Loveland - June 18, 2009

Loveland Planning Commissioner Troy Krenning recently scolded a commercial land owner during a
public hearing for using the argument that he needed a favorable decision from the commission in order
to be more competitive.  Krenning told the landowner;

‘ if a business across the street from you is selling shirts for $10 and you can only sell the same shirts for $15
each, it isn’t the city’s job to try and make you more competitive’

Krenning’s insightful comment reflects what many community leaders in Loveland believe regarding the
proper role of local government.  Unfortunately, many of these same people support the Centerra tax
agreements which directly contravene what they espouse as their political philosophy.   

Even those who publicly defended McWhinney’s partnership with the city (as Krenning did when he ran
for Mayor two years ago) appear to have little or no insight on how the McWhinney’s Master Financing
Agreement (MFA) with Loveland works.   

Ironically, the owners of Loveland’s Factory Outlets Mall were before Krenning and the rest of Loveland's
Planning Commission that very night to request approval to build a larger sign to compete with
McWhinney’s subsidized Centerra development signs.  Apparently, their competitor across the I-25,
McWhinney’s The Promenade Shops at Centerra, has more visibility on the I-25 thanks to taxpayer funds.

The matter before the commission was simply a variance allowing the Factory Outlets to build a larger
sign to compete with the city's partner, McWhinney.  While the commission supported the request, city
staff did  not.  They opposed the variance and appealed the decision up to Loveland’s City Council which
heard the issue last Tuesday.   The variance was approved on a 5-4 vote of the council.  

An Enclave of Private Enterprise Inside Centerra

The land the Loveland Factory Outlets sit on was once part of the 900 acre farm that Chad, Troy and
Travis McWhinney’s grandparents owned but isn’t part of the McWhinney’s Centerra developments today.

This is because their Grandmother, Virginia McWhinney, passed away in 1989 and the land was
subdivided. One lot was sold by the McWhinney family to pay the inheritance taxes incurred by her
passing.  That lot was developed to be the Loveland Factory Outlets which is not part of the Centerra
master planned community that surrounds it.  

The phoney declarations of “urban blight” and massive public subsidies through bond debt for Centerra
didn’t come until years later when two McWhinney brothers, Chad and Troy, found a way to better
influence Loveland's city hall.   In January of 2004 the MFA (Master Financing Agreement) with Loveland
was signed allowing 25 years and hundreds of millions in municipal bond debt for Centerra so
McWhinney's dream of a Southern California style master planned community in Northern Colorado
could be attempted.   By leveraging their extraordinary advantage of controlling millions in public monies
to assist them in building out Centerra, the McWhinneys were able to gobble-up another 2,000 acres from
adjacent property owners.

The McWhinney's Metro District issued public debt bonds in 2004 for $57 million and $60 million again in
See the previous story regarding public debt.

Ironically, the City of Loveland recently reported revenue growth from sales at the Factory Outlet Mall in
a difficult economy while many of Centerra's sales are reported to be 20% below projections.  
Apparently, Loveland’s heavily subsidized partner is struggling in this economy while its privately funded
and disadvantaged rival is thriving.

Unraveling the McWhinney Sales Tax – Comparison Shopping

Simply explained, the City of Loveland collects less taxes for purchases in Centerra while the consumer
actually pays 1% more sales tax than they would had they bought the same item elsewhere in Loveland.

As an example, a man buying a suit, tie, shirt, socks and shoes might spend $522 dollars at Macy’s in
Centerra or in Kohl’s Department Store in Loveland.   If the items were identically priced in both stores,
the total he would pay at the register in Centerra would be $563 while the same purchases at the Factory
Outlet or Kohl's would total approximately $557 with taxes included.

Here is where the difference is not well understood.  While the shopper paid more at Centerra the
amount of sales tax reverting to the City of Loveland is considerably less than the city makes on the
identical sale anywhere else inside the city limits.  In this scenario, of the $563 paid at Centerra, the
amount going back to the City of Loveland is only $9.34 while the same purchase at the Factory Outlets
would return $15.66 to the City of Loveland.  

Is It Really A Good Deal For Loveland?

Because there is a cost to Loveland in maintaining the public order when people use the city for
shopping, the Centerra model may bring additional dollars and development but at a much higher cost to
the long-term viability of the municipality.  The Centerra model requires many more people shopping in
Loveland (thus greater long-term costs to the city and wear and tear on roads and use of services) to
generate the same revenue fewer shoppers generate in non-subsidized areas of town.   

Those who simply argue that increased city tax revenue is good while not considering all the costs are
poor students of municipal finance.  A private business comparison might be the Red Lobster restaurant
chain's all you can eat crab promotions.  The President and CEO was, at first, credited with boosting sales
through her promotion as it nearly doubled total sales and foot traffic at nearly all their restaurants.  
Later, she was fired when the board of directors discovered the increased gross sales and foot traffic
translated into less profits for share holders because the cost of sale exceeded the price customers were
paying.  As the number of 'all you can eat' crab diners exceeded those ordering other meals the company
began hemorrhaging.  As Loveland's ratio of shoppers paying the actual 3% sales tax diminishes and a
greater number from Centerra only pay 0 to 1.75% the stress to city finances increase.

Either Loveland collects entirely too much sales tax (3%) already in the rest of Loveland (which is
unlikely as it isn’t awash in cash) or the Centerra's reduced sales tax is not collecting an adequate amount
to offset the costs to the city.  Either way, the ratio is shifting as businesses like car dealerships and the
movie theater move from being regular diners to those feasting on the 'all you can eat' special at
Centerra.  Just as with the Red Lobster, some significant portion of diners need to be paying the full price
of their meal for the business to stay viable.

How Come My Receipt Doesn’t Say “McWhinney” Tax?

Legally, the extra taxes paid by shoppers in Centerra are not defined nor found in city code as “taxes” but
instead are “fees” collected by the City of Loveland along with other sales taxes and rebated to
McWhinney’s Centerra Metro Districts.  They are not called taxes to avoid the limits of TABOR.  It really is
a tax but by a different name.  The names given for the fees are
PIF and RSF fees as explained in a
Centerra brochure.  In some areas of Centerra both are collected while in other areas only one is charged.

The City of Loveland waives between 100% to 42% of the city sales tax rate (3%) for shoppers in
Centerra to offset the increased costs to the consumer.  This allows shoppers to pay the extra McWhinney
effective tax rate of 2.25% on purchases while keeping a limit on their total effective combined sales tax
rate at 7.823% in Centerra.  Shoppers in the rest of Loveland pay 6.7% effective combined sales tax so
the difference appears to be approximately 1%.  While Loveland collects less in Centerra the county and
state collect slightly more since those sales taxes rates remain the same (0.8% and 2.9% respectively) but
are calculated not just on the items you purchase but on the McWhinney tax which is an additional 2.25%.

The McWhinney “fee” is added to purchases and then shoppers pay their city sales tax (between 0% to
1.75%) state sales tax (2.9%) and county sales tax (0.8%) on not only the cost of their purchase but the
McWhinney fee as well.  For example, for every $1,000 dollars spent in Centerra on cloths the
McWhinney tax of 2.25% makes the total cost of $1,022.50.  The reduced Loveland sales tax along with
county and state sales taxes are charged not only on the $1,000 but on the full $1,022.50.  Shoppers are
therefore paying sales tax twice – once on their original purchase (McWhinney tax) which is calculated at
the register and again on the newly adjusted total because the McWhinney fee is considered a “service”
fee which is taxable by the state and county sales tax in addition to the merchandise.

Sound confusing?  It certainly has been for the Centerra merchants who struggled to find cash registers
capable of adding the McWhinney taxes at 1% than 1.25% and then calculating a sales tax on the new
total.  Despite being legally required to separate the “fees” from the “sales taxes” for the customers to see
what they are being charged many stores just couldn’t do it.  Below is a sign provided to Centerra
merchants as an explanation to customers.  It has been posted by Jo-Ann Fabrics and many other stores
in the Centerra shopping areas;

"Fees Imposed
Customers are advised that this store is located in an area which is subject to a Public
Improvement Fee (PIF) and a Retail Sales Fee (RSF). The PIF of 1.25% and the RSF of 1.0% will be added to all
taxable transactions. The City of Loveland has agreed to reduce the City sales tax rate within these areas, from
3.0% to 1.75%. The PIF & RSF are fees collected by the City on behalf of the Public Improvement Collection
Corp., and Retail Sales Fee Corp., Colorado non-profit corporations. The fees are used to finance a portion of
the cost of the public improvements in the Centerra area.

All retail operations must remit these fees to the City of Loveland.  Currently, (INSERT STORE NAME)
registers cannot break out the PIF fee and the RSF fee separately; therefore, (INSERT STORE NAME) is
showing a tax rate of 7.823%. We are sorry for the confusion this may cause our customers, but until our
management can add the ability to display the fees separately, we must continue to include the fees as part of
the tax line item.  Please be assured that you are only being charged a combined sales tax rate of 5.45%."

What Does McWhinney Define As A Public Improvement

The reason many in Loveland don’t understand the full extent of the public subsidies McWhinney has
received is the result of misinformation like that contained in the note above.  By telling consumers the
money will go to pay “public improvements” sounds like simply drainage, traffic lights and expenses
normally reserved for public entities.

What the note fails to disclose is the high cost of financing “improvements” like the monument signs seen
all over Centerra and also what monies are funneled into improving landscaping and other attributes of
the commercial property that increase its value.  By paying for signage, landscaping and design work
using public debt McWhinney increases the value of their property holdings to better compete against
owners who must pay for these improvements out of their own pocket.

Attached is a draft
"triple-net" commercial lease negotiated with McWhinney by the Internet marketing
company Constant Contact.  The private company covers all the costs to maintain the building including
paying the property taxes (which is also rebated to McWhinney's Metro District) as part of a TIF (Tax
Increment Financing) for the Urban Renewal plan.  

In the end McWhinney gets close to $1 million per year from the tenant.   McWhinney can now sell that
property at multiples above the price they paid for it as farm land because it is not only developed but
has secure cash-flow for the next ten years.  The City of Loveland now has a 25 year $112,000,000
municipal bond debt against the Centerra Metro District that the McWhinney taxes discussed above must
be collected to pay with interest for the next 25 years.  McWhinney is now preparing to take out even
more public debt to begin new projects.  This was the impetus behind their recent attempts to redefine
"regional transportation improvements" in the MFA so they could get quicker access to more public

In the end, McWhinney gets to cash-out whatever benefit those improvements created for their privately
owned developments.  Loveland is stuck paying for the cost of services and collecting the McWhinney tax
to pay down the 25 year debt encumbering the Centerra Metro District.

The scheme is a way of privatizing profits today while socializing costs for others to pay later.
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Men's Shirt
Dress Tie
PIF (1.25%)
  $ 0
RSF (1.0%)
  $ 0
Sales Tax
Sales Tax (6.7%)
Table comparing Centerra Vs. Loveland
How sales taxes you pay differ
Unravelling the Mystery Behind McWhinney's Centerra Tax
Also, a private company competing with McWhinney just Wants Parity in Advertising