WILMINGTON — A potentially lucrative deal could turn sour for the City of Wilmington in 2020.
The deal involves a land swap deal between Wilmington and Wrightsville Beach. In order to annex the former Galleria Mall property from Wrightsville Beach into Wilmington, the city agreed to make annual payments to the beach town; the payments help offset property tax revenue lost by the town and gained by Wilmington.
Due to the difference in tax rates between the two municipalities, this has actually been a good deal for both towns — but this year that could change.
The problem is that the 2014 deal between Wilmington and Wrightsville Beach was based on the assumption that developer State Street Companies, which owns the land, would build a high-end, mixed-use development.
Six years later, that hasn’t happened.
The deal
A lot went into setting the groundwork for the Galleria project — including relocating the Wrightsville Avenue ABC store and creating a new Wilmington zoning designation — but first Wilmington needed to annex the property into town; the former Galleria mall site was located on one of several satellite parcels of Wrightsville Beach property that are situated on the mainland.
So, in June 2014 Wilmington City Council approved an interlocal deal that would pay a total of $778,896 over 29 years. The payments appear to have been structured to account for the development and construction process, with four years of payments of $7,224 (made each July 15 from 2015 to 2018). In 2019, the annual payment increased to $30,000. The last payment will be made on July 15, 2043.
In theory, all parties stood to benefit from the deal: State Street would get the opportunity to build a project that wouldn’t be allowed under Wrightsville Beach zoning ordinances, Wilmington would eventually reap considerable property tax revenue, and Wrightsville Beach would be compensated for the loss of potential land value.
For several years, both municipalities actually did benefit financially.
That’s possible because Wrightsville Beach’s tax rate — which is supplemented considerably by parking revenue — is much lower than Wilmington’s, so the property generates considerably more revenue as a city property than it did as part of the town.
For example, in 2015 the Galleria properties were assessed at a total of about $3.6 million. At Wrightsville Beach’s tax rate of 12.75 cents per $100 of value, that means the town would have earned $4,786.67. At Wilmington’s higher rate of 49.84 cents, the city earned $17,455.15 — more than three times more.
While Wilmington had to make payments, it still came out ahead; likewise, while Wrightville Beach missed out on tax revenue, it took in more from the city than it lost.
This means that in 2015 Wrightsville Beach came out ahead by $2,437.33 and Wilmington came out ahead by $10,231.15.
For the following three years — 2016, 2017, and 2018 — both Wrightville Beach and Wilmington gained more than they lost.
Payments increased, tax revenue didn’t
Last summer, Wilmington’s payments increased to $30,000 annually per its interlocal agreement with Wrightsville Beach. But, because construction has yet to begin on the Galleria project, it’s tax value to Wilmington hasn’t changed much (it’s actually been appraised at about 15% less in 2019 compared to 2015).
For Wrightsville Beach, this didn’t hurt — in fact, it was beneficial. In 2019, the town was still losing out on about $4,000 in tax revenue but — factoring in payments from Wilmington — was coming out $26,000 ahead.
For Wilmington, this meant the city was netting a loss for the year; the city took in $15,730 in tax value but paid nearly twice that to Wrightsville Beach, losing $14,270.
Over the lifetime of the deal, the city is still net positive — but after making the July 15, 2020 payment the city will have officially spent more than it has recouped from the deal.
What would put the city back in the black?
According to State Street President Jeff Kentner, the full development of the Galleria site would be worth over $200 million, with annual tax receipts for Wilmington at around $800,000. Even if that amount were inflated four-fold, the $200,000 in tax revenue in one year would allow the city to more than recoup a decade of running net negative in its deal with Wrightsville Beach.
That does, however, assume two things: first, that State Street builds its long-planned Galleria project and, second, that the final development is what both State Street and the city have had in mind for the last five to six years. If State Street builds nothing, the city would be out hundreds of thousands of dollars; if the developer builds a smaller or less valuable project, the city could still recoup its payments to Wrightsville Beach, but it would take longer.
After years of little to no movement, this summer State Street submitted preliminary plans to the city’s Technical Review Committee.
State Street also plans to submit a request for a special-use permit (SUP) to build a luxury hotel that would be higher than the current zoning allows; according to city emails, the developer is currently in talks with neighboring HOAs about the possibility of relocating the hotel to the eastern end of the property to address neighbors’ concerns. The application is expected to appear on a City Council agenda in February.
Despite recent development, the city and State Street don’t seem to be in agreement over one apparently crucial issue: improvements to Wrightsville Avenue. According to a study contracted by the city, overhauling Wrightsville Avenue from Eastwood to Military Cutoff along the frontage of the Galleria property would cost at least $16 million.
City officials confirmed there are no current plans to build or fund those improvements; State Street has maintained that the city’s own development policies, as well as safety concerns, should compel Wilmington to undertake the roadwork. Kentner has reiterated that he is not “telling the city what to do” but State Street has stressed in communication with the city that the development is waiting on a concrete answer from Wilmington concerning the future of Wrightsville Avenue.
Send comments and tips to Benjamin Schachtman at ben@localvoicemedia.com, @pcdben on Twitter, and (910) 538-2001.
