This week outdoor retailer Cabela’s will ask the Wichita City Council to create a Community Improvement District (CID) for its benefit. Creating the CID would allow Cabela’s — the only store in the proposed CID — to collect tax of an additional 1.2 cents per dollar sales from customers. Proceeds of one cent per dollar, less a handling fee, will be given to Cabela’s for its exclusive use, with 0.2 cents per dollar to be used for street and highway improvements near the proposed CID.
CIDs should be opposed as they turn over tax policy to the private sector. We should look at taxation as a way for government to raise funds to pay for services that all people benefit from. An example is police and fire protection. Even people who are opposed to taxation rationalize paying taxes that way.
But CIDs turn tax policy over to the private sector for personal benefit. The money is collected under the pretense of government authority, but it is collected for the exclusive benefit of the owners of property in the CID.
This is perhaps the worst aspect of CIDs. Landlord and merchants already have a way to generate revenue from their customers under free exchange: through the prices posted or advertised for their products, plus consumers’ awareness of the sales tax rates that prevail in a state, county, and city.
But the most consumers will never be aware that they paid an extra tax for the exclusive benefit of the CID. (A bill working its way through the Kansas legislature may require detailing of sales taxes on cash register receipts.)
The Wichita city council had a chance to provide transparency to shoppers by requiring merchants in CIDs to post signs informing shoppers of the amount of extra tax to be changed in the store. But CID advocates got the city council to back down from that requirement. CID advocates know how powerful information is, and they along with their allies on the city council realized that signage with disclosure would harm CID merchants. Council Member Sue Schlapp succinctly summarized the subterfuge that must accompany the CID tax when she said: “This is very simple: If you vote to have the tool, and then you vote to put something in it that makes the tool useless, it’s not even any point in having the vote, in my opinion.” She voted against the signage requirement.
We should ask Cabela’s why their business model is so flimsy that allowing them to collect one percent additional from their customers makes the difference between feasibility and not. Cabela’s is notorious throughout the country for seeking all sorts of corporate welfare, and the CID is not likely to be the only subsidy the company seeks to extract from the city, county, school district, and/or state. It’s all in their business plan, as revealed in the company’s 2004 IPO filing: “Historically, we have been able to negotiate economic development arrangements relating to the construction of a number of our new destination retail stores, including free land, monetary grants and the recapture of incremental sales, property or other taxes through economic development bonds, with many local and state governments.”
Cabela’s and its supporters note that part of the 1.2 cents per dollar extra tax to be charged will be used to improve the intersection at Greenwich and K-96. The need of an upgrade there should be questioned. A Cabela’s spokesman told the Wichita Eagle that easy access to the store from the highway is needed because shoppers “come in with the big pickups, the Rvs.” We should note that there exists a full-service intersection with traffic signals less than one mile from the Cabela’s site. For half of the distance, Greenwich road is three lanes in each direction.
The proposed intersection can be viewed as an unnecessary public improvement — a sweetener to the deal — that doesn’t cost Cabela’s anything. Interestingly, the city’s adopted capital improvement plan for 2009 to 2018 contains “private contributions of $8.4 million for an interchange at K-96 and Greenwich Road.”
We also have to recognize the harmful effect of a subsidy granted to one company on its competitors. In this case, the city’s response is likely to be “let the competitors apply for a CID.” This pressure — where merchants of all types see other merchants benefiting from the state collecting taxes for their own benefit — is leading to “CID sprawl,” a term coined by Susan Estes. This accurately represents the natural result of the irresistible urge of the CID: charging your customers more and blaming it on the government.
In particular, a major competitor to Cabela’s is Gander Mountain in the downtown WaterWalk development. This store benefits from taxpayer subsidy, and if it were to close, Wichita taxpayers would be liable for bond payments. Further, the store is considered an anchor for the struggling development. A closed store surely would not be good for WaterWalk’s future.
Finally, Lynda Tyler, who is running for city council against current council member and Vice Mayor Jeff Longwell, wrote this letter which appeared in the Wichita Eagle. The questions she raises deserve answers.
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Is Cabela’s revenue estimate accurate?
On the surface, the community improvement district for Cabela’s seems pretty simple: Those who shop at the store will help pay for the store and the K-96 on-ramps through an extra sales tax. But look at the numbers.
The Eagle reported that the CID is expected to generate $17.2 million over 22 years (Feb. 16 Business Today). That means it would generate an average of $781,818 per year. At 1.2 cents per dollar of sales, the Wichita store would have to have yearly sales of $65.1 million per year.
Cabela’s does not release its per store sales numbers, but according to an Aug. 23, 2007, Barron’s article, Cabela’s averaged about $348 in sales per square foot. On an 80,000-square-foot store, that would be $27.8 million of sales per year. That is less than half of the amount estimated for the Wichita store.
If we issue general obligation bonds and build the ramps based on an inflated number, it would be the taxpayer who stands to lose. If the city also issues revenue bonds based on the inflated numbers, there could be a disaster, too, if the store does $26 million instead of $65 million in sales.