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City says Domain Mall has lived up to agreement; Rodgers disagrees

Friday, October 3, 2008 by Austin Monitor

City Council members learned two important things Thursday about the potential effects of Proposition 2 – the citizen-backed charter amendment to stop the city from making payments to Domain developer Simon Properties. Austin voters will decide whether to enact the amendment on Nov. 4.


First, according to the city’s Economic Growth and Redevelopment Services Office, Simon Properties has met all the criteria of its economic development agreement with the city, triggering an almost $1 million financial incentive payment on Oct. 30. 


Second, outside counsel has concluded that the passage of Prop 2 would prohibit the city from providing future financial incentives to both The Domain and to Catellus, which has redeveloped the Mueller tract.


However, the sponsors of Prop 2 – Stop Domain Subsidies — said the city’s numbers in verifying Simon Properties compliance with the agreement were incorrect and misleading.


Council members heard a review of the Domain’s compliance with the city’s Chapter 380 Economic Development Agreement from Rodney Gonzales, director of EGRSO. He said an independent accounting firm of Padgett Stratemann and Co. verified his department’s compliance review.


Gonzales went through the eight major criteria that Simon was required to meet under the terms of the agreement, and noted that the developer had met the criteria in each case.


“That means that a grant payment to Simon for $946,964 is due by Oct. 30,” Gonzales said. “That payment is based on 80 percent of the city sales tax collected from Sept. 2007 through April 2008.”


In a second presentation, attorney Jim Cousar with Thompson & Knight LLP, hired as an outside counsel, reviewed the Council’s options if Prop 2 should be approved. 


He told Council members that passage of Stop Domains Subsidies charter amendment would prohibit the city from fulfilling any “future appropriations” under both the Domain and Mueller agreements.


“The Texas Constitution prohibits cities from taking on unfunded future debt,” he said. “Since 2005, a new constitutional exception states that unfunded debt in Chapter 380 agreements does not violate this prohibition. However, the city’s funding obligations in the Domain Agreement would trigger the charter amendment’s prohibitions on financial incentives.”


He said if the Domain amendment is approved, the charter would prohibit the city from providing financial incentives under the agreement, but the city would remain obligated by its contract if the Domain meets its obligations in future years.


“That would result in a potential legal conflict between the city charter prohibition and the existing contract obligation,” Cousar said. He added that the conflicts would exist in both the city’s agreements with Simon Malls and Catellus.


He said that failure to provide funding in future years could lead to legal claims such as termination, specific performance or actual damages from Simon and Catellus.


Meanwhile, Brian Rodgers claimed that the city is using false numbers to certify the Domain’s incentive agreement.


“The truth is the domain has not met their obligations,” Rodgers said. “They told the citizens in 2003 that there would be an average of $35,000 of pay, and there’s not. They told the citizens there would be four acres of open space, and there’s not. We’re here to say that the Domain is not in compliance. They took stores from the Arboretum that were paying 100 percent of their sales tax and moved them to the Domain, where they are paying 20 percent of their sales tax.”


He said the assumption that the Domain was built upon was that there would be 100 percent new shoppers, shoppers from outside the City of Austin. “And that was an assumption that was just pure folly,” he said. “Probably 80 percent of them come from Austin.”


For the second Council meeting in a row, Stop Domain Subsidies has turned to the animal kingdom to help make its point. Last week, they brought a live pig from a local petting zoo to represent the recipients of the city’s funds. Thursday it was “Lightning” the Jack Russell terrier and “Bang” the miniature pony.


“We brought our own dog and pony down to City Hall, because the city staff just gave a dog and pony show showing that The Domain mall developer was in compliance,” Rodgers said. “We vehemently disagree…because these are not the $35,000 per year jobs we were promised, the four acres of open space, and many other financial benefits that were based on bogus assumptions. We are here to say they get an ‘F’ in their grading and compliance.”


Rodgers said the entire issue has risen to a new level because the city is about to cut Simon Properties a check.


“There is a check that’s going out to Simon Malls, the largest mall developer in the country, for over $900,000 at the end of this month,” he said. “So it’s no longer theoretical. People can vote for Proposition 2 in November and stop this kind of giveaway. Subsidizing a luxury shopping mall is just bad public policy.”


According to the city’s Gonzales, the report certifying the Domain subsidies will be available on the city website today. Mayor Will Wynn said there would be an opportunity for some kind of public input on the matter at the next Council meeting on Oct. 16.

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