Tourism Zone: 2016 Cape Charles Economic Un-Stimulus Ordinance

Special to the Cape Charles Mirror by local business owner Loraine Huchler.

As a business owner in Cape Charles [since 2003] – I pulled out my calcular to understand the value of the “economic stimulus credits” offered by this new ordinance. Clearly the key driver for this ordinance is to bring more jobs to the town.
The requirements are pretty narrow:
· the applicant must be an existing business in the town PRIOR to the initiation of the ordinance
· the business must create and sustain a minimum of one (1) new full time or two (2) new part time jobs during the incentive period (5 years starting the date of approval, November 17, 2016)
· the business must make a capital investment of a minimum of $2,000 in building improvements and/or depreciable assets
· the business must hold a current business license, be current with all tax and utility obligations to the town and the county as well as in compliance with all town ordinances
So, that means that all of the existing businesses in Cape Charles who are in good standing could take advantage of this ordinance.

My first question for the town council is: “How many businesses could take advantage of this ordinance?”

Businesses like mine, who manage a few rental properties, use contractors rather than employees. And there may be other businesses that have the same practice, or are sole proprietorships. My second question is: “How many of those businesses currently have employees (besides the owner or managing partner)?”

Finally, “Why doesn’t this ordinance apply to new businesses established during the 5-year period?”

Let’s review the expenses that qualify for the credit:
· Capital improvements and/or purchase of depreciable assets ($2,000 – $1 million)
· Cape Charles fees: building permits, wastewater facility connection
· Cape Charles taxes: real estate, Business, Professional and Occupational License (BPOL) tax
Purchase of real estate is not a qualified expense.
If I’m a business renting a space in Cape Charles, I can accrue credits by investing in capital improvements, purchasing depreciable assets or increasing my revenues (which increases my BPOL tax). The other expenses (building permits, wastewater facility connection fees, real estate property taxes) accrue to my landlord, the building owner. “How many existing businesses in Cape Charles own the real estate that they occupy – allowing them to maximize the amount of credit and incentive to hire new employees under this ordinance?”

What about the calculation of the amount of economic stimulus credits?
The first three categories are objective metrics.
· 25% of capital improvements
· 50% of net increase in Cape Charles real estate and BPOL taxes
· Up to 50% of building permit and wastewater-facility-connection fees

The last category gives complete authority to an as-yet un-named “administrator” to determine the remainder of the credit based on the following subjective criteria.
· Preserves or enhances retail sales tax base
· Fills a vacant storefront
· Eliminates blight
· Prevents demolition by neglect
· Increases payroll by at least 44 hours per week

Finally, a close reading of the ordinance on the Cape Charles website (http://capecharles.org/docview.aspx?docid=22108 – mysteriously marked “draft,” even though it was approved on November 17, 2016) shows us the penalties. If the business relocates outside of Cape Charles within 3 years of the last date of receiving a credit, that business must REPAY to the town the value of ALL of the credits received. Or if the business owner fails to conform to all requirements at any time during each calendar year, the owner will forfeit the credits for that year and all future years. It seems rather harsh to “blackball” a business from participating in the future if they were disqualified for a single year during the 5-year incentive period.

So what’s the return on investment for a business owner who takes advantage of this ordinance? Pull out your calculator and we’ll look at an example.
Suppose that the business owner was willing to take a financial risk to hire additional employees and made the minimum capital investment of $2000 – to redecorate the retail space or purchase depreciable assets like computer. That business owner might receive a credit of 25% of the $2,000 capital investment – $500. If the applicant owned the property housing his or her business, the business would receive a credit of 50% of the INCREASE in the real estate tax – which is $3.26 per year (50% of $6.52 @ $0.3260 per $100 of assessed value) – if the capital improvement ever translated to an increase in assessed value.

More questions for the town council
“I wonder – how many businesses will actually take advantage of this ordinance in the first year?”
“Has the town defined the “criteria for success” for this ordinance?”
“Is the town council prepared to measure the impact of this ordinance and improve it if it fails to meet an as-yet-unpublished goal?”

If the town council really wants to create economic stimulus for the existing businesses in Cape Charles, I’d suggest that they ASK this captive audience of business owners about the barriers to sustainable growth. For example, in my experience, numerous contractors have declined to bid on projects at my buildings because the town regulations increase the cost and complexity of working in Cape Charles.

I’d also suggest that the town council consider the nature of the impact of regulation on business owners. The best thing that government can do is listen to business owners and work to make government less costly, more efficient and more responsive to the business community.

I support government that serves their constituency and is accountable for results. From my review of this ordinance – I’m not optimistic about its success.