Loveland's Independent News Source
Loveland, September 24, 2014

Loveland's City Council took an unusual turn Tuesday night while pondering a subsidy
for Evergreen Devco Inc. to develop a Sprouts Farmer's Market on the northeast
corner of Highway 287 (Lincoln) and Highway 34 (Eisenhower) in Loveland.

Mayor Cecil Gutierrez cautioned his self-described "conservative" colleagues about the
slippery slope of upfront subsidies to businesses and picking winners and losers
through crony capitalism.  The discussion was prompted during a "study session" of the
council where no formal action is taken but staff poll the council on projects they are
selling to council for future approval.

After a lengthy discussion regarding a regional law enforcement training campus for
Loveland, Economic Development staff and former city planner Mike Scholl introduced
executives from Sprouts Farmer's Market and the proposed developer Evergreen
Devco Inc.

The proposed development will encompass 7-8 parcels of land totaling approximately
2.3 acres (see image to the right) between Lincoln Ave. and Jefferson Street on the
block north of Highway 34.   The retail store will be 27,000 square ft. and rely on
Jefferson Street (currently residential) for both retail traffic and large truck deliveries.  
According to the developer, the property acquisition cost for a market of this size
should be only $1 million but on this corner he is paying over $3 million.  He explained
the higher property values are the result of owners pricing their property improvements
as assets while he believes they are really liabilities.  

City Calling the Subsidy a "Loan"

Tyler Carlson, who leads acquisitions of commercial properties in Colorado for
Evergreen, explained the cash subsidy from the city will be repaid via future sales tax
collections therefore is really just a loan.  In response to questions about risk for the
city Carlson responded,

“We are going to guarantee the beJesus out of this thing.”

Carlson told Loveland's Council that Evergreen has never been involved in a lawsuit or
failed to pay back any loan; which he pointed to as a relevant fact for their
conversation. Tyler lectured the council that without the city "
loan" the deal cannot
close given the project's complexity which he also described as
“this is the riskiest
development we have ever done.”

Carlson told the council, "If you don’t do this deal you will get basically nothing
from these eight lots over the next fifteen years.  $9 million dollars compared to
nothing is a no brainier."  
According to Larimer County records the three commercial
lots facing Lincoln today generate over $25,000 annually in property taxes.  In addition,
Carlson's argument contradicted Councilman Fogle's later plea to his colleagues that if
the council fails to subsidize a market than a less "
classy" development like 7-Eleven or
Phillips 66 will develop the property soon given the lack of a gas station in the vicinity.  

According to projections presented to council, the proposed retail market will generate
enough sales to generate $500,000 to the city in sales taxes annually which is how
Carlson was calculating the $9 million.  Of course, a vacant property doesn't really cost
the city any money to police, protect from fire or provide other local services.  To be
clear, nothing in the information provided to the council and public proposed the
developer repaying the 'loan.'  Instead, the city will credit the developer as having paid
the 'loan' once the city's normal sales taxes are collected and credited towards the debt.

Tyler said the 'loan' his company is seeking from the city is at 3% interest amortized
over 10 years with a minimum guarantee if the market closes early or fails to meet
revenue projections.  Evergreen will guaranty a minimum payment of $250,000 annually
according to staff who have yet to negotiate the actual agreement to present to council
for review.  Carlson stated
“we will pay off remaining loan if the store closes”   
Mayor Gutierrez stated the worse case scenario is the city resells the properties despite
earlier comments by Carlson indicating he is paying three times the actual value for the
properties he valued at only $1 million.

When asked about the city's junior position on the loan (meaning any other lender gets
paid first in case of failure) Carlson responded,
“We will treat you exactly like a
construction lender”
 explaining the city will be cutting checks directly to Evergreen's
general contractor and is accepting the same risk as a commercial lender.  Carlson
explained there are tax advantages to that approach stating for the third time in as
many minutes,
“I don’t see the downside.

Carlson also argued, "
Your regional neighbors are eating your lunch on taxes for
specialty grocery stores."

In fact, most Colorado cities do not collect sales taxes for food sold in super markets.  
Loveland charges the full city's portion of the sales tax of 3% on sales of food for home
consumption purchased within city limits (except Centerra).  Food purchases outside
Loveland in unincorporated Larimer County pay no sales taxes on food for home
consumption regardless of where the consumer lives.

Local economists have long blamed Loveland's high food sales taxes as the reason
many shoppers leave the city to buy more expensive food items and also the reason
the city has a difficult time attracting super markets.  In the proposed deal with Sprouts
Farmer's Market (and as part of the overall subsidy), the store collects but doesn't pay
any sales tax for the first year.  This scheme allows the retailer to hide their higher price
in sales taxes their competitors are not allowed to keep.  

Grocery stores, according to industry experts, operate on an average profit between 1-
3%.  Therefore, selling large quantities of product is the only way supermarkets make-
up for the very thin profit margin.  Comparison shoppers will also switch stores over
only a 1-2% difference in price.  So far, it appears the staff analysis and discussion of
city sales tax revenue assumes 100% of the sales forecast for Sprouts will only come
from outside Loveland thus not impacting local sales at nearby markets like Safeway or
the The Crunchy Grocer.

In addition, by diverting future sales tax collections by Sprouts from consumers towards
repayment of the developer's "loan" for the project, the city perpetuates a pricing
advantage for Sprouts where they hide their capital costs into what consumers believe
is simply a city sales tax.  Non-subsidized competitors must price their cost of business
capital into the actual prices they are charging for the food.  For example, the Crunchy
Grocer just east of the proposed location will need to price food items higher than
Sprouts even if they pay the same wholesale prices since the city is not reimbursing
The Crunchy Grocer the 3% sales tax they must collect.

Traffic Concerns Discussed At Length

According to the developer and city staff, Colorado Department of Transportation would
not grant permission for a curb cut along Highway 34 (Eisenhower) due to the proximity
of an already overly crowded intersection.  Residents adjacent to the development and
across the street have been registering complaints to the city about the project for
weeks.  Some councilors alluded to their objections and Mayor Pro Tem Clark stated,

"You live half a block from the busiest intersection in Loveland so you cannot
expect a rural environment forever”
while Councilman Fogle argued he can develop
a gas station and convenience store on that corner, given the current zoning, so they
should be celebrating it is only going to be a super market.

Mike Scholl said he will need a resolution by council in a future meeting on both access
issues and the 'loan' before moving forward.  Scholl told the council
“It is a challenge
because the traffic there is bad.”
 He described the intersection as already
dysfunctional so the best the council can require, according to Scholl, is the
development not make the intersection even worse than it already is.


The votes to fund building the super market with city money appear to be already
gathered.  Councilman Phil Farley indicated he will vote in favor of the project subsidy
because his wife wants a Sprouts Market in Loveland while Councilman John Fogle
didn't ask any questions but instead consumed his time advocating for the project and
countering any concerns of his colleagues.  

Councilors Joan Shaffer, Troy Krenning, John Fogle and Mayor Gutierrez met the
developer in private meetings about a month ago in what were described as "howdy-do"
meetings to get to know the developer and discuss the project.  These meetings were
organized by staff so only two councilors met the developer at once to avoid obvious
violations of Colorado open meeting laws which require elected officials to conduct city
business in public.  In addition, the developer had a number of phone conversations
with members of the council.  

Mayor Cecil Gutierrez and Councilman Hugh McKean were the only two who asked
substantive question or sought additional explanations from the presenters.  As is often
the case, most of the council has already met privately with representatives of both
Evergreen and Sprouts Farmer's Market resulting in the applicant calling councilors by
their first names during the meeting as if they were already old friends.

McKean asked Carlson how much their investors in the project expected to profit since
that information is not available to the city.  Carlson said they already "
crunched" them
down below 20% into the "

Even Councilman McKean, who earlier in the same meeting voiced concerns that "
we are in the business of lending money to get a specialty grocer in town
" and “It
takes me way outside of my comfort zone of how we spend public money
” seemed
to accept the premise the subsidy is a "loan" even though it will be repaid by diverting
sales taxes collected from consumers for city services and not by the investor,
developer or retailer.
Council Ponders $2.2 Million Subsidy for
Developer of Sprout's Farmer Market
“We are going to guarantee the Jesus out
of this thing”

Evergreen's representative Tyler Carlson
requested a $2.2 million subsidy to develop
Sprouts in Loveland.  
In this video, he explains
they are overpaying for the property thus
require city funds to make up the difference.