Downey Agrees on $4-Million Tax Rebate to Expand Key Mall

The City Council has agreed to rebate an estimated $4.2 million in sales tax revenue to the owners of the Stonewood shopping center over the next 12 years as an incentive to enclose and expand the mall.

The agreement approved unanimously Tuesday night also committed the city to pay for $448,000 in public improvements, including a new traffic signal at a mall entrance at Lakewood Boulevard and 3rd Street.

The Stonewood project is viewed as key to the city’s efforts to modernize the Firestone Boulevard commercial corridor and increase its tax base. The agreement calls for the expansion and enclosure to be completed by December, 1991, at the latest. But a spokesman for the Newport Beach-based Hughes Investments, which owns the shopping center, said the improvements may be completed as early as November, 1990.

Mayor Randall R. Barb said the sales tax rebate and commitment to pay for the public improvements are warranted to move the project forward.

“I’m excited about the project and anxious to get it going,” Barb said.

Under the agreement, the city will rebate 50% of additional sales tax revenue generated by the expansion.

Stonewood now brings in about $1 million a year in sales taxes for the city, an amount that is expected to increase by $500,000 to $1 million after the expansion, Finance Director Lee Powell said.

The city expects to rebate about $4.2 million in sales tax revenue to Hughes Investments over the 12-year life of agreement.

That money usually would flow into city coffers to pay for general services such as police and fire protection and employee salaries.

Hughes Investments spokesman John C. Pentz said his firm would not expand the mall without the rebate because the rate of return on its investment would be too low. Pentz declined to detail what rate of return his firm will now enjoy.

Before the council vote, Downey resident Lennie Whittington spoke against the rebate because it is “not right to give up tax dollars to a private developer.”

But Councilman Robert G. Cormack said he voted for the agreement because without the incentives the mall would not be improved or generate additional sales tax revenue.

“At least we have something new to share,” he said.

Councilwoman Diane P. Boggs was the only council member who did not fully support the agreement. Boggs said she objected to the rebate for philosophical reasons and not because it would cost the city a portion of future revenues.

“I think you end up with the government getting a little too involved with the private sector,” Boggs said. “I don’t approve of that concept.”

Sales tax rebates are incentives commonly provided to developers of projects within redevelopment zones, where additional revenue is generated through property taxes.

But Stonewood is not in a redevelopment area. And Downey Community Development Director Ken Farfsing said he did not know of another case in which sales tax revenue was rebated to the owner of a Downey development outside a redevelopment zone.

“The city is taking more of a look at economic development in general and using whatever resources we have to provide for economic vitality,” he said.

Cites Importance

Farfsing said the deal did not set an example that would compel the city to grant other developers similar rebates. He said the importance of Stonewood to the Firestone Corridor warranted the rebate.

“I think you have to look at it on a case-by-case basis,” Farfsing said. “As goes Stonewood so goes the rest of the boulevard. I think there are some unique circumstances here.”

The expansion of Stonewood apparently is a timely move. Recent market studies indicate shoppers in the area will be able to sustain one to two additional major department stores, a development opportunity that will not last long.

Norwalk officials, for example, would like to expand one of the city’s shopping centers into a regional mall.

Stonewood, which was built in the 1950s, will be modernized with arched entries and a roof with glass skylights and domes.

The addition of a fourth major department store, a two-story May Co., is the cornerstone of the expansion. The shopping center now has three major department stores--JC Penney, Mervyn’s and the Broadway. The expansion also will provide for about 40 additional retail shops. There are 80 now, Farfsing said.

In all, Stonewood’s leasable floor space will increase from 858,000 square feet to 944,000 square feet.