Monday, December 1, 2003

Invoices detail how Saks spent tax funds

By Gregory Korte
The Cincinnati Enquirer

DOWNTOWN - Saks Fifth Avenue spent at least $99,448 in Cincinnati taxpayer money on mannequins - including $1,856 to a British company specializing in mannequin hands - according to the department store's invoices to the city.

The invoices show Saks also spent $176,036 on Manhattan interior designers and reimbursed top Saks executives $27,609 in travel, hotel and meal expenses - and even cell phone bills - during their visits to Cincinnati.

Those expenses are part of the $4.9 million Cincinnati has paid the store so far. Another invoice for $640,716 is pending.

In all, City Council has approved up to $6.6 million for the renovation project, which culminated in the store's grand reopening last month.

The funding comes from tax-increment financing, a special property tax fund. When property values downtown go up, the property owners pay their increased taxes into a special fund intended to pay for public improvements.

But the Saks subsidy approved by City Council in 2002 stretches the definition of public improvements.

The 2002 agreement defined lighting, racks, carpeting, furniture and signs as public improvements because they were "in the vital and best interests of the City and the health, safety, and welfare of its residents."

In other words, the $6.6 million was seen as a good investment.

"I'm sure when you look at the cost of countertops, they're very expensive," said Mayor Charlie Luken. "I would submit that the mayors of Columbus and Cleveland would take what we spent and double or triple it - if it meant keeping a department store downtown."

Saks vice president for store planning Ken Poston, who billed the city for $6,816 in travel expenses to New York and Cincinnati from his office in Jackson, Miss., referred questions about the city invoices to the company's construction division. Managers there did not return phone calls.

But city officials said the expenses all passed muster.

"Under the agreement itself, they can use the money for improvements to the store. Fixtures is definitely one of the items it can be used for," said development office Ron Regula.

Whether those are an appropriate use of taxpayer money, Regula said, is a policy question for City Council. The council approved the contract by a 5-4 vote in February 2002.

At the time, state development officials said it was an unprecedented - although completely legal - use of tax-increment financing.

For one thing, tax-increment financing funds are supposed to be used for permanent improvements that increase the value of the property, thus allowing the investment to pay for itself through increased tax values. Mannequins are easily removed and put in another store.

But the head of a special city committee that studied tax incentives as part of the mayor's Economic Development Task Force defended the subsidy.

Downtown investment banker Jim Ritter said a capital expense is anything that lasts more than one or two years.

So what's the useful life of a mannequin?

"I don't know yet. I've been doing it for 40 years," he joked.



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