Developers backing a plan to build a shopping center at South Claiborne Avenue and Toledano Street plan to ask the City Council to assess an additional 1 percent sales tax on all items sold at the seven stores planned for the site.
The money would be used to support bonds to pay for public infrastructure improvements and other “extraordinary” construction costs that make New Orleans a more expensive place to build, said Townsend Underhill, senior vice president of Stirling Properties, to a council committee Tuesday.
The committee endorsed the plan, but at least one neighborhood leader raised questions about the idea of charging a higher sales tax in a predominantly poor neighborhood.
Stirling Properties and JCH Development will ask the council to create the Magnolia Marketplace Economic Development District, bounded by South Claiborne and Washington avenues and Clara and Toledano streets.
It will cover the site of the proposed $24 million Magnolia Marketplace, a 98,000-square-foot strip mall that will include six national retailers and a Raising Cane’s chicken fingers restaurant.
The request has the support of Mayor Mitch Landrieu’s administration.
“This project, given its extraordinary development costs that are unique to New Orleans, places New Orleans at a competitive disadvantage, and the project will not proceed without those costs covered,” Aimee Quirk, the mayor’s adviser for economic development, told the council’s Economic Development and Special Development Projects Committee.
The Magnolia Marketplace site formerly was part of the C.J. Peete public housing complex.
Developers plan to spend about $6 million to purchase the land from the Housing Authority of New Orleans and for soft costs such as legal and architectural fees. The remaining $18 million will be spent on construction, Underhill said.
Construction costs were driven up by the need to relocate a “significant” number of water, sewage and drainage lines, as well as to comply with the city’s elevation requirements, Underhill said.
The project is not viable without the sales tax increase, he said.
The project developers plan to put up $5.5 million for the project. Nearly $15 million will come from bank debt and new market tax credits.
The development team has asked for $1.6 million in state Community Development Block Grant money. The city and developers hope shoppers will pick up the remaining $2.3 million through the higher sales tax.
Money generated from the tax increase will be used to fund bonds to cover “pre-approved public infrastructure costs and extraordinary costs associated with meeting elevation guidelines,” a proposed ordinance says. It would be assessed only on stores within the Magnolia Marketplace development.
The tax would expire after the bonds are paid off. The city estimates that would happen in 15 years, Quirk said.
She said the city determined that the development qualified for some type of assistance because it will increase sales taxes, produce jobs and return vacant land to commerce; in addition, it might go elsewhere without assistance.
“It’s the type of project that Claiborne Avenue has been primed to take but has not had all the pieces coming together,” Quirk said.
She said the decision to fill the funding gap with a sales tax increase was guided by “best practices from around the state and the country.”
She cited the Tanger Mall Economic Development District, which levies a 1-cent additional tax for 20 years on purchases made at the Gonzales mall as an example.
“What is unique to this particular proposal ... is this project would not tap into the general fund at all,” Quirk said.
“Rather, it would use a new revenue source that could be used to fund these limited expenses for a finite period of time until the project could be funded.”
The shopping center proposal presented Tuesday is smaller than the one that won City Council approval in January.
The earlier Magnolia Market was to be a two-story development, with six stores — Michaels, PetSmart, Ross Dress for Less, Shoe Carnival, T.J. Maxx and Ulta beauty products — on the second level facing an open-air parking deck.
With the exception of Ross Dress for Less, which is building a store in Algiers, none of those retailers now has a presence in Orleans Parish.
The earlier proposal also included ground-level parking and two unidentified stores, including an anchor tenant.
A Subway at South Claiborne and Toledano was to be turned into a Raising Cane’s.
Developers had hoped to begin construction on the two-level mall in June and open it in late 2014.
“It became problematic, much more expensive to do the constructing than what we wanted it to be,” Underhill said. “There were difficulties in design and with city requirements that made it not feasible.”
The project presented Tuesday is smaller. It still includes the Raising Cane’s and the same six retail stores, but it has just one level. Plans for an anchor tenant and another retailer have been eliminated, Underhill said.
The more recent plan also includes construction of a Capital One bank branch, a T-Mobile retail store and another unidentified store on an adjacent block across Washington Avenue. Construction on the bank and those two stores began in June. They are expected to open in December or January.
Construction on the larger development could begin in January and the stores could open in April 2015, Underhill said.
The Magnolia Marketplace is expected to produce about 344 construction jobs and 217 permanent jobs, Underhill said. The city has estimated that it will generate $31 million in sales in its first year and about $744,000 in city sales taxes, Quirk said.
The Economic Development Committee, which includes council members LaToya Cantrell, whose district includes the proposed development, Jackie Clarkson and James Gray, voted unanimously to pass the ordinance up to the full council for consideration.
Clarkson said she looked forward to having the opportunity to “brag” about the plan because it would create a “faster, greater” revenue source that avoids the risk associated with tax increment financing, a tool often used to pay for infrastructure improvements associated with such developments.
Cantrell said she has already begun reaching out to the surrounding neighborhoods to “dispel some of the stigma” that the added 1-cent tax will disproportionately impact the people who live near the proposed shopping center.
“That is not the case at all,” Cantrell said. “It’s trying to target the 66,000 cars that travel Claiborne Avenue daily to come and spend their dollars at our national retailers.”
Lisa Mazique, executive director of the Central City Economic Opportunity Corp., said the financing plan may need more discussion and neighborhood input.
“It bears consideration,” said Mazique, who said she is familiar with the proposed development but not its financing.
“I think we want retail investment in Central City and the jobs and amenities that are congruent with such development. But this is something that warrants more consideration.”