Did Simon Properties comply with the Domain incentive agreement?

City staff says it did.  Here is the presentation (pdf) it made to Council last week.

It struck me that the direct subsidies to the Domain retailers were actually quite paltry.  The incentive agreement required Simon to put $1 million into a fund to assist small local businesses locate at the Domain.  Simon spent the money assisting five businesses design and construct interior improvements.  The incentive agreement did not otherwise require Simon to pass on its subsidies to the retailers.

This raises a point I've been meaning to make for a while.  I understand why local businesses get upset when the city spends tax dollars to encourage the development of competing businesses.  I'm skeptical, though, that incentive agreements like the Domain agreement benefit specific retailers in the long run.  Retailing is a viciously competitive business, which means retailers are very sensitive to the rent they must pay.  When a bunch of new retailers flood the market, they lower profits across the board; those lower profits ultimately must be passed back one way or another to the property owners.  Simply imagine central Austin adding a dozen large strip malls.  The extra supply of retail space would require existing property owners to lower their rents to keep their existing tenants from defecting, and would attract new retailers who couldn't have cut it at the old rents.  We would end up with more retailers earning less revenue but paying less rent.

Unless they target subsidies directly to specific retailers, incentive agreements like the Domain agreement merely enlarge the supply of retail space.  In this regard, they operate much like the vertical mixed use ordinance which mandates street-level retail regardless of demand.  (There are still vacant ground uses in several Guadalupe mixed-use developments.)

I suspect that the people who have the most to fear from retail incentive programs like the Domain's are not the retailers themselves, but the owners of existing retail space.

More on SDS:

1. Stop the Charter Amendment! (Aug. 23, 2008)
2. A little hypocritical, no? (Aug. 23, 2008)
3. An unintended consequence of the SDS charter amendment? (Aug. 26, 2008)
4. More on the unintended consequences of the SDS charter amendment (Sept. 18, 2008)
5. The City's really worried about SDS's impact on Mueller (Sept. 24, 2008)
6. Prescient (Sept. 25, 2008)
7. More on the SDS charter amendment and Mueller (Oct. 1, 2008) 

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