Photos from city's Power Point presentation
Scheels All Sports would build a 220-square-foot store on the city's north side under a deal expected to be approved on Feb. 26.
When it comes to incentives, Colorado Springs usually is a minor player in ponying up money to recruit or retain business and industry.
But now City Council has found a tool that will enable the city to extend its first and biggest direct subsidy to a retail outlet by allowing Scheels All Sports to collect, and keep, a sales tax of $16.2 million over 25 years.
The North Dakota-based company plans to start building a superstore this year on the city’s north side on land now owned by the region’s biggest developer, Nor’wood Development Group.
Council is expected to approve the special tax ordinance and a Scheels agreement on Feb. 26, after the ordinance’s first reading drew a 7-2 vote on Feb.12, with Councilor’s Andy Pico and Bill Murray dissenting.
Pico and Murray oppose the subsidy, which they say would place competitors at a disadvantage to Scheels, which has a track record of exacting tax benefits from cities where they build mega-outlets that feature ferris wheels and aquariums.
The city’s economic development officer Bob Cope says passage of the ordinance would pave the way for similar incentive requests from retailers and hotels for new construction or expansions.
Scheels was established in 1902 by German immigrant, Frederick Scheels, who opened his first store in Sabin, Minnesota, with his own money. Today, the Scheels company is employee-owned and runs 27 stores in 12 states, several of which have been given taxpayer-funded incentives, according to media reports. Scheels’ practice is to open stores in bedroom communities of larger metropolitan areas.
Scheels opened a store in 2008 in Sparks, Nevada, for example, four miles from Reno, and received at least $36 million in tax incentives. In 2012, it opened a store in Sandy, Utah, 17.5 miles from the Salt Lake City metro area, after winning 25 years worth of property tax breaks, as long as it met employment and sales benchmarks.
In September 2017, Scheels opened a store in Johnstown, 13 miles from Loveland, with the help of $93 million in incentives. Loveland reported in its 2019 budget document a 15.4-percent decline in sales taxes on sporting goods stores in 2018 “due to the opening of Scheels in neighboring Johnstown.”
Some cities have abandoned incentives for retail operations, among them the Reno area.
“We no longer do incentives for retail as that generally cannibalizes business from local businesses at tax payer expense,” says Mike Kazmierski, former economic development officer in Colorado Springs who now serves as the president and CEO of Economic Development Authority of Western Nevada, Reno.
Colorado Springs’ deal with Scheels would reduce the city’s sales tax collected by the store from 2 percent to 1 percent, and then authorize Scheels to collect a “credit public improvement tax” of 1 percent for 25 years, valued at $16.2 million. The subsidy is tied to actually building the store.
Cope told Council earlier this month that Scheels’ economic impact would total $1.5 billion over 25 years and that the 220,000-square-foot store would be a “unique and extraordinary retail venue and experience for our citizens.”
Scheels would invest $84 million in land, the building, furniture and equipment and bring in $53 million in net new city tax revenue over 25 years beyond the subsidy. It also would create 400 jobs with an average annual salary of $46,250, and up to 60 percent of sales would come from outside the trade area.
But some took issue with the last data point, provided by Scheels’ itself in letters to Cope in which Scheels’ CFO said that “40 to 60 percent of the customers that shop in our current store locations come from outside the municipality in which we are located.”
Councilor Bill Murray predicts Scheels would steal business from existing retailers. “This is cannibalizing what we get tax dollars on,” he said at the Feb. 12 Council meeting. “This just adds to the profit [of Scheels] and not to the benefit of what we need to run our city.”
Counselor Andy Pico agreed, saying if at least half of sales come from outside the city, “that implies that half will come from within, and I’m concerned that would be cannibalized from existing businesses. We’re putting them [Scheels] at an unfair competitive advantage. We’re going to give one [tax incentive] here and next door they don’t get one.”
But Council President Pro Tem Jill Gaebler supported the incentive. “What makes this whole plan unique and a great opportunity for our city is that we will have so many people coming here from outside and we won’t be cannibalizing other stores,” she said.
Councilor Yolanda Avila, who represents the poorest and most diverse southeast sector of the city, also was amenable. She noted after she posted on Facebook that she’d toured a Scheels store, “I got so many thumbs up and hearts. I just got an email from someone who wondered why it wasn’t in southeast. I am very concerned for my district, but I think this works for all of Colorado Springs and ultimately I am in favor of what will support our entire city.”
Better to have Scheels in the city than compete with it, Councilor David Geislinger said.
“One way or the other this company is going to build this facility somewhere in our area,” he said, “and the question is whether we are going to incentivize it being inside Colorado Springs.”
Read the agreement:
Bass Pro Shop, four miles north of the Scheels site, opened in 2013 amid the Polaris Pointe development, charged with using sales and property tax created by the urban renewal area to fund extension of Powers Boulevard to Interstate 25 from where it now ends at Highway 83. The developer, Gary Erickson, isn’t allowed to simply pocket that tax increment.
Erickson didn’t respond to a phone call and email seeking comment, but if business is sucked away from Polaris Pointe, it follows that the tax money available for the Powers extension would be reduced.
Bass Pro and other sporting goods outlets like Dick’s and Big 5 aren’t the only ones that would compete with Scheels, which also sells footwear, home decor, watches, clothing and a variety of other goods.
Nevertheless, Mayor’s Chief of Staff Jeff Greene told Council on Feb. 12, “This is not about picking winners and losers. This is about securing the financial viability of our city going forward.” The city’s biggest source of revenue is sales tax.
But as Councilor Don Knight noted, after passage of the new ordinance, “It will be open to anybody and everybody. It will be hard to say no to the next person.”
Cope acknowledged that, saying, “For a retailer or hospitality opportunity such as this, City Council would have authority to incentivize an existing retailer or an existing hotel.”
The Scheels site, northeast of Interstate 25 and Interquest Parkway near the Great Wolf Lodge, is on land owned by Interquest Marketplace LLC, an entity controlled by Nor’wood Development Group, a huge player in the local development scene.
Not only will Scheels pump tax money into city coffers, it also will help Nor’wood via the developer’s Interquest North Business Improvement District. The district has issued $11.3 million in debt to fund water and sewer lines and other public improvements and repays that debt via a 50-mill property tax, as well as a private 1.25 public improvement fee applied to all sales in the district.
The district is a party to city’s Scheels agreement, which says the district built water and sewer lines and other public improvements “in anticipation of the execution of this Agreement.”
Scheels must get permission of the city and district to transfer the deal to another operator.
We've invited Nor'wood to comment on the Scheels agreement and will update if and when we hear back.
Read the ordinance: