Falls Church movie theater deal could offer tax revenue as incentive

City lawmakers are set to vote Tuesday on a deal that could grant as much as half a million dollars every year for the next three decades to the developer behind the Founders Row project. The pay-as-you-go arrangement would essentially reinvest tax revenue generated by the sale of movie tickets and concessions as a way to offset the cost and economic risk of bringing in the theater.

Although the deal was first designed nearly a decade ago, the plan has in recent weeks drawn criticism from the city’s planning commission. That volunteer body voted against recommending the agreement after some of its members questioned whether a movie theater is an appropriate use of city money.

“We usually provide tax incentives for public goods. We’d like to have a movie theater, but it’s not a public good,” planning commissioner Derek Hyra said at the Sept. 21 meeting. “It’s not a public high school. You have to pay to go there.”

But in this wealthy, deep-blue city of 15,000 — sandwiched between Fairfax and Arlington counties — proponents of the plan say such incentives are necessary to attract a business that might otherwise choose to locate in the city’s much larger, better-resourced neighbors.

“We’re trying to create a balanced community that has [the] sort of things that people want, and entertainment is something that’s important,” Falls Church Mayor David Tarter said. “Being able to walk to a movie theater is something that people in our community have asked for.”

The deal was originally inked about seven years ago between Falls Church and a business entity tied to Mill Creek Residential Trust, a developer based in Bethesda, and it has been transforming the site formerly home to a gas station and a convenience store.

Paragon Theaters, a small chain that also has cinemas in Florida, North Carolina and Fredericksburg, had been secured as the movie theater operator for the project and is expected to create a facility with seven or eight screens and between 750 and 850 seats.

After the coronavirus pandemic dealt a blow to the theater industry nationwide, the company amended its plans to offer a more modest 550 seats. That change — as well as another tweak to create an arcade area in the lobby — requires city lawmakers to vote again on the economic development deal.

The first $20,000 generated in tax revenue by the sale of movie tickets would stay in city coffers, but any money raised beyond that — up to $340,000 — would go back to the developer. A similar setup exists for food and drinks sold at the cinema: The first $10,000 generated in tax revenue from those items would go to Falls Church, while up to $150,000 beyond that would also go to the developer.

That plan is supposed to be in place for the next 30 years. If the theater makes $13 million in four consecutive fiscal years, the subsidies are eliminated.

Joe Muffler, the company’s senior managing director for development, said that the incentive was an innovative way to attract a movie house at a time that has been challenging for theaters nationwide.

“We’ve identified a creative solution to an extremely difficult market dynamic that creates a win-win situation for the City by bringing a unique amenity [and tax revenue generator] that the City otherwise would likely be unable to receive,” he wrote in a statement.

Tarter, the mayor, also noted that the movie theater would serve as a magnet for visitors and keep residents close to home. And all of those theatergoers might also spend their money at nearby shops and restaurants, generating more tax revenue for the city.

When it comes to economic development deals such as this one, “the devil is in the details,” he said. “You have to ensure you’re being wise with taxpayer money.”

Falls Church had inked a similar deal in 2008 to attract a BJ’s Wholesale store. To fill a location that would have otherwise probably gone to a car dealership, the city agreed to give $250,000 in annual tax relief to JBG Smith, a major regional developer that owns the property.

But for Hyra, who noted that a nearby attraction would be a plus to his children, ages 11 and 14, it was not worth eating into funds that could serve some sort of public infrastructure — parks, school facilities or even a pool.

If his children want to go to the movies, he said, he can take them to nearby Ballston, in Arlington.