla Motors, the Palo Alto maker of luxury electric cars, is holding its annual stockholder meeting next Tuesday. It will be interesting to see whether CEO Elon Musk announces the two states that will compete in a “bakeoff” to determine where Tesla decides to build its new $5 billion “gigafactory.” In February, the electric car company listed four states as finalists to be the site of the gigafactory, which will generate an estimated 6,500 jobs. Musk passed over his home state of California for Arizona, Nevada, New Mexico and, not surprisingly, business-friendly Texas. The Brown administration has made a last-ditch effort to get back in the competition. It has suggested Sacramento’s Mather Airport business park – the site of a former U.S. Air Force base – as the perfect location for Tesla’s new facility, which requires a minimum of 500 acres. During a chat this month with analysts, Musk said the Golden State’s desperate bid to be the site of his company’s gigafactory is “sort of improbable.” Not the least because Tesla intends to break ground in June on the first of two separate sites competing in its bakeoff. The state that can get pre-production work completed the fastest gets the $5 billion plant, which will produce lithium-ion batteries. The winning state will need to have all the necessary permits approved by the time Tesla plans to break ground next month. With the onerous requirements of the California Environmental Protection Act (CEQA) and other environmental regulations, Tesla would be lucky to break ground by 2017 – when its battery factory is scheduled to open. At least some California lawmakers think Musk is morally obliged to build his gigafactory in the Golden State. “The policies of this state helped build Elon Musk’s company,” Assemblyman Henry Perea, D-Fresno, told the Sacramento Bee. “It is outrageous that he is looking anywhere than California to build his factory.” CA subsidies Indeed, the California Energy Commission gifted Musk $10 million to pay for machinery purchased for Tesla’s Freemont factory. The electric car maker was also exempted from sales and use taxes on $415 million in manufacturing equipment, which saved the company $34.7 million. And Tesla received $625,000 from the state for worker training. Tesla officials have confirmed the company has had conversations with state officials on the siting of its gigafactory. And it’s safe to say Gov. Brown’s Office of Business and Economic Development is offering Musk more taxpayer subsidies to reject Arizona, Nevada, New Mexico and Texas in favor of California. But Musk himself suggests tax breaks and other incentives are not enough to get him to build his battery plant in the Golden State. While Brown and his staff have “tried to do everything they can,” said Musk, to persuade Tesla to manufacture its electric car batteries here in California, competing states have a “much more streamlined approach” to the permitting process for developments like the Tesla gigafactory.
Nadja Adolf May 31, 2014 at 11:03 PM
Or, to simply, Tesla thanks California for the millions of dollars in donations and plans to put most of its jobs in other states. And California only gave Musk 45 million dollars while Newark wants to give 30 million to Rouse properties.
Nadja Adolf June 01, 2014 at 07:01 PM
OK. Troll, you're comfortable with the city giving $30 million in tax revenue away to billionaires? Well, let's see. I wish to start an Urban Farm Supply. Urban Farm Supplies cater to affluent locavores and sell things like $2,000 chicken coops, $800 architectural stone raised garden beds, $50 baby fancy chicks, ducks, and turkey as well as $50 a bag organic animal feeds. Since I am only one business I'll be satisfied if the city lets me keep the first million dollars in sales tax revenue. Would you favor the city working with me? Unlike the Rouse Properties agreement, this business might well attract high dollar shoppers because it would be much more upscale than the existing feed supplies in Pleasanton, Dublin, etc.

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