City offers incentive to attract restaurants

Monday, July 23, 2007

Many Lewisburg residents know the closed Long John Silvers restaurant is where an Arby's roast beef sandwich shop will open, but they probably didn't know some property taxes were waived to land the deal.

It's substantially the same deal city council members gave to a new industry that's constructing a building in the business park on Mooresville Highway, and for the expansion of CKNA.

The restaurant deal is justified by city leaders as a step toward landing a "sit down restaurant" that they see as something area residents want.

City Manager Eddie Fuller said Lewisburg's recently adopted budget for the fiscal year starting this month includes $35,000 that can be added to whatever county commissioners put in their budget to hire Buxton, the Fort Worth, Tex., consultant that's seen as a way to attract restaurants similar to Ruby Tuesdays, TGI Fridays, Chili's and O'Charley's.

"Covington (Tenn.) got a couple of restaurants from a deal with Buxton," Councilman Robin Minor said after a recent city meeting. Buxton "will know how many people from here are going to restaurants in Cool Springs."

While steps have been taken toward hiring Buxton to conduct a study of consumers in this market, the city council has told a Brentwood-based restaurant owner "yes," after he asked if there were local tax incentives for his plan to transform the former Long John Silvers into an Arby's.

The deal is available to other new restaurants. It's called a PILOT (payment in lieu of taxes). Guidelines adopted by the council last month require a minimum investment of $600,000 for land and new construction, and $150,000 for new equipment, furnishings and similar personal property.

The property tax waiver can't last more than five years.

The U.S. Tank deal will last 15 years, but it includes greater investment and will pay higher wages.

In his first year of operations, the Arby's developer will pay no property taxes to the city or the county, but starting with the 2008 property tax bill, the amount to be paid grows to 20 percent, or one fifth, of what he'd normally pay in property taxes.

In the third year of the five-year program, he will pay 40 percent of the amount of the property tax bill, although the payments aren't for taxes. They're "in lieu of" tax payments, according to the contract. The payment rate increases to 60- and then 100 percent of the amount as the term comes to a close.

Thereafter, the restaurant is subject to property taxes and the PILOT program contract will end in 2013.

The U.S. Tank deal is more complicated and might be likened to a balloon note for a house mortgage with small payments on the front end and large payments as the 15-year contract matures.

The Arby's deal requires the restaurant to employ at least 20 people. Officials have stated they anticipate that to mean an increase in area employment by 20 people, or the equivalent of that many full-time jobs, within two years.

City records show land for the Arby's is worth $185,000; site work will cost $120,000; the new building will be valued at $325,000, and some $50,000 will be paid to an architect-engineer for the project.

With equipment, the real and personal property taxes will eventually be calculated from a value estimated at $955,000, city records indicate. That amount would be a tax base that's grown from what's there now.

The city has indicated the 2007 property taxes for the Long John Silver's restaurant were calculated on a value of $334,000. That's more than twice what the land was valued at by the developer for his purchase.

Given the formula for PILOT payments, the amount paid during the term of 2008-20013 would have been $42,700, the city document reports. That's up from $30,700 for the same time without the development, and assuming the old fish restaurant remains as it is since it suffered a kitchen fire.

Meanwhile, with the PILOT deal, business can be conducted and sales taxes will be paid. The city estimates those to be some $21,000 that would be from the local part of the sales tax. Much more would be paid to the state.

Robert White, the senior partner in White Oak Enterprises, struck the deal with the city and it was endorsed on June 8 by Lewisburg's Industrial Development Board for approval by the city council. Subsequently, the council approved the deal.

Annual sales at Arby's are anticipated at about $925,000, according to a city document relying on information from White. Annual payroll at the Arby's is to be about $290,000.

White owns the Krystal restaurant in Lewisburg and the Subway in Chapel Hill. He also owns five other such fast food restaurants in Middle Tennessee, and he spoke about the deal last week.

He said he hopes to tear down the old restaurant building in about two weeks and open the Arby's in early January.

White is originally from Lewisburg, having graduated from Marshall County High School in the mid-1960s, he said.

He anticipates having 20-25 employees at the Arby's, saying "It all depends on how much business there is."

His purchase of the old Lon John Silver's property was two weeks ago and when asked about the PILOT program, he says, "Every little bit helps."

Did the incentive make the purchase happen?

"If we hadn't got it, I don't know if we'd be able to do it," White said. "It certainly helped. We might have developed an Arby's in another market."

This is the first time he's participated in a PILOT contract.

"I think it's a good deal for everybody," White said. "It increases the value of the property."

The city manager explained that when the city entered a similar property tax deal for the business building a plant in the industrial park, the city put itself on a course to get tax revenue that it wasn't receiving.

White said, "We will double the appraised value of the property ... once we get the building on site."

The Brentwood resident said he was unaware of details regarding the PILOT program until he got into discussions with area leaders.

"I inquired to see if there was some incentive to develop this property... They indicated that the best way to go was a PILOT," White said.

As a result of that conversation, White paid the $500 application fee and steps were taken toward the contract that's started.

"This is breaking new ground," Mayor Bob Phillips said of this use of PILOT programs for restaurants. "But we want to have tax incentives for things we don't have."

As residents may know, a Huddle House restaurant is being built on U.S. 31-A just north of Ellington Parkway. Phillips said he's heard about a Quizno's restaurant that might be opened in that area.

"There's another hope for a sit down, night time grill and bar that I've heard rumors about, but there's been nothing submitted," Phillips said.

Asked about the difference between granting tax waivers for restaurants as well as industries where products are manufactured, the mayor replied with observations about the area workforce.

"We have 46 percent of our total workforce in manufacturing and that's not good," Phillips said of a preponderance of employment in one area. "It's good that we have those jobs, but many of them are vulnerable."

Such production jobs may become pawns in an industrialists gambit with the North American Free Trade Agreement (NAFTA), the mayor indicated.

"Service sector jobs are not all like one another, or flipping hamburgers, and they're not all entry level jobs," he said.

Medical technicians at a dialysis clinic are earning respectable pay checks and they're considered service industry jobs he said.

Meanwhile, property tax waivers are not the only incentive granted for development of restaurants here. The city's Industrial Development Bond Board issued federal income tax revenue bonds to finance two restaurants.

One was the Shoney's on Ellington Parkway and the other was a steak restaurant which is also on the bypass near where First Farmers and Merchants Bank is located. The steak house is no longer in business.

The additional steps being taken to get another sit down restaurant are toward the Joint Economic Economic and Community Development Board hiring Buxton. When that will happen and how much it will cost remain unresolved.

The city manager said city officials hope that their budgeted amount of $35,000 is high.

"We're hoping to get that reduced some," Fuller said. "Chapel Hill may participate; plus there may be some wiggle room, so it may cost less."