Economic Incentives and the Role of the Main Street Manager

1. Economic Incentives and the Role of the Main Street Manager 2012 Kentucky Main Street Program Shelbyville Conference Tom Moriarity January 24, 2013

2. What roles do Incentives and Main Street Managers Play in 2013/beyond? Incentives: • Ideally, should leverage private investment • Expedite reviews and approvals (because Time + Predictability =Money/Commitments) • Can close the gap between rents and costs, LL expectations and retailer capacity Main Street Managers: • Critical linkage role between public and private stakeholders • Central point of contact and coordination • Advocate for downtown development and revitalization

3. Why are Incentives Needed? • Investors are extremely cautious right now • Developers/investors all want: • Free money • Low cost money • No delays • No uncertainty • The returns on investments may not match the costs, even for worthy projects • The ‘known’ unknowns and the ‘unknown’ unknowns

4. Financial and Tactical Incentives Financial Incentives can: Reduce costs of initial capital investment Reduce longer-term operating/tax costs Cover the ‘gap’ between supportable retail occupancy costs (based on rent-to-sales) and landlord expectations Help level the field with public infrastructure costs

5. Financial and Tactical Incentives Tactical/Policy Incentives can: Streamline reviews and approvals, create more ‘predictability’ for property owners, developers, and investors Create cooperative programs and policies to encourage downtown development Focus attention on unintended consequences of public review processes Provide low/no cost assistance for potential investors (technical assistance, understanding of the public process/coordination/roles)

6. What Incentives Work Best? Financial (Direct/Indirect): • Reduce cost of capital (low interest loans, interest rate subsidies, public financing) • Development Revolving Funds • Use of Tax Credits (Federal/State historic credits, Low Income housing credits, combinations, local incentives) • Tax Increment Finance (TIF) • Property tax reductions/ deferrals • Reduce ongoing costs (property tax reductions or deferrals, use of ‘self-taxes such as TIF’s) Tactical/Policy • Understand & address rent-to-sales vs. occupancy cost ‘gap’ (prevailing rents, prevailing sales, industry standards, underwriting criteria, etc.) and landlord expectations • Streamline reviews and approvals process (potential to coordinate with City Departments, educate/advocate for businesses and property owners

7. Current Kentucky Programs (Kentucky Economic Development Finance Authority/KEDFA) • Small Business Credit Initiative (KSBCI): Credit enhancement/Risk reduction for participating lenders for loans to small businesses • Small Business Investment Credit:Non-refundable tax credit for companies with under 50 employees for qualifying equipment and technology; limited to $3M in credits per fiscal year • Microenterprise Loan Program: Technical assistance and loans up to $50K for entrepreneurs; limited to 25 counties • Tax Increment Finance (TIF):State partners with local govt and eligible agencies in these TIF Programs • Ad Valorem Tax Revenues • Signature Project Program • Mixed-use Development in Blighted Areas • TIF Loan Support: Applies to agencies & programs with agreements completed prior to January 1, 2008 • Local Redevelopment TIF: For redevelopment of blighted areas into mixed-use with incremental property or occupational taxes resulting from development

8. Examples of Successful Incentives from Other Cities

9. Wichita KS • Pro-Downtown Policies • Tax Increment Finance • Dedicated Capital Improvement Project (CIP)funds • Hotel Guest Tax • Forgivable Loans • STAR Bonds • Free Land • Cash/Grants

10. San Angelo TX • Property Tax Abatement • Façade Improvement Programs • Sales & Use Tax Abatement • Development Fee Credits • Life Safety Incentive Programs • Design Assistance • Code Enforcement Benefits/ Flexibility Downtown • Asbestos Abatement Funds

11. Jacksonville FL • Enterprise Zone Designation (Federal) • Ent. Zone property tax credits (up to $50K against state income tax liability • Employment Tax Credits ($3K/new hire in Ent. Zone) • Work Opportunity Tax Credit (hires from areas with high unemployment ) • Bldg Mtl’s Sales Tax Refunds (up to $10K for bldgs in Ent Zone)

12. Shreveport LA • Matching Grants for Façade Improvement (Reimbursements $ for $ up to 25% of total cost) • Waiver of Construction Permit Fees • Economic Development Initiative Loans (up to $300K for new construction, equipment or working capital funding) • LA Cultural Districts – no sales tax on art, tax credits for retail located in rehabilitated buildings • State Commercial Tax Credits • State residential tax credit (25% of rehab costs over $10K; 50% for housing in vacant/blighted buildings) • Property Tax Abatement (5 years for rehab of existing commercial or owner-occupied housing) • State Energy Credits for retrofits

13. Dover DE • Impact Fee Waivers • 10% of incentives donated back to Dt Dvt Program • Waiver of permit Fees • 10 year property tax waiver • Dt Dvt Prog Loan program: • Start up loans ($5K max) • Dt Merchant Loans ($15K max) • Rehabilitation Loans (up to $150K)

14. Grand Rapids MI • Areaway Fill Matching Funds (50:50 with property owners) • Bldg Re-use Incentive Program/BRIP (self amortizing loan/grants for façade renovations, fire safety updates, utility upgrades, ADA requirements

15. Clearwater FL • Retail and Restaurant recruitment/relocation grants ($35K for retail, $50K for restaurants) • Not retroactive • Sidewalk Café furniture grants for F&B operators • Façade improvement grants: $333.33 per lineal foot up to 30 foot width ($10K max) • Bigger facades qualify for up to $25K (@$333.33/ft)

16. Detroit MI • Live Downtown Loans: $20K forgivable loans toward purchase of primary residences Dt • Renters Incentives: $2.5K grant toward year’s rent (up to 5 years) • Deteriorated downtown residential units qualify for $5K (of $10K or more) renovation grants

17. Wilson NC • Rent credit grants (up to $6,000 for 1 year, $8,400 for 2 years) given to “Pedestrian-oriented businesses” leasing in CBD • Applicant businesses must meet use-test, provide business plan, marketing plan, P&L statement, financial statements, funding sources, lease, SF • Grants up to $8,400 for owner-occupant purchase of bldg in CBD for “Pedestrian-Oriented Businesses” • $2 Million Revolving Loan Pool (@ prime or one point below prime) for purchase, renovation of, or equipment for DT buildings • Technical Assistance to apply for other incentives: • Historic Tax Credits • New Market Tax Credits • Mill Rehab Tax Credits • Film Tax Credits

18. Orlando FL • Florida has Community Redevelopment Agencies (CRA’s) for ‘umbrella’ funds • Orlando designated priority streets for Retail Stimulus Program with a specific list of eligible/non-eligible uses through the Orlando CRA • Funds used for tenant space build out (not equip. or inventory) • Structured as matching funds @ $25 PSF up to $50K

19. Orlando Retail Stimulus Program Eligible/Non-Eligible Uses

20. The Bottom Line on Incentives If funded/managed, incentives can attract private investment Make boundaries, rules and requirements consistent and clear to all Demonstrate the economic/financial need Be sure to measure the results Sunset/Temporary/Demonstrations can be more politically viable

21. Roles for Main Street Managers Apply for funding (public and private) Coordinate between public and private sectors Document economic needs and results Advocate for a downtown development strategy Understand state and federal programs for technical assistance, implementation Present proven ideas from other cities Doesn’t have to be money, can be ‘process’

22. Questions And Discussion

23. Market Research and Getting Main Street Volunteers 2013 Kentucky Main Street Program Shelbyville Conference Tom Moriarity January 24, 2013

24. Why Worry About The Retail Market? • Major driver of U.S. Gross Domestic Product GDP: 70.59%(Source: U.S. Bureau of Economic Analysis, adjusted 2010) • Disproportionately important as activating use in downtowns, urban infill and commercial districts • Disproportionately distressed as Real Estate asset category (worst among commercial RE categories in 2010) • Overbuilding = Retail space surplus (both new and existing) nationally

25. Four Forces Changing Consumers 4 • Retail Commercial Real Estate Distress and Space Oversupply • Demographic shifts and market dominance • Impact of E-Commerce and Social Network marketing • Changing consumer characteristics and retail/ mix and shopping environment preferences

26. Commercial Real Estate in Distress (2010) • Retail sector leads in both number and debt value of distressed properties • Tougher underwriting standards make financing more difficult • Oversupply requires care to finance new space – best in proven markets and sites • Source: ING Clarion Research & Investment Strategy; • Real Capital Analytics

27. The US Retail Industry NowAccording to ICSC (2010): • Estimated 17 BILLION sq. ft. Retail Space in U.S. • 7.3 BILLION sq. ft. in 105,000 shopping centers (43% of total sf) • 9.7 BILLION sq. ft. in non-mall settings (57% of total) • Total non-automotive sales of $4.1 TRILLION (2009) • Over 15 million employees (key service sector employment category); loss of over 642,000 jobs since 2008 • About 30% (17,000+) enclosed mall properties considered “obsolete”

28. The Oversupply Shakeout Retail (Mall) Square Feet/Per Person, as of 2008 Source: The Eisen Group

29. Retail and Urbanization • U.S. average of 55 SF/ retail space per person • Philadelphia MSA leads the nation with 78 SF/Person; Riverside, CA lowest in the nation with 30 SF/Person • 37% of total US retail space was located in the top 25 metro area’s in 2009 • 42% of total US population was located in the top 25 metro area’s in 2009 • Smaller metros have higher average SF/Person

30. Retail Sales by Category/Location Source: US Census Bureau; ISCS Research; The Eisen Group

31. The Truth in the Soup • U.S. Retail oversupply means: • Redevelopment for new uses • Re-purposing (retail to office?) • Demolition • Non-mall avg. $131 sales productivities won’t support rehabilitation/systems upgrades, TI’s, space improvements • Mixed-use/retail objective: Leasing/sales amenity, revenue center or both?

32. Demographics: Changing Ethnic Mix (in millions) Source: US Census Bureau; The Eisen Group

33. Demographics: Generational Rollover (in millions) Source: US Census Bureau; The Eisen Group

34. Increased Discretionary Spending Fueled by Housing Market Bubble Peak of Housing Bubble * Real annual change in spending based on constant 2009 $’s Source: US Bureau of Labor Statistics, Consumer Expenditure Survey; The Eisen Group

35. Discretionary Spending has Shifted to Focus More on “Social Experiences”

36. “Bricks & Mortar” Shopping Behavior • + 40% of shopping occurs 10 am-6 pm on weekends • + 22% of shopping during same hours on weekdays • About 1 out of 15 (6.7%) shopping trips occurs between 8pm-10pm, but these are “highly motivated” (“I need diapers, a replacement shirt, etc.”) shopping trips Source: Retail Traffic; Simmons Market Research; The Eisen Group

37. E Commerce and Value Perceptions • ‘Shopping’ the web, but purchasing in the store • Stores still need to create the ‘value halo’: Kohl’s vs. Penney’s, Best Buy vs. Amazon, Target vs. Wal-Mart • Total U.S. retail sales in 2012 = $4.37 Trillion (up from $4.09 T in 2009) • E-Commerce sales growth rate in the U.S. is increasing/outperforming conventional retail each year, BUT…. • Still accounts for only about (Take a guess) % of total retail sales

38. E Commerce and Value Perceptions • Still accounts for only about (5.2 %)of total U.S. retail sales • Will continue to grow 10-15% per year • Record Black Friday and e-week sales in 2012 • Generational transfer will accelerate e-commerce scope and rate of growth, use of app’s in store for price comparisons, etc.

39. Social Media Impacts • Skews by age, education and technology • Powerful, evolving, emerging market and retail channel • 500 million on Facebook, 7 Billion Tweets per month • Consumer app’s (personal scanners, SKU/inventory monitoring, brand preferences, credit card links for consumer data sourcing) • E systems cost and availability • Currently perceived as an ‘urban’ audience/market

40. Social Media Impacts • Of $32 Billion in E-commerce sales in 2010: • about 5% were from phones and pads • 2009 was the early adopters; 2010 = going mainstream; 2011 up 14% so far • E-consolidated Personal Finances: • electronic purchase and pay • online banking/constant balances • comparison pricing • expenditure records • Interim socio-economic stratification – iPhones vs. Check Cashing stores • Online entertainment growth: Netflix Network, Twitter ‘Stories’, YouTube Productions

41. Getting Volunteers for Main Street • Traditional volunteer pool was older women, now in the workplace – everyone’s busy • Projects for University students and classes • Use Continuing Education Credit requirements for Professionals to get projects planned • Corporate sponsorships for short term projects

42. Getting Volunteers for Main Street • Rising pool of active Boomers who will need something to do • Seek group activities, associations for Gen X and Gen Y – Main Street as a social activity • More project oriented, less long-term commitment-oriented • Approach as projects, with time limits and clear goals, not an ongoing, volunteer ‘forever’ idea • Budget enough time for getting, confirming, training and recognizing volunteers – it takes a lot of time and effort

43. Questions And Discussion