Citizens Oak Ridge

Letters to the Editor

City needs to expand Crestpointe analysis

4/6/2007

By: Bill Grimmell | Guest Columnist | The Oak Ridger

Recently at City Council meetings and in newspaper articles, Oak Ridge residents have heard or read words to this effect: “If you don’t have a better alternative than Crestpointe, you should support this project.”

Such an emotional approach to considering the pros and cons of this important public issue seems dismissive of the honest concerns of a significant number of Oak Ridgers, concerns that they have expressed through the petition process. The more responsible approach would be for the City Council and city staff to respond to the valid concerns of these citizens point by point.

To his credit, Councilman Abbatiello did present at the March 19 meeting a detailed analysis of the possible “success” scenarios for Crestpointe. He indicated that the project represented a good choice for Oak Ridge provided Anderson County would agree to contribute its real estate tax receipts from the anticipated SuperTarget in Crestpointe. That contribution has been estimated, by the city’s Mr. Steve Jenkins, to be about $96,177 a year for 20 years. Since it appears that an approximately $100,000 annual contribution is a make-or-break condition for Mr. Abbatiello, one can only conclude that the project has tenuous payback at best. Such a situation does not define a winning project at all. (The present value at a 4 and one half percent discount rate, i.e., at an approximate current rate for a 20 year municipal AA bond, of the proposed Anderson County contribution is a bit less than $1,420,000, allowing for Mr. Jenkin’s estimated yearly property tax increases.)

Of even greater concern is that the city’s analysis to date has yet to consider where the “net added Crestpointe sales” will come from (net added Crestpointe sales, or equivalently net new Crestpointe sales, are Crestpointe sales minus sales that existing Oak Ridge retail establishments lose to Crestpointe). The additional available time before a possible referendum (on an authorized bond issue to provide part of a $10.5 million city contribution to Crestpointe’s development) will allow for such a consideration (i.e., it will allow for what some have called a “demand analysis”). I have heard supporters of the proposed city Crestpointe contribution suggest that the net added Crestpointe sales will come from one of or some combination of the following:

1. A recapture of Oak Ridgers’ current purchases outside the city;

2. Added sales to people who work in but do not live in Oak Ridge; or

3. Added sales to people living in surrounding areas who are attracted to Oak Ridge for their retail shopping.

However, I am unaware of any attempt by supporters to quantitatively estimate net added sales from any of these enumerated sources. The only number I have heard from supporters in this regard is an estimated total sales “leakage” from Anderson County, i.e., purchases by Anderson County residents made outside Anderson County.

Oak Ridge resident Raj Jain has made a demand analysis (see http://bellsouthpwp2.net/c/h/chetnajain/dsa.pdf). This analysis determines upper bounds for net added sales that are well below the city’s “expected case” net added sales. Mr. Jain used data from a TVA Anderson County sales “leakage” study as a major input to his analysis. He then categorized the “leaked” sales into those that might and those that will not be recaptured by the types of retail establishments apparently envisaged in Crestpointe (e.g., leaked automobile sales of $20 million will not be recaptured by Crestpointe establishments). He appears to have communicated his analysis to Oak Ridge City Council members in the middle of February (see http://bellsouthpwp2.net/c/h/chetnajain/sj.pdf). I am not aware of any public city response to that communication.

The city’s analysis, as noted above, does not consider the question of where net added sales will come from. Yet any analysis that the voters can objectively have confidence in should consider demand. The city’s analysis (see http://www.cortn.org/summit/summit-crestpoint_files/frame.htm) is based upon scaled-down sales figures provided to it by GBT Realty, the organization that is asking the city to provide $10.5 million to it for Crestpointe site preparation expenses. (Note: GBT Realty will likely set up a limited liability corporation, an LLC, to develop and manage Crestpointe.) GBT’s numbers come from average sales per square foot per year in a multi-state region for a mix of unidentified (other than a Super Target) types of retail establishments. This set of numbers could readily be the starting point for a financial analysis (like our city’s analysis) for a Crestpointe like development almost anywhere, e.g., in Wartburg (a town of less than 1,000 inhabitants that is far from any major highways). Most people presented with such a Wartburg analysis would probably instinctively ask where net new sales would come from. That question, though unanswered by our city’s analysis, is equally valid for Oak Ridge’s Crestpointe project.

I urge the city of Oak Ridge to expand its Crestpointe analysis by determining and quantifying where net new Crestpointe sales might come from. This determination should be broader and even more detailed than Mr. Jain’s analysis, using all available pertinent data (and common sense estimates where necessary).

Any analysis of Crestpointe’s financial impact upon the city, no matter how thorough, will have a large measure of uncertainty attached to it. However, the huge uncertainty associated with the city’s current analysis can be significantly reduced through comprehensive objective demand side determinations. The bond issue referendum petition drive may have bought the city the time for such determinations.

Oak Ridge voters need demand-side information. With it we will be in better position to decide whether we’d be supporting a winner or a loser for the city should we vote for the Crestpointe bond issue.