Broken Circuit

Circuit City filed for bankruptcy last week, which was sad news for the city of Merriam. The electronics retailer played a feature role in a taxpayer-supported development there, off Interstate 35. That was the plan, anyway.

Circuit City was the only tenant on the verge of moving into Merriam Village, a new retail center with an uncertain future. More than 50 homes and a handful of businesses were razed to make way for the project. Land was cleared, retaining walls built.

After the project missed one projected opening date by two years, a building finally began to take shape on a hill east of the freeway. As recently as last month, Merriam officials hoped that Circuit City might open in time for the holidays. But the big red sign may be coming down.

Taxpayer-subsidized developments that should not exist or were designed with dubious financial structures litter the metro. Last week,
word leaked
that the Power & Light District may force Kansas City, Missouri, to find $4 million to pay the creditors who financed the deal.

Merriam Village is not in a position to inflict the damage of Power & Light’s city-backed bonds. At the same time, Merriam residents may feel more than just the embarrassment of a Circuit City sign overlooking I-35 that stops a “-ty” short.

Merriam officials held great hope for the development. The suburb lacks the size and wealth of neighboring Overland Park. Mission and Shawnee offer more appealing downtowns.

To compete, Merriam has tried to maximize the value of its real estate near I-35. In the ’90s, the city tore down apartment buildings, businesses and 100 homes in order to construct Merriam Town Center, a retail park that includes a Hen House, a Home Depot and a movie theater.

In 2004, the city approved a redevelopment plan for the Merriam Village site, a piece of ground on the other side of Johnson Drive from Merriam Town Center. Visions of a retail destination dancing in their heads, council members encouraged the developer, Developers Diversified Realty, to connect the two projects with a walkway. (Developers Diversified owns Merriam Town Center through a joint venture.) Mayor Carl Wilkes was quoted as saying that he felt “ecstatic, just ecstatic” as the Merriam Village plan cleared the final hurdles.

Bliss comes with a price. The city had to meet a request for tax-increment financing (TIF), a tool that lets developers feast on the new taxes that their projects generate. Newspaper stories in 2004 and 2005 described subsidies between $13 million and $18 million.

I went to Merriam’s City Hall last week and looked at the development agreement. In fact, the city has committed as much as $35 million to the endeavor, almost half the total cost.

The agreement earmarks $29 million for land acquisition, earthwork, demolition and other development costs. The money to pay the bills will come from the new property taxes to be collected once the assessor looks at the improvements on the site.

Separate from TIF, the city also issued $5.9 million in bonds to finance the construction of a new street connecting the mall to Johnson Drive and the realignment of Quaker Creek. The city’s community development director, Bryan Dyer, describes the work to me as “typical infrastructure improvements.” This is a trick, an attempt to make Merriam Village appear less richly subsidized. If the expense were “typical,” the city would be spending $6 million to fix the sidewalks in neighborhoods all over town.

Merriam is paying more and getting less than what its residents were sold. In the project’s formative stages, the development team peddled an “urban village” concept at public meetings. In 2005, an architect from Minneapolis, Kathy Anderson, described a special place, “something people walk to and want to hang around.”

But Phase I of Merriam Village looks just like every other modern strip center: a big building surrounded by a sea of parking lot. It’s a village in the same way a prison is a community. (Anderson said I should talk to Dan North, a development director at Developers Diversified. North referred me to a spokesman, who did not return calls.)

The project was supposed to spur additional development. In 2006, the city’s planning commission revised the plan to accommodate a possible hotel. But with the development’s sole tenant filing for Chapter 11 bankruptcy protection, Merriam Village’s aspirations may not reach much further than keeping alive the shrubs and trees in the parking lot.

The problems of Developers Diversified, a real-estate investment trust based in Cleveland, extend beyond Merriam. The company’s stock has fallen by 86 percent in the past year. Burdened with debt and under pressure to raise cash, Developers Diversified plans to sell stakes in 13 malls, according to a Wall Street Journal report two weeks ago.

The shaky position of Developers Diversified underscores a danger of TIF. Cities that engage in such deals often come to regret the direct wire they’ve plugged into the free-market economy. Circuit City can hide in bankruptcy court. But if Merriam doesn’t collect enough new sales-tax revenue to make the $5.9 million bond issue worthwhile, other services will begin to suffer.

And there’s a human cost: The eagerness of some cities to run off residents and businesses in order to sell rotisserie chickens is creepy. The city of Sugar Creek obliterated an entire neighborhood in order to accommodate a supermarket that would siphon sales taxes from Independence residents. Merriam’s actions haven’t been as heavy-handed. In fact, the folks who lived where Merriam Town Center is today asked to be bought out of their homes.

Still, TIFs tend to pick winners and losers. John Zaslavsky, co-owner of Country Hill Motors, a car dealership displaced by Merriam Village, complains that his relocation has been fraught with mistakes and hassles. Zaslavsky says work remains to be done on his new location in Merriam. “The developer needs to step up and finish the project, my project,” he says. “It’s been long enough.”

OK, a used-car lot isn’t a cinnamon-scented home where a widow raised eight children. But pushing out pre-owned Toyotas in favor of a company such as Circuit City hardly seems like progress. In 2007, Circuit City fired 3,400 of its better-paid workers in order to make room for people willing to work for $8 an hour. The CEO made $8.5 million a year around the time he ordered the purge.

Circuit City sucks in other ways. As Merriam Councilman Dan Leap, who voted against the project, put it to me, “They should have done better. We should have at least got a Best Buy, you know?”

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