The Mall That Ate Katy

Big money, big lobbyists, big tax breaks. The Mills Corporation is bringing one of its "megamalls" to Katy, and it's hardly business as usual in the little town on the prairie.

She hasn't seen it yet, of course, but Jinny Baker knows it'll be big. How could something that's being promoted as a super-regional value- and entertainment-oriented megamall not be huge?

Megamalls are a creation of the Mills Corporation, a Virginia-based developer that wants to plop one of its products down on a 542-acre parcel of native prairie and wetlands near Katy, about a quarter of a mile from Baker's home in the Pin Oak Village subdivision.

The new Katy Mills would be a sprawling 1.6-million-square-foot building housing a dozen or so department stores, 200 discount outlets, theme restaurants and a food court, and a 30-screen movie theater. Free parking would be available for some 12,000 cars.

If that were all, Baker and her neighbors could probably adjust. But the Mills Corporation's grand plan is to surround this casbah of consumerism with another 472 acres of hotels, office buildings, strip malls, restaurants and a par-three golf course. The freeway interchanges at Pin Oak and KatyFort Bend County roads, which connect Interstate 10 to Katy, would be retooled to handle traffic from an estimated 18 million mall shoppers a year.

Last week, the Mills Corporation opened the 1.5-million-square-foot Grapevine Mills just north of the DallasFort Worth International Airport. It was the sixth megamall built by Mills since the opening of Potomac Mills outside of Washington, D.C., in 1985. A half-dozen others are in various stages of development, including one that will be built alongside the new ballpark planned for Candlestick Point in San Francisco. Mills has also formed a partnership to build megamalls in Europe.

Basically a huge shell filled with as many discount outlets as possible, a megamall is built for speed. The idea is to keep development costs at about $100 per square foot -- two to three times below the average for commercial development -- and then produce sales at the hand-over-fist rate of $300 per square foot by attracting 15 to 20 million shoppers a year. In 1996, the megamall formula added up to $1.5 billion in sales by Mills outlets.

And as long as Wall Street doesn't slow down, Mills probably won't either. As a publicly owned real estate investment trust, or REIT, the Mills Corporation avoids corporate income taxes entirely by returning at least 95 percent of its earnings to shareholders. When dividends are high, REITs can tap the market for cash with which to buy more property. Mills has almost doubled its portfolio of megamalls in the last two years.

But Mills is also angling for a public subsidy of its Katy project, through a mechanism created by the state Legislature that puts property tax revenues in the hands of private developers. It's called a tax-increment financing district, or a TIF, and it's traditionally been used to fund housing or economic development projects in blighted urban areas.

Mills won tax-increment financing worth $27 million from Grapevine taxpayers to pay for the streets, sewers, bridges and utilities needed to service its megamall, in return for assurances that the forfeited property taxes would be more than covered by new sales-tax revenue. According to Mills, the Katy megamall could generate $3.8 million of additional sales taxes each year -- enough to double the city's budget overnight. Factor in sales and property taxes from development drawn by the mall, and the project will, as a Mills official put it, "help the city grow in a financially responsible manner."

But before Mills can avail itself of the tax breaks, it needs the blessing of Katy Mayor Hank Schmidt and his volunteer city council. Considering that Schmidt had yet to schedule a public hearing on the proposed TIF district, the Mills Corporation's request last month to erect a sign along I-10 announcing the new megamall seemed a little premature to critics like Jinny Baker.

Council met to consider Mills's signage, as well as four other mall-related ordinances, on October 13. The meeting drew about 100 people, including Baker and some of her neighbors. At first, they were simply annoyed because Mills wanted to post a sign that would exceed by about 25 feet the maximum height allowed by the city code. Then Baker noticed something far worse: The sign announced that Katy Mills would open in the fall of 1999.

"Has it been proven to each and every one of you that this is a good idea?" Baker asked the five men and one woman on the Katy council. "Are the benefits so great that they're worth giving up $41 million in taxes? Where are the numbers?"

Bill Smithson, one of Baker's neighbors, told the council that he moved to Katy to raise a family in the peace and quiet of a small town. That would no longer be possible, he said: "This mall will be a direct contrast to the kind of community I saw when I came here."

If those plaintive cries registered with Mayor Schmidt and the council, it wasn't apparent. They listened politely but were not moved to offer any assurances. After a perfunctory discussion, the council unanimously approved all four mall-related ordinances, including the placement of the sign to announce the grand opening of Katy Mills just two years from now.

After the meeting, Baker was still puzzled by the swiftness with which the city council had rolled over for the Mills Corporation.

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