The Billionaire and the Bookstore - The Boston Globe

Wendy Schmidt, wife of Google CEO Eric Schmidt, is spending a fortune to preserve Nantucket’s small-town character. But is the island helped – or hurt – by having its very own sugar mama

It seems that, in order to keep a fully functioning downtown in the town of Nantucket on the island of Nantucket, one of the seasonal residents has bought up some land (and buildings) downtown and is offering them, at token rents, to successful local merchants whose businesses meet the needs of year-round residents of this high-end resort island.

A few lifts from the article:

  • The high demand for land and space has caused skyrocketing rents.
  • about 40 percent of Nantucket is protected land that can never be developed
  • LAST YEAR, SCHMIDT MADE her first foray into downtown revitalization by purchasing the former Island Spirits lot on Washington Street, a piece of land near the waterfront, for $3.5 million. She offered it to the town, for $1 a season, to use as the site of a new hub for the Nantucket Regional Transportation Authority.
  • “The issue is that there are so many people with money, myself included,” Pallotta says, “that it makes it more difficult for year-rounders to afford to live here.”
  • She set up an LLC and bought Mitchell’s Book Corner and the historic downtown building at 54 Main Street in which it sits from longtime owner Mimi Beman. Realizing that a different landlord would probably charge such high rent that the island’s beloved bookshop would be forced to move, or possibly close, Schmidt became a “benevolent landlord.” The new operators of Mitchell’s, Mary Jennings and Lucretia Voigt, who had formerly worked at the bookstore, rent the space at significantly below-market rates, and they are forbidden, by contract, to ever move the store. Schmidt retains ownership of the Mitchell’s name, but the two operators essentially own the business and all its inventory and are solely responsible for its profit and loss.
  • Aside from the disturbing image of the wealthy using downtown Nantucket as an economic petri dish, albeit with the best of intentions, what does it mean when a town comes to rely on philanthropists to pay for things it refuses to pay for itself? And what does it mean when benefactors financially prop up businesses that complement their vision of what downtown should be and let others die on the vine? On the flip side, given the unique mix of economic, historic, and geographic factors tugging at the future of the island and its residents, this may be the only way for Nantucket to survive as it is today.
  • Wealthy second-home owners pay about 75 percent of total property taxes generated on the island, according to Mike Kopko, chairman of the Board of Selectmen. So they already are responsible for paying for much of the public infrastructure of the island. Still, the median income in 2004 was only $58,000, according to the US Census Bureau.

[That has a great deal to do with who is on the island when the census is done, not who owns the property.]

  • The Nantucket Housing Office, a nonprofit that works for affordable housing, estimates that a family would need to earn more than $300,000 a year to be able to buy a home on Nantucket today. The town must fund an infrastructure built to sustain 60,000 summer residents, yet decisions about that infrastructure are made by just 8,000 registered voters - and those people vote with their pocketbooks.

Don’t some of those registered voters vote both in Nantucket and in their other-9-months hometowns? What is to stop them? Are the registrars of voters on Nantucket going to stop them? Are the registrars of voters in their other-9-months’ hometowns going to stop them?

And I doubt that all of the 60,000 summer folk are “residents” – rather, they are likely to be paying customers of landholders on Nantucket. (The landholders may or may not set foot on Nantucket during the course of a year, but they do collect the rent, which, despite the luxurious homes, is mostly land value.)

Will Ms. Schmidt’s efforts ultimately conserve the rent those landholders receive? I suspect they will. Will they primarily benefit the year-round residents of Nantucket? That seems less likely. The working-class year-round residents probably don’t own the most valuable sites. Those belong to the wealthy second-home owners. And Mr. Karp’s shareholders –

One guy, Stephen Karp, bought most of the historic downtown real estate three years ago and he and his management team decide who rents it. Karp, CEO of New England Development, does not, however, seem overly concerned with creating a downtown catering to locals. The man has stakeholders and partners to satisfy, after all, and stakeholders generally don’t care much about squishy terms like “sustainability” and “community building.” (Karp couldn’t be reached for comment for this story.)

Even though the town passed a zoning law in April 2006 that prohibits chain stores and franchises over a certain size from locating in the downtown historic district, that hasn’t helped locally owned businesses much. The high demand for land and space has caused skyrocketing rents. (As of the 2000 US Census, Nantucket was the fastest-growing county in Massachusetts.) Only stores with huge bankrolls, or branches in other resort towns that can subsidize a Nantucket store shuttered in winter, can afford to rent space in a Karp-owned downtown building, which is why there are so many designer-clothing stores.

– who may never have set foot on Nantucket.

Ms. Schmidt – even if her education includes many courses in economics – probably has no formal understanding of the concept of economic rent, and no formal knowledge of how vital its correct disposition is to the health of a local or national or global economy. (She could remedy that via a course or two at any of several Henry George Schools, or online at henrygeorge.org.)

But by purchasing the commercial building and the downtown site on which it sits, and not collecting rent from her tenant, she frees up the entrepreneur’s funds to buy inventory and to employ people who will be paying rent locally and using other local businesses’ services. Ms. Schmidt will pay the property tax on the site and the building, from her own generous financial resources.

And 5 years from now, or 10 years from now, or 20, Ms. Schmidt (or her heirs) will own a very fine location in the downtown of one of America’s premier vacation spots – while the retiring baby boom generation’s upper crust will be looking to spend more time there year-round. The appreciation in the value of that site will more than pay for the 5, 10 or 20 years’ worth of property taxes. The ferry that makes Nantucket’s land so valuable is surely funded by taxpayers – likely many who never have even seen the ferry, much less ridden it. And the air traffic control system which supports the airport through which Nantucket’s busiest and richest vacationers arrive is also funded by taxes on wages, and sales, and even some corporate profits.

The alternative? Tax that which should be taxed: land value. Collect the lion’s share (and you know how little the lion leaves behind for other creatures) of the flow of economic rent, for common purposes, such as the roads and schools and ferries and airports that make Nantucket so desirable. Don’t tax the sales. Don’t tax the wages. Don’t even tax those mansions and downtown buildings. Just the land value, which currently is accumulating in the pockets of private parties, like Mr. Karp and his shareholders and the wealthy second-home owners of waterfront.