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.”