ELLSWORTH — Supporters of a bill that attempts to prevent big-box retailers from using “dark store” theory when appealing their tax assessments gathered in Augusta for a hearing before the Legislature’s Committee on Taxation on Feb. 19.
But while several assessors, including Ellsworth’s Larry Gardner, and state Rep. Nicole Grohoski (D-Ellsworth) argued in favor of the bill, others worried that it could run afoul of the state constitution.
“I live in a community where multiple big-box stores have left, and we have filled those buildings and they are important resources for our community,” Grohoski told the committee, pointing to the new Jackson Laboratory facility in the former Lowe’s building and the Marden’s in the former Walmart space.
“The idea that the store is vacated and then it’s just worthless — I don’t see that being true, right in our own experience in Ellsworth,” Grohoski said.
Retailers have been appealing their property valuations around the country in recent years, pointing to the sale prices of similar buildings. Vacant stores often sell for far less than they were once valued.
Lowe’s in Ellsworth, said Gardner, was assessed at $16 million when it was in operation. But that value was lowered to $3.5 million after it closed, and it eventually sold for $3.2 million to the Jackson Laboratory.
That’s not necessarily because the property, which sits on a busy corridor on the way to Acadia National Park, was suddenly less valuable. It’s in part because, before the building was sold, the company added restrictions to the deed that effectively prohibited the space from being used for retail in the future.
“Once they put a deed restriction in that said it can’t be all of these things,” said Grohoski, “then that is what lowered the value, because that precludes a ton of competition of people who maybe would’ve wanted to use that facility.”
Lowe’s, like other big-box retailers, “sort of wrote their own story by creating that deed restriction,” Grohoski said.
But Rep. Bruce Bickford (R-Auburn) was skeptical of that argument.
“So, you think a business would purposefully lose millions of dollars,” Bickford asked Grohoski, “to save $60,000 or $70,000 in property tax value? That doesn’t pass the straight face test, I’m sorry.”
Grohoski replied that while she isn’t a tax expert, “It’s probably a long-term vision. So, in the case of Lowe’s, it doesn’t make sense for them in that one place. But if they set this policy up everywhere in America that they have a location and they get that tax break, it’s going to be worth more than the $12 million they lost in Ellsworth,” by selling the property for $3.2 million rather than $16 million.
Gardner agreed. “If you put a deed restriction saying no big-box uses are allowed to purchase this property that takes away the highest and best use of the property to something much less, which of course would mean a lower value.”
Gardner said he reduced the value of the Lowe’s property to $3.5 million in part because the company had added restrictions to the deed before the property was sold.
“I had to reduce the value,” Gardner explained, because the company added a “deed restriction saying this can no longer be a big-box, even though it’s built and designed for a big-box use.”
Bickford wasn’t convinced.
“I’m not going to go single out one specific industry,” he said, adding that whatever a property sells for, “That’s the value of that property, whether they make a million dollars a year in profit or they lose $20,000 a year in profit, it’s just value. For me, that’s a fight that you guys have to deal with, and I don’t think it belongs here in the tax committee.”
The committee can’t do anything about deed restrictions, said Bickford. “What do comparable businesses of that size sell for? If they put a deed restriction on after they sell, we can’t fix that, but we do have comparables.”
Gardner wondered aloud where the dark store theory would apply, if it is valid.
“If big-boxes were to win appeals based on dark store sales, when does that begin? From day one? They build their properties and they’re up and running, alright, the first year assessed, assess it as a dark store? We can’t do that.”
But a woman from the Maine Real Estate and Development Association who did not give her name argued that the bill “could run afoul of the constitution,” and that the issue is better dealt with via changes to land use policy.
“I think it’s sort of a tax policy approach to solving what is ultimately a land use policy issue and I think for us that’s a slippery slope that we don’t want to go down.”
The strategy of Walmart in particular, which frequently builds and abandons stores within several years looking for a larger space, may not be palatable to local communities, she said, “But that’s why they’re enacting those deed restrictions, because they know they’re going to stay in the town. They’re just going to move. We might not like that and maybe that’s not good public policy but there are other ways to approach ‘they’re building crappy buildings, leaving them or tearing them down and building new ones’ than through attacking the constitutionality of tax policy.”
Others also have argued for a fix that includes local solutions. The problem has been created in part, they say, by local planning and zoning decisions.
In many cases, municipal decision-makers not only spend lots of money luring stores in with subsidies and infrastructure projects, wrote Sarah Schindler, associate dean for research at the University of Maine School of Law, in a 2012 paper, they also “made deliberate determinations allowing big-box development,” through zoning ordinances and permitting.
“Those same local governments now have both an economic incentive and a civic responsibility of find alternative uses for these ‘ghostboxes.’”
Solutions to the “ghostbox” problem, wrote Schindler, could include ordinances regulating vacant or abandoned property, or changing zoning to allow for use by another retailer, school or community center. Communities can start by looking at zoning and building codes to figure out “which provisions allowed the big-box to be constructed and then to become vacant or abandoned,” Schindler wrote.
“Local governments are well suited to combat the problem of ghostboxes,” she wrote.