GROWING AT WHOSE EXPENSE? How tax avoidance by shopping mall developer General Growth Properties, Inc. harms communities and burdens other taxpayers BY PHILIP MATTERA, ALLISON LACK, AND KARLA WALTER GOOD JOBS FIRST AUGUST 2007 TABLE OF CONTENTS Executive Summary ............................................................................................. 4 I. The Business and Fiscal Context of GGP’s Tax Avoidance ............................... 8 Subsidizing Development ........................................................................... 9 Protesting Assessments ........................................................................... 10 II. Documenting GGP’s Tax Avoidance ............................................................... 12 Subsidizing GGP ....................................................................................... 13 GGP’s Efforts to Lower Its Assessments .................................................. 14 Good Jobs First Conclusion ......................................................................................................... 17 1616 P Street NW Suite 210 Washington, DC 20036 Endnotes ............................................................................................................ 18 (202) 232-1616 www.goodjobsfirst.org Appendix: Details on Subsidies and Assessment Appeals ................................ 20 GROWING at WHOSE EXPENSE? • 3 This loss of revenue puts a squeeze on municipal and • Kenwood Towne Centre (near Cincinnati). Since county governments, which depend on tax payments GGP acquired this mall in 2002, it has received from property owners such as GGP to finance vital TIF funding twice from Sycamore Township. In functions such as public education. 2002 the township spent $16 million to help pay We found subsidies at 14 of the 50 malls we examined, for modernization of the mall’s utility infrastruc- or 28 percent. Most of the subsidies involve finan- ture, and in 2006 it provided $6 million to help cial assistance from local governments to defray part finance a parking structure, part of which GGP of the cost of constructing new malls or renovating leases to a neighboring hospital. older ones. In half a dozen cases, the aid was financed • Mondawmin Mall (Baltimore). In late 2006, Balti- through the diversion of property tax revenues, a pro- more officials agreed to issue $15 million in bonds cess known as tax increment financing (TIF). There are to reimburse GGP for infrastructure improvement also several instances in which GGP is subsidized expenses related to the redevelopment of this by being allowed to keep a portion of the mall, originally built in 1956. The bonds sales tax it collects from customers on are to be backed by revenues from a behalf of local governments. This loss TIF district. The largest subsidy deals we found of revenue puts a • Coral Ridge (Coralville, Iowa). were the two that the city of Frisco, squeeze on municipal As part of a larger urban renewal Texas, has awarded to GGP. In the and county govern- project using TIF financing, the late 1990s, Frisco, a fast-growing city of Coralville, Iowa, issued and highly commercialized suburb ments, which depend $5.8 million in bonds to help pay of Dallas, put together a package on tax payments from for public road improvements worth an estimated $40 million to property owners specifically related to this mall in assist in the construction of GGP’s such as GGP. the Iowa City area. An additional E Stonebriar Centre, a 1.6 million- $5.1 million came from the Iowa EXECUTIVE SUMMARY square-foot enclosed mall that features Department of Transportation, and General Growth Properties (GGP), the second-largest owner and operator of six major department stores. The package GGP kicked in $2.3 million. included infrastructure assistance and a 10-year Even more frequent than GGP’s subsidy deals shopping centers in the United States, has received more than $200 million in rebate of a portion of sales tax collections. are the instances we found in which the company chal- economic development subsidies and tax savings from assessment appeals. This In 2006, when GGP came up with the idea of an lenged the value put on its property by local govern- is the conclusion of a study of GGP’s fiscal impact on local governments con- 800,000-square-foot open-air “lifestyle center” mall on ment assessors. Over the past decade or so, GGP filed ducted by Good Jobs First at the request of the Service Employees Internation- the outskirts of Frisco, it went back to city officials for assessment appeals at 27 of the malls in our sample, or more help. Frisco agreed to provide $31.9 million in 54 percent. At many of these, there were multiple ap- al Union (SEIU). TIF financing to pay for access roads, utility lines and peals or appeals covering multiple years, resulting in a other infrastructure costs. In addition, the new mall total of 73 assessment challenges. We looked at 50 GGP shopping malls in 23 different states. This sample in- (not yet named) will be granted a one-half of 1 percent GGP often wins these appeals. Nineteen of the malls cludes malls owned by GGP as long as a quarter-century and some that are sales tax refund until Aug. 1, 2019. have carried out successful appeals, with a total of 44 brand new. The malls, which represent about one-quarter of GGP’s U.S. prop- Frisco may be exceedingly generous, but it is not the successes that together resulted in some $8.6 million in tax savings. (There are also 10 pending appeals at five erties, received roughly $200 million in subsidies and recouped about $9 million only locality that has offered millions of dollars in sub- sidies to GGP. Here are some other examples: malls.) For example: in tax savings as a result of assessment appeals. These amounts probably rep- • Clackamas Town Center (Portland, Ore.). In • Fallbrook Center (West Hills, Calif.). GGP chal- resent only a fraction of the overall public financial benefits GGP has received 2005 Clackamas County commissioners approved lenged the assessment of this suburban Los Ange- for its more than 200 shopping centers, given the frequency with which the a plan to provide up to $23.9 million toward the les mall six times in the period from 1995 to 2001. For each year, it got progressively larger reductions company seeks subsidies or challenges its assessments. While no comparative cost of infrastructure improvements (including an 850-space parking structure) at this mall. This was in valuation, ultimately cutting the assessment by data are available, GGP is, in all likelihood, one of the biggest drains on local in support of a plan by GGP to spend $91 million more than 11 percent. In total, it managed to re- government revenues in the United States. on renovations and the addition of 250,000 square duce its tax bill by about $386,000. feet of new retail space. • Deerbrook Mall (Humble, Texas). GGP protested 4 • GROWING at WHOSE EXPENSE? GROWING at WHOSE EXPENSE? • 5 the 2002, 2003, 2004, and 2006 assessments of this assistance was still in effect. suburban Houston mall. For the first two years, the Taken as a whole, our research on GGP’s appeals reduction in valuation was modest. Then, in 2004, leads us to these conclusions: the decline was more than 25 percent. In 2006 GGP went much further. It persuaded the Harris • GGP asks for a lot. The company does not County Appraisal District to bring the assessment hesitate to seek major reductions in its assess- from $129.6 million all the way down to $57 mil- ments and is aggressive in doing so. A lawyer lion, a drop of 56 percent. This resulted in tax sav- representing a county in Indiana described ings of more than half a million dollars. The total ongoing negotiations with GGP over an amount GGP shaved off its tax payments over the assessment dispute as “a real battle royale.” four years was more than $727,000. • GGP doesn’t give up. When it fails in an effort On the other hand, GGP doesn’t always win. But when to have an assessment reduced, it returns in a GGP loses an appeal it does not necessarily give up. We subsequent year to try again. found a number of instances in which GGP followed GGP is seldom satisfied. Even when it achieves an unsuccessful appeal with a new filing in a subse- • a significant assessment reduction, it later quent year. For example, comes back for more. • Vista Ridge Mall (Lewisville, Texas). GGP failed in its challenges to the 2001, 2002, and 2003 assess- Our study did not attempt to assess the merit of the ments at this suburban Dallas shopping center, but appeals filed by GGP. Yet the frequency of the appeals it came back in 2004 and won a 3.5 percent reduc- and the aggressive approach taken by the company sug- tion that yielded a tax savings of about $368,000. gest that this activity is part of a systematic campaign Then in 2006 it got the valuation lowered again of tax avoidance, rather than simple disagreements and cut its tax bill by another $185,000. with particular assessments. Remarkably, among the malls where GGP filed as- sessment appeals were some at which it had received In this report we did not seek to document the full fis- substantial subsidies. The most egregious examples cal impact of GGP’s subsidies and tax savings on the of such double-dipping are Stonebriar Centre, where particular communities in which they occurred. But it GGP filed successful appeals after receiving the largest is safe to say that there are many school systems and subsidy deal we found in our sample, and Coral Ridge, other public functions around the country that have where GGP filed appeals even while the $5.8 million been squeezed by GGP’s efforts to pay less to—while TIF deal that was helping finance the infrastructure taking more from—local government. 6 • GROWING at WHOSE EXPENSE? GROWING at WHOSE EXPENSE? • 7 Given its size and prominence, GGP is an appropri- National data are hard to come by, given that the Cen- ate case study for examining the impact of malls on sus Bureau does not distinguish between household local government revenues.