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Archie Ingersoll, Published December 08 2013

Divisive deal to draw big-box hardware store to Jamestown

JAMESTOWN – A 65-acre plot here, long accustomed to the attention of a farmer’s plow, has lately been the focus of government officials and business types.

The hope is that a big box hardware retailer – Lowes, Menards or Home Depot – will build a store on the tree-lined piece of land on the southern edge of town, next to Interstate 94.

But more than simply hoping for a store to appear, Mayor Katie Andersen and the City Council have taken a step that’s a first for Jamestown. They’ve hired real estate developers to lure one of these three hardware chains to town and fill what they see as a gap in the local shopping landscape.

Along with paying the developers up to $900,000, the city may make a deal with the hardware store that could include millions in sales tax breaks, as well as tax increment financing, which would allow the store’s property taxes to be spent on improving the site’s infrastructure, Andersen said.

By contracting developers to do recruitment and by dangling the possibility of incentives for the chain, Jamestown is not alone. Cities around the country have been using these aggressive tactics to attract retailers. And while such methods are popular, economic development experts vary on whether they are sensible.

In Jamestown, the effort has met resistance from some residents who worry a home improvement mega-store would harm the business of existing hardware suppliers.

Developers pitch city

The push for a store started over the summer when two developers approached Jamestown city officials and told them the local economy is losing money because shoppers are taking their home improvement dollars out of town to places like Fargo and Bismarck.

The developers, Matt Dennis, a vice president with the R.H. Johnson Co. of Kansas City, Mo., and Drew Snyder, president of the Omaha-based Woodsonia Real Estate Group, presented data that showed Jamestown was missing out on $56 million per year in home improvement sales and $1.1 million in sales tax revenue.

Looking to stop this so-called leakage, the mayor and City Council agreed to a contract with Dennis and Snyder that would pay them an initial sum of $100,000 and up to $900,000 if a hardware chain and other smaller stores open on the site. Andersen said the developers’ fees will be paid through tax increment financing and not the city’s general fund.

In August, the City Council held an executive session and afterward voted unanimously in an open session to approve the developers’ contract, parts of which remained confidential at the time of the vote. The complete contract was not made public until November.

“Everything was done according to the letter of the law,” Andersen said.

Still, the secrecy surrounding the deal irked some, notably Jamestown’s former mayor, Clarice Liechty.

“I think they should have had public discussions on it,” she said. “They weren’t forthright with the people.”

Andersen said the executive session was held to discuss confidential information such as the location of the land, which, if disclosed too early, could have driven up the price of the plot.

Fair competition?

The land is owned by relatives of Liechty, a group that does business as Liechty Associates. That group has a purchase agreement with the developers.

Liechty herself owns about 11 acres near the site that’s being eyed for development, and she believes she would benefit financially from the big box hardware deal.

“But just because something benefits you does not mean it’s good for the whole community,” she said. “How many businesses are going to be destroyed by bringing in a big box store and giving incentives to them?”

Liechty believes a home improvement chain would hurt the town’s other hardware retailers in town, including Lifestyle Appliance, ProBuild, Home of Economy, True Value and Mac’s.

Clyde Schmautz, co-owner of Infinity Building Services in Jamestown, said he’s sure a big box hardware story would affect his store, which sells many of the same products. He fears the incentives the city may give a new store would create an unfair advantage.

“There’s nothing wrong with competition as long as the playing field is even,” Schmautz said.

Andersen is also concerned about local retailers taking losses, but she says those businesses are already competing with big box hardware stores outside the area.

“We know that Jamestown is spending dollars in retail, but they’re not spending them in Jamestown,” she said.

Specifics not yet set

In recent years, Snyder and Dennis, the developers contracted by Jamestown, have worked with the South Dakota cities of Yankton and Pierre to bring in hardware chains. In both cases, Menards were opened.

“We understand the home improvement retail landscape probably as good as anybody right now in the Midwest and what it requires to bring in a major home improvement retailer,” Snyder said.

The developers are optimistic a store will come to Jamestown and create 180 to 210 part-time and full-time jobs. On Thursday, Snyder would not say which chain is probable, but he expects an announcement within 60 to 90 days.

“We are actively in the midst of getting this project completed,” he said. “We’ve secured an excellent site and have a significant amount of interest from a large retailer.”

When Snyder and Dennis made their pitch to Jamestown officials, Andersen was initially skeptical. But she called the finance director of Yankton, S.D., and learned that the town had a positive experience with the developers. What also put her at ease was knowing the developers’ leakage data came from an independent source.

In bringing a Menards to Yankton, the city used a combination of more than $10 million in financing and incentives to tempt store officials. The incentive package that Jamestown may offer is still undetermined.

“We’ll negotiate incentives if they’re required, and if we can’t do them, then the project can’t happen,” Andersen said.

Upfront fee questioned

While such enticements are common around the country, some economic development experts believe incentives are sometimes wasted.

In certain cases, a company will come to town regardless of whether deal-sweeteners exist, said Philip Mattera, research director of Good Jobs First, a nonprofit, nonpartisan clearinghouse on economic development policy, based in Washington, D.C.

“In many cases, particularly if it’s a larger chain, the company’s already decided where it wants to be,” he said. “They usually do their market research well ahead of time.”

Mattera said Jamestown should have avoided paying any money up front to the developers.

“The best practice is not to give out any money until you’ve seen some results,” such as a store opening for business, he said.

Bob Shepard of Boise, Idaho, who spent 12 years in the economic development field, said it’s not unheard of for a city to use a recruiter to lure a big box retailer, but often it’s the retailer that approaches the city.

“Normally, it’s the big box people that initiate the search. They hire the site selector. The site selector does the analysis,” he said, explaining that the site selector will seek the best possible financing and incentives for the store.

Jim Gartin, president of the Greater Fargo Moorhead Economic Development Corp., said each city approaches economic development differently depending on its retail needs. He offered the comparison of Fargo and Moorhead.

“The city of Moorhead and their community development people are very aggressive in reaching out to restaurants and retailers,” he said, giving the example of the Sam’s Club store under construction. Moorhead also has incentives in place for new and expanding restaurants.

Meanwhile, retailers seek out Fargo because of its size and because it’s in a state with generally lower taxes and fees.

For Gartin, the question a city must ask is whether it should use taxpayer dollars to lure businesses that will compete with existing ones.

“That’s the issue Moorhead is grappling with now,” he said. “That’s really a tough question. I don’t have an answer to that.”

Readers can reach Forum reporter Archie Ingersoll at (701) 451-5734