Published: June 25, 2006 01:13 pm      

City, state at odds over retail center plans

Local officials fear loss of tax revenue; state disagrees

San Marcos — The General Land Office this week announced plans for a retail shopping center on Interstate 35 near the outlet malls as a fight over the state agency’s foray into real estate development erupted with San Marcos at its center.

If the land office seals a partnership with Dallas-based Direct Development, the $40 million to $50 million development will occupy 113 acres on the interstate’s west side between Wonder World Drive and Centerpoint Road. The developer is in negotiations with Target, J.C. Penny’s and Best Buy as big box anchors for a master-planned retail center.

The land office bought the tract last year for $5.1 million along with two other parcels totalling about 400 acres on the interstate’s east side in north San Marcos near Yarrington Road.

Granted authority by the Legislature in 2005 to make real estate investments on behalf of the Texas Permanent School Fund, the land office has recently been taking the concept further, partnering with developers who use the state’s tax-exempt status to market the properties to prospective tenants.

A $22 billion endowment traditionally funded with oil and gas revenue from state-owned lands, the school fund generates $800 million a year for public education, the land office says.

The agency’s dealings here have infuriated San Marcos officials who decry the potential loss of property tax revenue to city, county and school district taxing entities as well as local developers who says the state wields an unfair advantage over its private sector competitors.

But Land Commissioner Jerry Patterson in an interview on Friday defended his office’s practices and said officials’ concerns are unfounded. Any lost property tax revenue on the land itself will be more than replaced by property tax on the buildings and inventory as well as sales tax generated at the site, he said.

The land’s former owner was required to pay a year of taxes in advance when the land office bought it, Patterson said, and much of the property will be back on the tax rolls before the end of the year.

“I can’t understand why they have reservations about a property tax windfall that will result from this development. It clearly indicates to me that someone doesn’t understand how this works and how it will benefit your city and county and school district,” Patterson said.

The tract, most of which was agriculture exempt until its purchase last year, was appraised at $789,840 in 2005, according to the Hays Central Appraisal District. That translate into about $3,700 in city, $3,032 in county and $14,453 in San Marcos Consolidated Independent School District taxes.

The property is preliminarily appraised at $4,868,410 for 2006.

Patterson’s assurances of increased local tax revenue, however, don’t wash with leaders such as Mayor Susan Narvaiz. All three big-name potential tenants already have San Marcos stores in the Springtown shopping center, begging the question of whether the land office’s deal amounts to relocating existing revenue.

“I do believe it would be moving retail we already have in addition to bringing in new retail. ...What’s more disturbing is that that they’re actually pitching their development to tenants as a good investment because they can get out of some property taxes. That creates an unlevel playing field for private developers who have to play by the rules,” Narvaiz said.

City Manager Dan O’Leary, who is taken a lead on the issue, was out of town on Friday and unavailable for comment, his office said.

While not confirming the potential tenants, Patterson conceded that the development will probably include stores already located in San Marcos. But, he said, “Whether that’s the case or not, this will result in ad valorem revenue far in excess by many multiples of what it was generating sitting there as an empty pasture. This is a $40-$50 million project and a lot of that is going to be new investment.”

Land office officials are trying to schedule a meeting with local leaders and State Sen. Jeff Wentworth and State Rep. Patrick M. Rose to discuss the city’s concerns, said Bo Tanner, the deputy land commission for asset management.

“We think San Marcos a great place to bring our capital and a great opportunity down there for everybody. We want to sit down and talk to them and see if we can give them additional information that might make ease their minds,” Tanner said.

Land office officials are still developing plans for their other two San Marcos properties and possibly others as well such as a 500-acre tract on Centerpoint Road behind Prime Outlets.

San Antonio developer Rick Sheldon, who is partnering with the land office on a New Braunfels mixed-use development, said such arrangements benefit local as well as state governments.

“They have deep pockets and can make the investment to bring projects in faster but instead of the profits going to some big multi-national corporation, they’re going to the schoolchildren of Texas,” he said.