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LIVE LOCAL, LIVE SMALL: Discussing the ramifications and questions of a downtown Municipal Service District

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The MSD debate of downtown business owners and stakeholders.

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Downtown Wilmington is never a boring place. In the last couple of months, two topics have reoccurred in conversations among “stakeholders”: the proposed Municipal Service District (MSD) and Residents of Old Wilmington (ROW) requesting changes to the short-term rental business in the residential historic district.

MSDgraphicStakeholders are the people with a benefit or loss to any potential changes in an area’s infrastructure or way of doing business. Stakeholders include property owners, business owners, residents, and employees of an area. I will cover the short-term rental (or Vacation Rental By Owner (VRBO)/Air BnB) issue next week in encore, but as many of the same issues play in both the VRBO discussions, we will explore the latest with the MSD this week.

“Suspicion,” Ed Wolverton, CEO of Wilmington Downtown, Inc., responded when councilman Dr. Sheridan asked him what sort of response he had received to the proposed MSD at the City Council meeting on Tuesday, Feb. 2. That’s probably the most honest answer Wolverton could have given. He cited some very topical concerns—which I will address—but, first, here’s a little back ground on the topic.

Downtown Wilmington, Inc. (WDI) grew out of the Downtown Area Revitalization Effort and is supposed to provide economic development to the downtown area. They accomplish this through low-interest loans to businesses for improvements and capital funding, advocacy for business, attracting business to the area, and fundraising through the concert and lecture series. Wolverton’s predecessor, John Hinnant, had what could be best described as an embattled tenure as CEO of WDI. WDI received public funding for their efforts; Hinnant had to answer some questions to the City Council about how funds were spent using the company credit card. Response to Hinnant among the downtown business owners was divided: His supporters were strong, but equally strong were his opponents. Among some complaints were a lack of interest in business owners’ concerns and little-to-no follow-through on objectives laid out to assist business owners in the district.

So when WDI announced intention to start an MSD, which WDI would control and direct, to take effect when public funding wanes—leaving them to raise money privately—there was a substantial public outcry by those who would be taxed. The entire affair was presented at the 11th hour as a fait accompli. Due in large part to the push back, Wilmington City Council did not vote to approve the measure at the time.

Hinnant has gone on to sell commercial real estate and Wolverton was hired as his replacement. Wolverton previously worked in a similar position in Greensboro and was part of their MSD and redevelopment of their Center City Park. For the last 16 months, a task force has worked with Wolverton to develop recommendations regarding the implementation of an MSD in the downtown Wilmington’s historic district. Several members of the task force were part of a previous effort to fight the MSD under Hinnant’s direction. When queried about their change of direction, the overriding theme of response has been the discussion about how an MSD is inclusive and gives people a chance to be part of the process, rather than on the receiving end of back room intrigue.

During our chats WDI board member and downtown business owner Clark Hipp frequently asks me to think about the following: “Where is downtown going to be in 20 years?” He has a point; it is a discussion we need to have, and creating a shared vision through discussion is important. Any business owner will agree it’s tough to get your head above the daily water line to think long-term: everything is pressing—everyday. But not everyone has done the 180-degree turn as easily as others. The following two signs have appeared in windows, newspaper boxes and on sign posts in the last year:

“Abolish the corrupt WDI (Wilmington Downtown, Inc.). Say NO to their MSD (Municipal Service District) scheme!”  and “Say NO to the outdated 43 year old, MSD swindle! In an age of iPhones, GPS, Google rating and search engines, and instant maps at your fingertips, what the hell do we need ambassadors for? Say NO to higher taxes and increased rent downtown! Abolish the corrupt Downtown Wilmington, Inc. and get their fingers out of our pockets!”

So Wolverton’s comment of “suspicion” seems to be a reasonable assessment of the situation. This is what’s currently proposed: For every $100,000 in assessed property value, business owners would pay $70. An advisory board composed of 13 members would direct the MSD and its programs. Most likely, a third party would be contracted to carry out the directions of the board. WDI is a logical choice, but it would be put out to bid.

Proposed spending breaks down like this: The task force expects to collect $276,000 in the first year. Of that, $41,400 would go to accounting and administration, $25,000 to economic development, $16,560 to marketing, $13,800 to physical appearance, $69,000 to a cleaner environment downtown, $110,300 to increased safety and security measures.  (Just as an observation: If WDI did receive the contract to administer the MSD that would put at least $82,960 of the budget toward what their mission is anyway—so fundraising objective achieved.)

Let me explain a little about how commercial leases work for those who haven’t entered into one before. A triple-net lease is not uncommon; the business leasing the space pays rent, property taxes and property insurance on the space. Yes, that is an amazing deal for the landlord because basically they get the mortgage covered and the expenses, plus usually a bit of profit on the side. Not bad. A built-in annual increase is also not uncommon in commercial real estate. The first commercial lease I paid had an annual increase but wasn’t triple-net in the sense the bills for the taxes and insurance didn’t come to me.

“You’re paying it (the taxes and insurance), you just don’t know it,” Tom Harris, owner of Front Street Brewery, assured me one day. He’s right: Those expenses get passed down to the tenant. One of the real fears some business owners have is they are going to be bearing the brunt of this, not their landlords.

Hunter Ford, owner of Momentum Surf and Skate, and owner of the property, isn’t worried about the MSD tax passing because of a lease tenant situation. He is concerned this is essentially a gateway drug: Once there is this pool of money to pull from, when will the powers that be say enough? One of his concerns is this starts at $70 on $100,000 of property assessment, but it will only climb.

“It’s a sticky situation because what if they start it and then decide they don’t have enough money to do what they said they were going to do?” he postulates. “Do they up it a little bit more?”

The City Council must hold a public comment session within 30 days notice before voting on the proposed MSD. The plan, if approved, will go into effect in time for the July 1, 2016 budget. Councilman Kevin O’Grady asked several questions regarding this timeline at the City Council meeting. He pointed out this would have to happen relatively quickly.

The full report on the MSD is available on the City of Wilmington website and the WDI website.

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