Ambacco incentive payments beginning to wind down

Jun. 07, 2014 @ 04:06 PM

Warm up the fires at City Hall, it’s time to start burning the public’s mortgage on the American Tobacco complex.

The city’s incentive-payment promises for the redevelopment of the former cigarette factory are set to start dropping off as of July 1, when its annual obligation to the project drops from $919,011 to $291,325.

“Everything is starting to stair-step down,” Finance Director David Boyd said, adding that the city’s incentive obligations to American Tobacco’s owners will be complete at the end of fiscal 2016-17.

The city’s overall incentive payout by that time appears likely to clock in at $8.6 million. It stems from a quintet of promises the City Council made early in the 2000s when it was eager to jumpstart the redevelopment of downtown Durham.

The project has since become a “poster child,” in the words of Preservation North Carolina President Myrick Howard, both for downtown’s renaissance and the benefits of finding new uses for old buildings.

City officials believe it’s generated $9 million in revenue for their government that wouldn’t have come in had the former factory site remained derelict.

That doesn’t make the overall project a net money maker for the city, as part of the deal on its end included building and owning one of the three parking decks that surround the development.

The city is still paying about $1.1 million a year to service its construction debt for the North Deck, plus another $340,000 or so a year in management expenses.

All told, by the end of fiscal 2016-17, the city is on track to have paid $30.1 million for its involvement in American Tobacco, counting both its incentive and North Deck obligations, according to a spreadsheet City Manager Tom Bonfield and his staff use to track the deal’s performance.

Adding in the fees motorists pay to park in the North Deck, the city is likely to have received $16.7 million by the end fiscal 2016-17.

The $13.4 million net loss — cash-wise, as the city for having title to the North Deck gets to book it as an asset — is $2.2 million to the good better than what city officials had expected when they originally made the deal.

Property tax receipts and parking-fee collections have bettered the city’s original predictions, while the North Deck debt payouts and management costs closely tracked them.

The city wound up paying American Tobacco’s owners — corporations linked to Capitol Broadcasting Co. — about $1 million more in incentives than the original deal called for.

Boyd said the original plan was for the city to cover part of the bill for building one of the other parking decks. But, the two sides swapping obligations along the way, Capitol ended up writing the check for the South Deck in return for a higher incentive payment.

The American Tobacco deal became the model for future city incentive deals, which at the end of the day are a give-back of part of the tax revenue officials expect a project to generate.

The future deals all stood on their own, meaning none rely for payments on any of the money freed up by the end of the city’s obligations to American Tobacco. That means the American Tobacco complex will be a taxpayer like any other as of the end of fiscal 2016-17.

“That just becomes a revenue stream in taxes,” Bonfield said, adding that the burn-off of incentives is “reducing the expense side of that.”