Home Depot Pays Off Bonds Linked to Cancelled Store
Home Depot is spending $2.4 million on a Wichita, Kansas store that won’t ever open. The struggling home-improvement retailer announced last month that it is closing 15 stores and canceling plans to open 50 new ones – including the Wichita location.
However, the city of Wichita had already issued $2.4 million in tax increment financing (TIF) bonds to clean up the brownfield location in a blighted area. Future increases in property tax revenues would have been used to finance the TIF bonds.
Home Depot has agreed to pay off the bonds even though its not required to do so, according to The Wichita Eagle. That’s great news for the city. Although the money came in the form of non-recourse bonds (meaning investors who purchased the bonds would have no recourse to get their money back if the building was not built and there were no increased taxes to collect), defaulting on the bonds would probably hurt Wichita’s bond rating and its ability to sell similar bonds in the future.
The housing market downturn has hit Home Depot hard as both consumers and homebuilders are reluctant to embark on new projects. The firm’s 2008 first quarter consolidated net earnings were $356 million – a drop of 60 percent from the same period last year.
All retail development is increasingly risky. The International Council of Shopping Centers predicts 5,770 store closings in 2008, an increase of 25 percent from 2007. Municipal governments usually cannot rely on the goodwill of giant retailers when deals go south. If state and local governments are going to subsidize retail (something Good Jobs First recommends only when a project is located in a neighborhood that is demonstrably underserved with basic retail such as groceries, pharmacies and clothing stores), every deal should have clawbacks so that communities are not left holding the bag.