Part 2 of series
David Rachie is a Minnesota-based developer who is looking to build a new hotel/convention center connected to Festival Hall in Downtown Racine, as part of city leaders’ goals of reinventing Racine.
Rachie is a central player in another major redevelopment proposal in another postindustrial town: Middletown, Ohio. It’s the hometown of NFL Hall of Famer Cris Carter and J.D. Vance, a venture capitalist, best-selling author of “Hillbilly Elegy” and U.S. Senate candidate. Its population surpassed 50,000 for the first time in the 2020 U.S. Census, and is the third-most populous city in the Cincinnati metropolitan area — more than 3 million people live within a three-hour drive of Middletown.
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Middletown’s riverfront is dilapidated, full of empty former industrial buildings. Not unlike parts of Racine. Both cities are consummate examples of post-industrial towns, the definition of the Rust Belt.
Unlike a $50 million convention center/hotel in Racine, for which the city has already invested $1.85 million, the proposal in Middletown is bigger. A lot bigger: $1.3 billion.
It’s become known as “Hollywoodland,” a riverfront project to include three hotels, a convention center, indoor theme park, waterpark, virtual reality experiences, high-rises and condominiums, a movie studio, perhaps a comedy club in addition to restaurants, fashion retail and a concert venue that promises to attract millions of visitors to Middletown, Ohio — a city barely half the size of Racine.
“Ambitious, to say the least,” noted one local TV news anchor.
Besides Rachie, Hollywoodland has another tie to Racine. Middletown’s city manager is Jim Palenick, who was Racine’s city administrator from 2017 to 2020. He called Hollywoodland “a once-in-a-lifetime opportunity.”
Palenick is a veteran public employee who also has his fingerprint on another controversial downtown project. Prior to working in Racine, Palenick was the city manager of Rio Rancho, New Mexico, which built an arena of its own about 15 years ago. Despite promises of being profitable within a year, as the result of low attendance and other costs, Rio Rancho’s arena has never turned a profit.
“The arena, which Global Entertainment (the company hired to build and manage the arena) said would be profitable in a year, has lost so much money that Rio Rancho has had to spend millions of dollars each year to keep it afloat,” the New York Times reported in 2011.
That’s the kind of risk any business venture takes: That money could be lost. It gets more complicated and publicly scrutinized when tax dollars are involved.
Despite the risk of publicly funded tax incentives not actually generating revenue in the long run for cities, while also being a direct interference in the free market, every public employee The Journal Times interviewed for this report said that they are a necessity to bring about development in the modern day in America.
This understanding is bipartisan. Racine is, and has long been, led by Democrats. But nearby, the biggest government incentive package ever promised to a business was the original $3 billion-plus Foxconn deal in 2017, secured by Republican President Donald Trump and Republican Gov. Scott Walker, and the support of Mount Pleasant Village President David DeGroot, who is supported by the local Republican Party.
In a TV interview earlier this year, Palenick framed city development managers’ thinking like this when it comes to tax incentives: “If we’re not prepared to approve it, I guarantee you someone else will.”
In a 2016 report titled “The Perils of Tax Incentives for Economic Development,” Norton Francis, a senior research associate with the Tax Policy Center, wrote: “Because the competition is fierce, businesses typically get better deals than states (as in, state governments offering incentives). Businesses need far more than tax breaks before they invest or open in a new location … But they’ll take the tax break too, even if it is a small share of their costs. And states are all too happy to comply. All companies have to do is announce they are looking to relocate. Then, they sit back and wait for states to compete over tax incentive packages.”
The ‘But For Test’
In a Zoom interview earlier this month, Racine’s current administrator, Paul Vornholt, and City Development Director Bill Bowers shared nearly identical thought processes to Palenick’s.
Vornholt mentioned the But For Test, something Palenick referenced often during his time as city administrator. The But For Test asks this question: Would the development at hand be possible without a certain amount of government incentives?
State law effectively requires governments to consider the But For Test when considering developments.
The incentives tied to Racine’s possible new convention center/hotel are still being hammered out, but Vornholt and Rachie both said they are confident the deal will be finalized in the next few months.
“So, given the size of recent (tax incentive) deals, are states giving up too much?” the Tax Policy Center’s Francis wrote. “After all, states still need the revenue to educate and train their workforce, maintain and improve their infrastructure, and protect their residents. And when a state gives a big tax cut to business, it must either make up the revenue by raising other taxes or cutting services — both of which can offset economic development gains from the new business.
“And if every state is offering subsidies, one wonders whether they are engaged in a form of economic mutually-assured destruction, where the subsidies are pure windfalls to firms that have little effect on their decisions to move.”
Typical, but eyebrow-raising
One of the aspects focused on by critics of Hollywoodland has been the numerous limited liability corporations under which Rachie and his associates have worked. One was registered to a home address in Minnesota; another in the Virgin Islands.
During a Middletown City Council meeting last month, Middletown Mayor Nicole Condrey told the City Council about her concerns regarding Rachie. Among them are concerns raised by community members, such as the change in LLCs and a pre-plan she found underwhelming as it was less robust than expected on top of being incorrectly dated and delivered late.
Rodney Muterspaw, Middletown’s retired police chief and a city council member-elect, called Hollywoodland “dead in the water” because public opposition is so fervent.
“Without the deliverables of a $250,000 contract, I don’t know why I would trust a new entity under a new name with 30 times the funds,” Condrey, who did not reply to requests for comment on this report, said at that October meeting. “If the developer believes this project to be so lucrative, why is the city fronting all the pre-construction costs?”
‘That’s how it’s done’
These moves — such as setting up project-specific LLCs for each development venture, or saying public funding is needed to be guaranteed up front before financing can be secured — are all typical in modern public-private partnerships.
Palenick, Rachie and Vornholt — all of whom are steeped in the current state of public-private projects — say this is normal and nothing to bat an eye at. “That’s how it’s done,” Palenick said.
But the typical standards of modern development can be perceived as sketchy.
Middletown’s City Council has delayed voting on whether it wants to move forward with further pursuing Hollywoodland and spending millions more in the process.
Rachie has faced criticism from different cities’ residents over and over, and says he doesn’t think about the general public much, that it doesn’t matter to him. He required that a 30-plus page document he delivered to Middletown city leaders not be shared outside of city staff, fearing it would be misunderstood by the general public.
Palenick called concerns from the public and Condrey “misinformed.”
In 2017, under a different LLC, Rachie proposed a $24 million hotel/convention center/entertainment center (with ice arena, movie theater, go-karts, brewery, ice arena and other amenities) in Mason City, Iowa, to rehabilitate a failing mall.
As in Middletown and Racine, Rachie was paid up front to develop plans before shovels ever hit the ground — this time, to the tune of $150,000. One local newspaper reported at the time that “some Mason City citizens” said the project “smells of a scam.”
Mason City leaders haven’t given up on placing their hope in Rachie. They want to see redevelopment in their town, even if it means paying up front for something that might never come to fruition.
“None of this stuff really happens quickly,” said Shannon Powell, chief of staff to Racine Mayor Cory Mason.
Vornholt repeatedly noted that, other than Rachie being involved in the other projects, there is “no relevancy” between the developer’s work in Middletown or Mason City and his dealings with Racine.
“So far,” Powell said, Rachie “has met the terms of the agreement.”