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Cheeseburgers, Tax Dollars and the Value of an Anchor Store

Will the new Oberweis store "anchor" increased business activity in the West Dempster Corridor? Let us know how you feel about the project.

As West Dempster Street emerges from its economic hibernation the issue of Tax Increment Financing (TIFs) and the impending opening of the new Oberweis store raises numerous questions.  Lets quickly review the facts so we can accurately address the issue.

1.  The Village of Skokie purchased the two parcels of land of land for $1.7 million.  In addition to the purchase price, the village incurred environmental cleanup costs as a gas station once occupied the property.

2.  Oberweis paid $400,000 initially and has agreed to pay 5 percent of on-site sales that exceed $1 million per year.  According to CEO Joe Oberweis, this untested prototype could generate $1.75 to $2-million annualy.  This 4,000 square foot store will pay property tax and generate sales tax as well.  Based on these expected Oberweis sales projections, the village will receive $50,000 per year from on-site sales (based on $2 million/per year in sales).

An "anchor store" is a store that increases the traffic of shoppers at or near its location.  Consumers, attracted by the anchor's name, are likely to visit the location, and thus nearby stores' sales and profits are increased by the presence of the anchor.  (Defined by spatial economists Hideo Konishiy  and Michael T. Sandfortz "Anchor Stores" published Oct. 25, 2002.)

Empirical evidence shows that anchor stores receive preferential treatment in regard to discounted rent or as in the case of Oberweis a deeply discounted purchase price.  

How will Oberweis change the West Dempster Business District, and more importantly how will this benefit Skokie taxpayers?

From Village Hall it is clear that Oberweis will act as an anchor that will generate a positive externality for specialty retailers on West Dempster Street.  Therefore customers who frequent the new retail concept put forth by Oberweis are likely to spend money at other locally owned businesses in the surrounding area.  The long term outcome would be economic growth, an expanded tax base and job creation.

On the other side, many Skokie residents have expressed concern about giving preferential treatment to Oberweis.  Skeptics have argued that giving subsidies to attract private ventures with public tax dollars is both unjust and puts many hardworking business owners at an economic dis-advantage.

I think we can all agree that as concerned Skokie residents we all want a strong and prosperous business climate.  

But where do you weigh on this argument? And will the assumption of the "anchor store" positively affect the West Dempster Corridor? 

Until we meet again, introduce yourself to a fellow resident that you don't know and make Skokie a welcoming community.

Benjamin Goldman
The Economic Dilletante
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This post is contributed by a community member. The views expressed in this blog are those of the author and do not necessarily reflect those of Patch Media Corporation. Everyone is welcome to submit a post to Patch. If you'd like to post a blog, go here to get started.

Caroline Andrew April 11, 2012 at 01:01 PM
An anchor to what? A gas station, a tire store, a bank, and McDonald's? Oh, and don't forget the pawn shop just to the west. Most anchor stores are located within strip malls, malls, or other shopping areas with large parking lots. This is not an anchor store. People will pick up their food and continue on home from work. Then there's the lot itself, which does not appear large enough for a restaurant with sufficient parking. And there isn't any off-street parking nearby. Why didn't the village push the old Barnum Bagel building on them instead of wasting $1.7 million + clean-up costs on land they sold for only $400,000? That was a huge gamble that the village has made. Based on $50,000 going to the village a year on projected $2 million sales, the village won't turn a profit for well over 10 years. Even high-end, popular, profitable restaurants don't last 10 years, let alone a prototype restaurant for a dairy/ice cream vendor.
h m April 11, 2012 at 01:56 PM
Village of Skokie Pays $1.7 Million for 2 parcels - Get an initial payment of $400,000 for it. That leaves $1.3 Million that the taxpayers paid for the parcels. Village will receive $50,000 per year from Oberweis. That means it would take about 26 years just to break even. I think it is a bad investment on the Villages part. I would rather see them do something like this for keeping Kaufmans Bakery & Deli in Skokie
Bob Warren April 11, 2012 at 10:08 PM
It's Wednesday, Have a Fantastic Day!
Scott Allen April 11, 2012 at 10:13 PM
This is a difficult question, very similar to one we recently faced here in Austin in regards to tax subsidies for Simon (big mall developer) at The Domain (new mixed-use complex in North Austin). I'm OK in principle with tax dollars going to private industry, if it truly benefits the community and will generate a return on the investment. While I'm generally a free-market libertarian, I also recognize that communities and cities and states and nations are very complex systems, and that sometimes leverage applied to the right point in the system can actually improve its efficiency or output. The question is... do I really trust our government to know where those best leverage points are? I'm not sure that I do.
Skokie Mike April 11, 2012 at 11:37 PM
I think Skokie made the right move. If they wanted to get an anchor out here, they had to give them an incentive to do so. Hopefully this will help set up shot for the other stores to come. Great read!
Benjamin Goldman April 20, 2012 at 01:22 PM
Hi Caroline, Thanks for reading! I agree the math and metrics on this project are very much dependent on the foot traffic and other retailers moving to the area. Only time will tell if this investment pays off.
Benjamin Goldman April 20, 2012 at 01:24 PM
Hi HM, The two other revenue streams are property tax and sales tax but the village has taken considerable risk in this venture. Thanks for reading!
Benjamin Goldman April 20, 2012 at 01:25 PM
Hi Scott, I appreciate you example from Austin. This is a question constantly faced by local, state and the federal government. Most people making these decisions are not economists so I hope as you termed "the leverage points" have been correctly evaluated by the village.
Benjamin Goldman April 20, 2012 at 01:27 PM
Hi Mike, thanks for reading. I know we all want a positive outcome. It is documented that businesses depend on foot traffic generated by other partners. I hope Oberweis will be a destination store that brings people to shop on West Dempster Street.

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