The Unified Government tonight answered some of its critics on the closing of Backfire BBQ restaurant at The Legends Outlets in Kansas City, Kan.
A story about how the barbecue restaurant items cost $2.8 million and items were sold for much less at auction first ran in The Pitch publication on June 30, 2015, (http://www.pitch.com/FastPitch/archives/2015/06/30/corporate-subsidies-in-wyco-going-once-going-twice).
The story detailed an auction that generated under $200,000 for a lot of expensive restaurant equipment including motorcycles that were purchased through sales tax revenue bond funding. For example, the story cites an antique 1923 Harley-Davidson Model J Motorcycle used for decoration at the restaurant that cost $86,900 and was sold at auction for $13,000.
UG commissioners asked for a meeting to explain what happened.
UG Administrator Doug Bach at the UG Commission meeting tonight said the bigger picture was that there was about a $2 billion investment in Village West, including $1.5 billion in private investment and $453 million in STAR bond investment.
“The $3 million in Backfire BBQ is less than 1 percent of the total STAR bond investment,” Bach said.
Retail sales at Village West total $650 million a year, generating $58 million annually in sales and guest taxes, he said. While one business, the Backfire BBQ restaurant, was not successful, there were more than 100 other successful businesses, he pointed out.
“The taxpayers didn’t have any liability with anything that was purchased in Backfire BBQ,” Bach said. “It was all purchased with STAR bonds.” STAR bond funds come from sales taxes on items sold at The Legends.
Bach pointed out that the STAR bond incentive used with Backfire BBQ was similar to the Cabela’s development, with an aquarium and mule deer display, and also with the T-Rex restaurant at The Legends, where there are mechanical dinosaurs that were purchased.
In 2009, the UG adopted an agreement with Creative Attractions – Legends LLC, which authorized an agreement between the UG and Red Development to use $3 million of the personal property STAR bonds to purchase Creative Attractions Amenities, he said.
The new restaurant opened at a time, however, when there were already two other barbecue restaurants operating at The Legends. Backfire opened when a recession’s effects were still being felt.
In 2013, Backfire BBQ closed its business, and the UG sent a notice of default to Creative Attractions. The notice said these amenities at the restaurant were owned by the UG and must be returned.
“Had they stayed in and operating, like Cabela’s, like T-Rex, beyond the point when STAR bonds were paid off, then they took ownership of all those items,” he said. “They would fall over to their side of the ledger.”
That occurred not too long after 2013, because the bonds used for this area of the Legends and Village West were paid off at the end of 2014. The bonds being paid off next year are related more to the soccer project, he added.
The UG started removing property in March of 2014, to move it off the property to a secure area, he said. In January 2015, the UG moved forward to auction off items by issuing a notice of need proposal for auctioneer services.
Then, in April 2015, Higginbotham Auctioneers was selected and the auction was held in June 2015.
The master developer with Zimmer, Kurt Schirmer, was brought in to oversee and look at purchases with STAR bonds and verifications, Bach said. Schirmer said within the $3 million, there were 40 to 50 items, each with a price attached. His task was to verify the payment application process. They verified the invoices.
“When we foreclosed on this property, after they had been in operation for 3.5 years, I think it’s important to know that Backfire BBQ, based on size of restaurant and where they would be, generated probably $500,000 in sales taxes that were paid back into the project as their contribution,” Bach said. “We took the property and proceeded to the auctioneers.”
The UG received a few proposals for auctioneers, evaluated them and selected Higginbotham Auctioneers. Marty Higginbotham said he has 56 years of experience as an auctioneer with a broad range of experience.
He said he spent six weeks getting ready for the Backfire BBQ auction. He said it was well-attended, with buyers from 28 states in person and online.
The items raised around $150,000 at auction, according to Bach.
The UG decided it wanted to keep a lot of kitchen items and speaker items. Typically those items are worth about 10 cents on the dollar, so the UG decided it would keep and use them in buildings the UG has, he said. For example, a sound system will be used at Memorial Hall, he said. Those items were worth $800,000 to start with, he added.
“Overall, this was one project that I look at in all of Village West that failed,” Bach said, “in $2 billion of investment that’s been created. We took a lot of chances.”
The UG overall was very successful, he said, bringing in $11 to $12 million in property taxes from that area and it will bring $12 million in sales tax in 2017.
Red Development and Schussler Creative also took a loss on this, he said.
“Do I wish we could have got more out of the auction process?” Bach asked. “Yes, I do. I’ve had a few conversations with them about this, but in the end, that was the value.”
In answer to a question from Commissioner Jim Walters, who said the auction information wasn’t generally available to the public, Higginbotham said he first tried to identify possible buyers for the auction, and it appeared to be motorcycle clients. So notices were sent to 4,500 Harley-Davidson dealers about the auction, he said. In his experience, people who are involved with selling the products are the ones who are going to buy, he said.
He also sent out notices to restaurants in the area about the auction, because there was a lot of restaurant equipment. Then he talked with Bach, and Higginbotham said it was a good decision for the UG to use the items because used restaurant equipment typically doesn’t bring in very much money.
“I think the sale was a huge success,” Higginbotham said. “It brought every nickel it was worth.”
Commissioner Mike Kane said he had wanted to know when the auction was, but never heard until after the fact.
“In my mind if this stuff is purchased by this community, the community needs to know about the auction, and there was a whole bunch of people who didn’t,” Kane said.
He said there were residents in Wyandotte County who would have been interested in purchasing the antique motorcycles.
Mayor Mark Holland pointed out that Schussler Creative has more than covered the loss of Backfire BBQ with the success of its T-Rex restaurant at The Legends. These were considered to be tourist attractions to draw people to the area. Red Development also has been a good partner for the UG, he said.
He said the UG Commission didn’t really sign off on how much a motorcycle costs for the decorations at Backfire, but instead, the commission signed off on a concept of a motorcycle restaurant.
The UG lost about $800,000, took in $150,000, and got some restaurant and sound equipment from Backfire BBQ, so it lost about a total of $600,000, he said. T-Rex restaurant has more than made it up, he said.
While there is a need to be good stewards, be careful, conscious and invest wisely, the UG should continue to be aggressive, innovative and push forward, Holland said.
“I agree with Commissioner Kane, people in our community ought to know about this auction,” he said.
“I think we have learned some things from this,” he said.
Commissioner Hal Walker, who mentioned that he used to attend a lot of auctions, said he never went to an auction to pay full price. People go to an auction to get a good deal, he said.
Commissioner Ann Murguia said the commission didn’t vote to spend $50,000 on a motorcycle – it voted for the concept of a motorcycle restaurant.
“When a deal like this goes badly, the public looks to their elected officials for answers, and we as the elected officials have to answer them, and if I don’t know the answers to their questions, I have to ask. When I find out answers that I’m concerned about I think it’s my responsibility to articulate that, and I think it’s very important that be done in a very transparent, open government process in front of the public,” Commissioner Murguia said.
Everything the government is going to do is not going to be a success, she added. Overall, Village West has been a great success, she said.
“If we’re going to be the No. 1 tourist attraction in the state of Kansas, we should know how much tourist attraction items costs and what the potential resale value of them is, especially since we still own aquariums and fish at Cabela’s and we own other pieces of equipment like that.”
She said would not like to see it happen again. And she believes there will be more development deals in the future.
