Pleasanton’s Financial Deal with Costco Released

An article published in the Town Square section of Pleasanton Weekly on October 3, 2016
The Pleasanton Citizens for Responsible Growth’s request for documents, under the California Information Act, has finally produced the details of The City of Pleasanton’s negotiations with Costco. An email from Nelson Fialho, City Manager, to Mike Dobrota , Costco Regional Manager, revealed the following:
$7,500,000 – Pleasanton Contribution, borrowing from Costco for 25 years, total with interest $10,067,006
$3,100,000 – Nearon Contribution, ($4,780,000 less credits $1,700,000)
$5,335,000- Pleasanton Contribution from Traffic Impact Fee Reserve Fund 

$16,005,000 Total Cost (engineers’ estimates)
$15,402,006 Pleasanton’s Contribution (with interest)

The borrowing and interest amounts were confirmed by Tina Olson, Pleasanton Director of Finance, on May 11 and by Mike Dobrota, Costco, on May 12. There have been no subsequent documents, or changes.

These were not the numbers used in the City Council meeting of April 12. Both the minutes and the audio of the City presentation are missing.

YES on MM Campaign Begins


YES on MM, the campaign to encourage Pleasanton voters to vote YES on Measure MM, the initiative to limit the size of retailers on Johnson Drive, has begun.

Organizers were met with a lot of enthusiasm at the Downtown First Wednesday event on Sept. 7, and have been handing out materials at the Farmers Market and other events.

On Sept. 22, the YES on MM Facebook page was launched.

If you are interested in putting a sign in your yard or on your business, or would like to help in getting the word out, contact us at inquiries@nocostcohere.com

Measure MM Initiative Supporters Dispute City Report

Reposted from The Independent (Livermore) website:

An analysis of Pleasanton Measure MM found differences in traffic and economic impacts between a citizen’s initiative and the proposed 40 acre Johnson Drive Economic Zone. Findings concluded that the initiative would have less traffic impact; it would have greater negative impact on existing retail.

The initiative, which if approved by voters in November, would limit individual retail uses to less than 50,000 square feet in the Johnson Drive Economic Zone area, located east of Johnson Drive and north of Stoneridge Drive.

Last December, Costco signed a letter of intent to acquire the 40-acre Johnson Drive site from Nearon Enterprises, which bought the property after Clorox moved its research center to a new corporate campus nearby. Once it was known that Costco was considering opening a store in Pleasanton, members of the public began attending council meetings, where they raised concerns about impacts of a Costco on local businesses and traffic. Eventually, they organized and launched an initiative drive, which was successful.

After placing the initiative on the ballot, the city council asked for an analysis of the impacts of the initiative on the city. Analyzed were such factors as fiscal impacts, economic impacts, traffic, and air quality.

The studies were conducted by ESA. They were paid for by Nearon Enterprises.

Citizens for Planned Growth, sponsors of the initiative, said they planned to hire a consultant to conduct a peer review of the study.

Christi Harris of ESA summarized the findings during last week’s Pleasanton City Council meeting.

The initiative would generate 1235 jobs compared to 678 for the zone, because general retail hires more employees than club retail, such as Costco. However, more employees would generate more demand for city services, such as water.

The initiative would generate less traffic. Both the initiative and zone would require similar improvements in traffic infrastructure. With no anchor store to generate funding, the initiative would be less likely to be able to finance the traffic improvements, said Harris.

Both the zone and initiative would exceed air quality standards.

The economic study found that the initiative would have somewhat greater impacts on existing retailers with the potential for existing businesses to lose sales and close. Harris explained that the report estimated that the initiative would divert $5.7 million of sales from local businesses, while the zone would divert $1.3 million at buildout.

Fiscal impacts were similar with the initiative generating $2.1 million a year by 2028 and the zone $2.5 million a year for the city’s general fund.

There were questions about whether the cost of traffic infrastructure was included in the studies.

City Manager Nelson Fialho set the estimated cost for improvements at $16 million. One-third would come from the developer; one-third from traffic impact fees accumulated by the city; and one-third would be paid from sales tax generated by Costco. Fialho explained that Costco would advance funds to the city and the city would pay back the money over time by returning sales tax over $700,000 a year to Costco.

Another concept would be for the city to borrow from its $270 million in reserves, then pay back the money overtime using Costco sales tax. Absent an anchor tenant such as Costco, another option would be to establish an improvement district that would issue bonds paid back by the tenants.

During the public hearing, Don Mayday, a resident, called the report an example of the city massaging assumptions, data and arguments that support the preconceived conclusions. He noted that the bottom line is that the initiative reduces traffic by over 2500 trips by day over the zone.

He disagreed that the initiative would have more negative impact on current retails than Costco, noting that Costco prices many commodities, such as gas, at or below what other retailers pay. “Small retailers cannot compete with Costco pricing strategies.” He added, “It’s not the city’s job to make a project feasible to a developer.”

Bill Wheeler, who heads Citizens for Planned Growth, stated, “It seems that some of the conclusions are debatable.” He noted that the purpose of the initiative is to allow voters to express their views about Costco or a new economic zone.

The council, consisting of Councilmembers Kathy Narum, Jerry Pentin, and Arne Olson voted to accept the report. Karla Brown was absent. The referred to it as a good report. Mayor Jerry Thorne was recused.

The study has been posted on the city’s website.

New City Report Says Measure MM Could Bring Less Traffic & Pollution, More Jobs

Original post in the Pleasanton Weekly’s Town Square made by Bob A., Another Pleasanton neighborhood, on Aug 18, 2016

At the City Council Meeting on Tuesday night, three consultants, paid for by Nearon Enterprises, the owner and developer of the Costco properties on Johnson Drive, presented a summary of a report comparing two options for the Johnson Drive Economic Development Zone (JDEDZ): one with a Costco “Big Box” and the other with a mix of retailers in buildings less than 50,000 sq. ft. as required by Measure MM, an initiative that Pleasanton Voters will decide on in November.

In order to prepare the analysis, the consultants, guided by City Staff, had to make a number of assumptions, and therefore the analysis was incomplete. Financial incentives to Costco have not been concluded. This is my recap of what I heard.

Employment: The consultants said the Measure MM Scenario would create over 550 more jobs than the Costco Scenario.

Traffic: The consultants said that development under Measure MM would result in over 2,500 less vehicle trips a day on week days and over 3,600 few vehicle trips on Saturdays. More than a 20% reduction. They added that the mitigations would be much more effective under the Initiative Measure Scenario.

Air Quality: The consultants said that due to the traffic reduction there would be less of an impact on air quality under Measure MM.

Noise: The consultants said that due to the traffic reduction there would be less noise generated by the development under Measure MM.

Economic Impact: The consultants said that the Costco Scenario would have less of an impact on local businesses than Measure MM. During the public comment period, one speaker, took exception with the consultants in this area. He said that local businesses would be hurt the most by the Costco Scenario. This has been shown in numerous independent studies.

Fiscal Impact: The consultants said that the Costco Scenario would result in about $400,000 more per year in net revenue to the city. This is number was pointed out by a speaker to be inaccurate and incomplete. It did not include additional incentives being negotiated, or debt repayment of infrastructure, or the cost of using existing reserve City funds. There is no break even analysis in number of years.

Feasibility: The consultants said that the Costco Scenario was more feasible for the developer because a large anchor tenant was already committed to the project. This assumption, too, is incomplete since no effort has been made to find tenants under Measure MM, even though the Pleasanton Weekly had reported that Trader Joe’s had interest.

Financing: There was a lot of discussion and regarding how the $16 Million in traffic improvements necessary to make the JDEDZ work would be paid for. The discussion did include the necessity to borrow 1/3 (actually $6 million) from Costco or from a general fund that has $270 million. Do we have such a fund?

The presentation left many unanswered questions. What we do know is that Pleasanton taxpayers are being asked to pay over $11 Million to bring Costco to Pleasanton. ($6 million in borrowing plus $5 million of reserve funds).

Other cities routinely make developers foot the bill for infrastructure improvements required to support projects they want to build. Why can’t Pleasanton do this? Are there other alternatives that might cost tax payers less? Why not choose an alternative that produces less traffic, less pollution and more jobs and no borrowing?

What’s the hurry? Aren’t we better to wait, rather than accept a less desirable alternative? I will vote for Measure MM to slow the process and achieve a better long term result.

Costco Could Be Drain on Pleasanton Economy for 30 Years

Post from Val in the Pleasanton Weekly Town Square on Aug. 9, 2016:
Yes, Costco could actually be a drain on the Pleasanton economy for 30 years.
There have been many stories in the Pleasanton Weekly regarding Costco in the last few months. A blog by Lisa S today on “Costco and the Mayor” made me do some research. She quoted information from “Lies-Tax revenue” saying that Costco has a net revenue loss on all but 2 out of 116 cities, in California. How could that be? Lies-Tax revenue uses a study from The Institute of Local Self-Reliance, a non-profit organization, “Impacts of Big Box Stores on Taxes and Public Costs.” I found the article easy to understand and straightforward. I am commenting based on Pleasanton’s fiscal annual impact of a Costco, which agrees with Lisa S’s analysis.

First, Costco demands incentives to locate within a community. Yes, it’s hard to believe, but this huge corporation, which makes billions of dollars in profits per year, demands that you pay taxpayer money to come to your city. These incentives in most cases studied result in a negative economic impact for many years. In Pleasanton’s case, it could be for 30 years.

Pleasanton is considering spending $11,000,000 of taxpayer money for infrastructure improvements to mitigate the negative impacts of traffic of the Costco. Normally, the developer would pay for these improvements to increase the value of their own property; but in this case, to incentivize Costco to come, Pleasanton will borrow $6,000,000 from Costco and use $5,000,000 of its reserve.

Second, much of Costco’s sales come from existing businesses within the local community: grocery stores, gas stations, appliance stores, automobile dealerships, tire stores, jewelry stores, pizza restaurants, florists, insurance companies, and on and on. A study by MIT: “Big-Box Impact Studies”, states much of the sales will come from the local county. It quotes 84%. So, using Lisa S’s rather conservative number of 50% from the City of Pleasanton, the financial impact for 30 years is below:

$750,000 annual net sales tax revenue from Costco (50% from existing businesses)
-373,740 annual payments of $6 million borrowing @4% for 30 years
-286,452 annual payments of $5 million borrowing to payback reserve 4% for 30 years
-153,450 annual costs of city services to support Costco ($1023 per 1000 sq ft)
————
$ -63,642 annual loss for 30 years

Yes, Costco could be a drain on our Pleasanton economy, the same as it is in 114 cities out of 116 cities in California, quoted from the Institute of Local Self-Reliance.

Johnson Drive Initiative Certified by Registrar

It now goes to the City Council for approval to be placed on the Nov. 8 General Election Ballot

The Citizens for Planned Growth’s Johnson Drive Initiative petition, originally submitted on June 13 with 7,000 signatures collected, has been certified as having enough signatures by the Alameda County Registrar of Voters. This makes it eligible for approval by the City Council for placement on the November 8 General Election ballot.

According to Karen Diaz, City Clerk, consideration of the initiative will be placed on the agenda for the July 19 City Council meeting.

“We have been asking the City Council since August of last year to allow Pleasanton citizens to vote on whether they want a big box store included in the Johnson Drive Economic Development Zone plans, and this is the council’s chance to do just that,” said Bill Wheeler, head of the CFPG.

“We have determined that adding this initiative to the ballot for the November 8 regular election, when we will be voting for national and local officeholders, will incur minimum costs, allow the citizens to decide this very important issue and eliminate the potential of a very costly election in the spring.”

“We are very grateful to all of the citizens and people who have helped us. We hope for a campaign run with dignity and integrity from both sides of the issue, which will represent the true character of our great city,” said Wheeler.

Costco in Elk Grove, CA Asking for Hidden Subsidy

An article in the May 24, 2016 Sacramento (CA) Bee outlines how Costco and Pappas Developments have created a new way to get the localities to subsidize the building of a new store so that the transaction is not apparent to the general public.

According to the article (see full text here),

Costco is known for requiring its development fees to be reimbursed through sales-tax sharing agreements with cities. In this case, Costco wants the city to give its landlord a subsidy while the company pays lower rent, he said.

Costco would still benefit financially, but in a less straightforward way that would avoid the public perceiving it as a tax kickback, Davis said.

“When I first met with Costco in 2008, they indicated very clearly that they only locate in cities where 100 percent of their impact fees are returned to them in terms of sales tax sharing,” the mayor said. “They didn’t want to do that directly (in Elk Grove). They said, ‘Work that through the lease with Pappas.’ ”

Local residents have raised objections to the store’s placement because of traffic concerns and its proximity to a residential neighborhood. But it appears that the Elk Grove City Council will be proceeding with approval using the developer subsidy approach. It has asked for design changes, which are due to be submitted by July 13.

Johnson Drive Big Box Initiative Gathers Required Signatures

The petition drive for an initiative to limit the size of retail stores in the proposed Johnson Drive Economic Development Zone (JDEDZ) has gathered over 7,000 signatures from Pleasanton citizens. The initiative was then submitted to the Pleasanton Registrar of Voters and City Clerk on June 13th for approval to be placed on the November 8 General Election Ballot.

From here, the Registrar and Clerk have 30 days to verify the signatures, and then the initiative will be submitted to the City Council at either their July or August meetings.

The Johnson Drive Initiative, sponsored by the Citizens for Planned Growth (CFPG), calls for a limit of 50,000 square feet on any retail store wanting to be a part of the JDEDZ. When placed on the November ballot, it will ask citizens to vote “Yes” if they want to see a limit on the size of any retailer in the JDEDZ, or “No” if they do not. If the “Yes” vote prevails, a large Big Box store such as Costco (averaging 140,000 to 160,000 square feet) could not be included in the JDEDZ plans.

“We have heard a lot of comments from Pleasanton citizens about Costco in the JDEDZ—mostly against the Big Box, but also some for it,” said Bill Wheeler, head of CFPG, “Now it is up to the City Council to approve putting the measure on the ballot and give everyone the opportunity to express their opinions on this important issue through their votes. We are confident that this will easily be accomplished in the time frame we have until the election.”

“We want to thank the team members of Citizens for Planned Growth who worked so tirelessly to gather the signatures from Pleasanton voters. They did a great job in a short amount of time,” Wheeler said.

“And we want to thank the citizens of Pleasanton who, during this busy political season, took the time to learn about our initiative and joined the effort to get their voices heard.”

The Pleasanton Planning Commission has been discussing the Johnson Drive Economic Development Zone since 2014, and the idea of including a Costco and Costco Gas Station was introduced in 2015. Since then, opposition to the plan has developed, and the CFPG was formed to formalize the actions necessary to make this particular zoning change process more responsive to the will of the public.

 

Impact of Big Box Stores on Taxes and Public Costs

An analysis done by the Institute for Self Reliance (http://ilsr.org/wp-content/uploads/2008/12/bbtk-factsheet-publiccosts.pdf)

Although many cities assume that the development of shopping centers and big-box stores will yield a financial windfall, the tax benefits often prove to be a mirage.

When evaluating a retail development proposal, developers and municipal officials often focus  on only one side of the equation: the amount of new tax revenue that the project will generate. It’s easy to overlook the fact that retail development also creates new costs and often leads to a decline in tax revenue from existing commercial districts.

In the case of big-box stores and strip malls, these costs and revenue losses can be so high that they reduce the overall tax benefit of the development to a negligible trickle or even result in a net loss for the city.

Overlooked Costs

Cities rely on different types of tax revenue. In some states, such as California and Arizona, cities are constrained in their ability to raise property  taxes and therefore depend  more heavily on local sales taxes and various fees. In other states, cities do not collect a local sales tax and raise more funds through property taxes. This is true in much of New England, where all sales tax revenue goes to the state.

How a particular development will affect a city’s finances depends on the local tax structure, as well as the characteristics of the project. In general, there are three main costs that cities commonly overlook in evaluating the financial impact of large-scale retail development:

1. Lost sales tax revenue from existing businesses Because consumers have  only so much money to spend, sales at a new shop- ping center are invariably mirrored by sales losses at other businesses in the region. The sales taxes generated by the new development are in turn matched by an equivalent drop in sales tax revenue from other retail areas.In California, for example, strict caps on property tax rates have forced cities to rely primarily on a local sales tax, sparking fierce competition to attract big-box stores and  shopping malls. But despite extensive retail development over the last twenty years, the amount of sales tax revenue that California cities are raising per capita has remained the same. (Public Policy Institute of California, “City Competition for Sales Taxes: Symptom of a Larger Problem?” Research Brief, Jul 1999.)

Some cities can become tax winners by playing host to a new shopping center that draws customers from nearby cities, but these gains are usually fleeting. It’s only a matter of time before that new shopping center is eclipsed by an even newer retail development that pulls shoppers to another town.

Some evidence suggests big-box stores may not even produce a temporary revenue gain. One study of 116 cities in California found that, in all but two cases, the presence of Wal-Mart,Target, Costco, Kmart, or Sam’s Club stores did not correspond to increased sales tax revenue. (Supercenters and the Transformation of the Bay Area Grocery Industry: Issues, Trends, and Impacts, Bay Area Economic Forum, 2004, 74-81)

2. Declining property tax revenue from existing business districts and shopping centers — Neighborhood and downtown business districts, as well as older strip malls and even big-box stores, are often harmed by new retail development on the outskirts. As these areas lose sales and experience growing vacancies, the value of the property declines and, with it, the tax revenue.

Allowing older commercial districts to deteriorate, while fostering retail development elsewhere, also wastes public resources.  Public investment in the roads, water lines, and utilities that serve older retail areas end up sitting idle or underutilized, while taxpayers foot the bill for new infrastructure to serve the new big-box store or shopping center.

3. New costs for providing public services to the development — Big-box development also creates substantial direct costs. Every time a corn field or a forest succumbs to a new shopping center, the local government incurs new expenses for maintaining roads, water and sewer lines, and police and fire services.

The more spread-out and auto-intensive the development, the more costly it will be. Traditional main-street business districts, because of their density and compactness, are very efficient users of public infrastructure and services. Sprawling big-box stores are not. They require longer roads, more road maintenance, additional miles of utilities, and more fire and police time.

One case study in Barnstable, Mass., found that the annual cost of providing city services to traditional downtown and neighborhood business districts (which the study labeled “specialty retail”) was $786 per 1,000 square feet of retail space. Big-box stores were 30% more costly, requiring $1,023 in services per 1,000 sq. ft., while strip malls where even more expensive at $1,248. (Tischler & Associates, Fiscal Impact Analysis of Residential and Nonresidential Land Use Prototypes, prepared for the Town of Barnstable, Jul. 1, 2002.)

Most of this difference is due to additional costs for road maintenance and police services. Because big-box stores generate substantial car traffic and typically increase the number of road miles that residents travel for shopping, cities end up having to spend more on road maintenance. Although developers may offer to pay  for new traffic infrastructure (turn lanes, signals, etc.), the real issue is ongoing operational costs.

Big-box stores also require substantial police services. This is partly because the added traffic generates more accidents and  necessitates more policing. It’s also due to the fact that big- box stores generate large numbers of police service calls — far more on average than local retailers do on a per square foot basis. Many of these calls are for shoplifting. (See our fact sheet, Wal-Mart’s Impact on Local Police Costs.)

bb costs & revenue chart

Source: Fiscal ImpactAnalysis of Residential and Nonresidential Land Use Prototypes preparedfor Barnstable, Mass, Tischler and Associates, 2002.

The Bottom Line for Cities

Once the full range of costs are factored in, retail development can end up being a net drain on city finances. The Barnstable case study found that not only did main-street retail produce lower services costs, it also generated more property tax revenue per square foot, because these retailers occupied higher-value, often historic, buildings. The net result was the main-street retail produced an annual tax surplus of $326 per 1,000 square feet, while big- box stores cost the city $468 more per 1000  sq. ft. than they contributed in tax revenue.

These findings are specific to Barnstable. Whether a particular big-box development will be a net loss or gain for a city depends on its tax structure and what services it has to provide. In areas where roads are maintained by the state, a big-box store might be a financial gain for a town, but only because the road costs are born by all of the state’s taxpayers. Cities that rely heavily on local sales taxes are more likely to find big-box stores a financial plus, but only in the short-term and only if the costs to the region as a whole are ignored.

In states where cities derive the majority of their revenue from property taxes, such as Massachusetts, shopping centers are more often a net financial loss. The same is true for cities that depend on local income taxes, as those in Ohio do. Studies in Ohio have found that big- box development is often a net drain, because its low-wage jobs produce little revenue relative to its high public costs. (Randall Gross, Under- standing the Fiscal Impacts of Land Use in Ohio, Development Economics,August 2004.)

Requiring a Fiscal Impact Analysis

Because the information supplied by developers is typically incomplete and may not represent  an unbiased analysis of the public costs and benefits of a project, a growing number of cities now require that retail development proposals undergo a comprehensive fiscal impact analysis conducted by an independent consultant  chosen by the city and paid for by a fee assessed to the developer. Such an analysis can provide city officials with a more complete picture of the impacts and help them determine whether to approve or reject a project. For more details, see our Guide to Retail Impact Analysis and our Community Impact Review Policy Kit.

Better Ways to Grow the Tax Base

A city’s long-term financial health hinges on creating high-quality jobs, protecting local as- sets, and fostering more efficient land use pat- terns. Here are three key strategies for ensuring that retail uses are a net financial benefit:

  1. Protect and strengthen established local business districts Limit retail sprawl  in outlying areas and foster new Pleasnton downtowninvestment, in- fill development, and small business growth in existing main-street business districts. This will maximize tax revenue from these districts, while minimizing new costs because the public infrastructure and services are already in place.
  2. Insist that new retail development mimic traditional Main Streets Compact, multi-story, walkable retail districts make far more efficient use of public infrastructure and services than sprawling, auto-oriented, single-story outlets do. To minimize the public costs of development, zoning should require new retail construction to be dense and multi- story, favoring pedestrians and accommodating office and residential uses on upper
  3. Preserve open space — Studies in more than 80 communities have found that farm land, forest, and open space generate more tax revenue than they cost in public services.

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License: http://creativecommons.org/licenses/by-nc-nd/3.0/us

For more information, see www.bigboxtoolkit.com

Costco Tries Using Tourism Loophole to Get Tax Breaks In New York

Multi-billion dollar Costco is using a tax loophole in New York to gain tax advantages for the new stores being built there. According to an article in a July 30, 2014 Newsday editorial, the club retail giant is turning a ‘tourism’ exception to the state ban on tax breaks for retail projects to its advantage in stores it wants to build in Syracuse and Oceanside.

According to Newsday:

“State law bans IDAs from giving tax breaks to retail projects, but it contains three exceptions — for projects located in distressed areas, offering services not available in the area, or related to tourism. The last one is the same notorious loophole Babylon Town’s IDA used several years ago to give a boneheaded tax break to Tanger Outlets at the Arches in Deer Park. Costco received tax breaks last year from two upstate IDAs via those exceptions. One store in Rochester qualified as being in a distressed area; another in Syracuse was judged to be a tourist destination.”

The Long Beach Herald ran a story in September, 2014, saying that the Costco received approval from the local jurisdiction to build.

“While Costco got its approval to build in Oceanside, it has no so far received the tax breaks from Nassau County it sought. Costco applied for tax exemptions through the Nassau County Industrial Development Agency in June, but IDA’s executive director Joseph Kearney said the board has taken ‘no action’ on the application.”

The new store is scheduled to open this year, but we can’t confirm whether construction has begun, and according to the Nassau County IDA, nothing has been approved on the tax breaks.