Music Commission recommends fine-tuning city incentives for music venues, creative spaces

Members of the Music Commission want the city to explore more ways for a proposed incentive program for small businesses to address some of the specific real estate realities live music venues face throughout the city.

Last week’s meeting included a presentation about a new place-based incentives program the Economic Development Department hopes will make it easier to open and retain businesses that address community benefits, with creative space and music venues among the targeted uses – along with grocery stores and child care centers. The program, which is expected to go before City Council for approval on July 18, would provide rebates of property tax, sales tax receipts or sales tax related to construction costs for new developments or existing properties that include those types of businesses.

Donald Jackson, program manager for EDD, said the program would be a new way to use the city’s Chapter 380 state incentives, which have traditionally been used to promote job growth and real estate development. In 2018, the city revised its use of state incentives to also prioritize businesses that provide selected community benefits in areas of need.

Jackson said in addition to bringing those community benefits, programs that aid music venues and other creative spaces have proven to be positive impacts on the local economy by attracting outside visitors.

“The thing that’s good about tourism from an economic development 101 perspective is that you encourage a lot of people to come from outside the city, hang out, spend a lot of money, rent hotel rooms, eat at restaurants and buy stuff, and then generally leave the city before the city has to spend extra money on them,” he said. “(Music venues) provide a huge amount of revenue, not just in (hotel) taxes, but in spillover sales taxes that come from restaurants and everything else associated with the stays that isn’t necessarily captured that way.”

Commission members asked Jackson and other staff to include measures in the program that would ensure venues that are leasing their spaces are benefiting from the incentives. Benefits would include specified lower rental rates instead of property owners receiving the rebates without any benefit to the target businesses.

Jackson said those conditions are expected to be included in the program guidelines, with enforcement that would result in a stoppage of refunds if qualifying businesses aren’t receiving a lease at roughly 50 percent of the market rate.

“​​We have a very strong ability to ensure that any developer that receives an incentive abides by the terms in the spirit of the deal. They would have to demonstrate that they have tenants or a tenant that meets the criteria that applied for, and that they were providing leases that were affordable,” he said. “If they did not, they would stop receiving the incentive.”

Commissioner Pedro Carvalho, who is a co-owner of the Far Out Lounge music venue, said the program would need to include provisions that cover the triple-net leases many venues operate under that make tenants responsible for all property taxes. Otherwise, he said, property owners could receive a rebate on property taxes they weren’t already paying.

“Is there a world where they get reimbursed for taxes that my lease already pays for, and they get to double dip on the tax reimbursement plus what I have to pay in triple net? Or would it be easier to give this tax reimbursement to the venues themselves so that they can pay for their triple net that they’re already on the hook for with these landlords?”

Jackson said those conditions could be addressed by requiring landowners participating in the program to provide documentation showing the tax reimbursement is passing all the way through to the operators of eligible businesses via favorable lease terms.

The commission took no action on the program presentation but is expected to consider a recommendation to City Council early next month.

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