UPDATED: 7 p.m., Tuesday, Oct. 11
With North Market Kitchen, chef Bryan Voltaggio’s planned restaurant and market in Frederick, co-owner Hilda Staples didn’t want to repeat the nightmare of Volt’s final push to secure a certificate of occupancy. Back in 2008, with Volt nearing its debut, the city of Frederick socked the restaurant with a $90,000 bill for water and sewage fees.
City officials, Staples says, wouldn’t hand over the certificate without the cash. “It almost closed the doors at Volt” before it even opened, she notes.
Staples hoped to avoid such a situation with North Market, Voltaggio’s ambitious $2 million operation in a former Carmack-Jay’s grocery store in downtown Frederick, so she started researching the water and sewage fees before the owners even signed the lease at 331 N. Market St. It was a smart move: The estimate for the impact fee came in at a whooping $205,543. The estimate is based on the number of fixtures — urinals, toilets, drains, sinks, washing machines, dishwashers — that will be installed in the space, and, as you might suspect, North Market has many such fixtures in its preliminary architectural plan.
“I’d rather cut my losses now than get into a project where I’m paying $200,000 to the city for nothing,” says Staples. “That money that we gave to the city when opened Volt just hurt us so badly, that I was like, ‘It’s never happening to me again.’ It was painful.”
There may be a chance for the city to salvage the North Market project in downtown Frederick, but Staples says Mayor Randy McClement and the Board of Aldermen would need to move quickly to solve the issues. In a letter that the Frederick director of economic development sent to Staples — and she forwarded to All We Can Eat — the city noted “the Mayor’s office and Department of Economic Development are considering legislation to allow for impact fees to be paid over time through a payment plan and an incentive for infill and revitalization projects like this one.” The city is also looking to rewrite its code for sewer and water impact fees.
But those moves could be three to six months into the future, a timeframe that doesn’t work for the North Market team. The problem, Staples says, is that investors have already forked over $1 million, which has just been sitting idly in the bank.
“They’re like, ‘Hey Hilda, you’ve had our money for no interest for a year,’” she says. “‘What are you doing? Either build the restaurant or give us our money back.’”
“I can’t sit on people’s money,” she adds, “and I already have. It’s already been like almost a year.”
Staples and Voltaggio had figured the impact fee would be about $100,000, which their landlord, Norman Jemal of Douglas Development, had agreed to split. But when the estimate was double that figure, the North Market team doubted they could justify the costs, even if the fee was divided between tenant and landlord.
“At $200,000, [Jemal is] going to pay 70 percent of it?” Staples says. “I can’t even ask him to pay 70 percent of it. That’s a lot of money. That’s a lot of money for anyone, and I don’t even believe in it.”
“I didn’t fundraise and spend that much effort to just hand over $200,000 of it to the city, just for some fees that don’t make sense,” Staples adds. “That’s not a responsible way to spend this money we raised. We need the money for payroll and for food and for vendors and for alcohol and everything that goes with opening a restaurant. I understand that you have to pay some fees, but 10 percent of your build-out costs to go for some random nothing? It doesn’t make any sense, and it’s not right.”
Josh Russin, the executive assistant to the mayor, says the impact fees are not random and are part of a fund that cover important public services, such as supplying and treating water for residents as well as serving the debt on new infrastructure. Russin also notes that some cities have higher usage fees and others have higher impact fees; a jurisdiction has to make a decision where to get its money — up front or in usage fees. (He promised to send All We Can Eat a comparison of water and sewer fees from surrounding jurisdictions, which we will then publish.)
What’s more, Russin writes in an e-mail, the $205,000 figure was based on “a very preliminary estimate. The City received sketch floor plans that did not include the number and types of fixtures which would have allowed the City to provide a better estimate and the final impact fee payment amount could vary considerably. Plus the $205K estimate did not include a credit for the number of existing fixtures located in the building.”*
Those upfront costs in Frederick, however, could drain too many of North Market’s resources from the outset, Staples says. Plus, those fees are just not found in other jurisdictions outside of Frederick.
“The problem is, it’s Frederick,” Staples notes. “We’re not on an island, where we have no other choices. We have choices. We can go elsewhere. I can go to D.C. These charges are not in D.C. They’re not in Frederick County.”
But before North Market moves to another location, it must talk to its investors, who are homers for Frederick. “They’re town people,” Staples says. “They’re not only investing in us, but they’re investing the future of downtown [Frederick]. This is the project that everyone wants to see happen. So...we’re going to have to pitch them again and say we have a new idea.”
The chef behind North Market is confounded by the way Frederick does business.
“I mean, I understand that the city needs to [upgrade] its infrastructure,”says Voltaggio. “But if they were to put a Gap in there, for example, in this space....they would have to put a bathroom in, so the impact would be very minimal. They also wouldn’t have 65 to 85 employees who would be paying downtown income tax and then also generating our new 9 percent sales tax on liquor for Maryland.”
“It’s very disheartening,” he adds. “I’m looking at this from a global standpoint as far as everybody doing business in Frederick who are involved in restaurants. How is this fee going to impact them? So far it’s nothing but negative.”
Incidentally, Voltaggio is still moving full steam ahead on his bistro at Chevy Chase Pavilion, where the chef will offer his own twist on a steakhouse: one using off-cuts of meat.
* Later this afternoon, the city of Frederick sent a statement to All We Can Eat. It reads:
The City of Frederick is delighted to be the home of Volt Restaurant and highly acclaimed Chef Bryan Voltaggio. Volt along with several dozen other restaurants and numerous independent retailers are a major driver in the revitalization efforts which have transformed Downtown Frederick over the past 30 years. More than 600 businesses and 5,000 employees are now located in Downtown Frederick including a growing information technology industry sector.
Recently Bryan Voltaggio announced his intent to open more restaurants here in Frederick, and the City has been working closely with him and his business partners to achieve this goal. The idea of operating several unique restaurants in or near Downtown Frederick is a time proven strategy which several others have successfully accomplished. “The idea of our entrepreneurs growing deep roots here in Frederick is very appealing and the City is committed to assisting in businesses open their doors to the public,” stated Mayor Randy McClement. “We value the investment, time and energy put forth by the Volt team.”
According to the Volt team, one of the locations being considered is the long vacant Carmack Jays Building on North Market Street. The 20,000 SF former grocery store is owned by Douglas Development Corporation in Washington, DC. Douglas Development Corporation has a strong history in repositioning historic and vacant properties. Douglas Development, in conjunction with the City Department of Economic Development has marketed the building for several years to grocery store tenants but to date has no takers. The Volt team and Douglas Development Corporation have apparently been in negotiation for several months but details of that lease negotiation have not been provided to the City.
Renovating old buildings for adaptive reuse is very desirable, but is a difficult business and often costly business. Recognizing the financial challenges, the City and County have established a joint “Vacant Commercial Property Rehabilitation Tax Credit” program which saves businesses approximately 50% of the increased property taxes attributable to the renovations.
It has been pointed out by the Volt team and others that the City Water and Sewer Impact Fee’s are a significant up front cost and may very well be an obstacle for smaller and independent businesses like restaurants and laboratories – high water users compared to office and retail. The Volt team has asked for those fees (currently estimated at approximately $205,000) to be reduced or waived. Water and Sewer Impact fees are calculated based on number of fixtures (like sinks, toilets, drains), and by intent are not able to be modified, waived, or reduced by city staff or elected officials. This is to avoid the slippery slope issues related to different users paying different amounts and the related pressure to reduce or waive fees. Such regulations provide confidence in the system and allow the city to borrow the capital through the sale of bonds for multi-million water and sewer projects at very low interest rates.
The Water and Sewer Fund is an enterprise fund of the City of Frederick which receives no tax dollars. The impact fees on new users coupled with water and sewer commodity rates (paid by all users based on consumption) help the City Water and Sewer Fund pay for operations and the debt on nearly $100 million in new water and sewer treatment capacity and transmission. The City relies on a hybrid approach to funding its water and sewer infrastructure needs. This hybrid model relies on existing users in the form of water and sewer bills and new users in the form of water and sewer impact fees to fund these improvements. The City is considering new legislation to amend the ordinance which governs water and sewer impact fees to such fees to be paid over time though a payment plan as well as to provide a “discount or credit” for existing vacant buildings – recognizing that such facilities already have some infrastructure and water use and fixtures. This approach should be completed by the end of the calendar year. Once approved, it will apply citywide and to all qualifying projects so that the regulations treat all users equally.
The City of Frederick is a terrific place to do business as evidenced by the overwhelming success of Volt Restaurant and more than 3,500 other businesses which employ approximately 49,000 people. The City stands ready to make changes to its current system and to provide assistance to the Volt-Carmack Jays project and others. Such assistance requires collaboration by the business community.