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Manteca caught Bass Pro, sales tax

Tax split deal landed retail whooper at expense of San Jose

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Manteca caught Bass Pro, sales tax

It took a deal for Manteca to land the Bass Pro Shops.

HIME ROMERO/The Bulletin


POSTED January 4, 2013 12:04 a.m.

Manteca Mayor Willie Weatherford lives by a tried and true Army flexibility test given to officer candidates that he took years ago.

“Rather than lose the whole pie, they’d take half,” Weatherford said of the ideal characteristics the test was designed to detect.

It’s a philosophy that has guided Weatherford - and Manteca’s leadership as a whole - as they started reversing city’s fortunes at the dawn of the 21st century.

Thirteen years ago, many Manteca residents were bemoaning the lack of employers locating here as well as the lackluster retail development. Most of the big fish were being caught by Tracy. Today the tables have turned. And a lot of that has to do with the proverbial art of the deal. Or, in Manteca’s case, it’s ability to snare high profile firms such as Bass Pro Shops and Big League Dreams that have brought with them sales tax and visitor traffic critical for a healthy government revenue base and vibrant economy.

The highest profile deal of them all was the sales tax revenue sharing deal with Poag & McEwen that landed Manteca the big catch of Bass Pro Shops.

The deal essentially allows the developer to receive 55 percent of all sales tax generated by stores at The Promenade Shops at Orchard Valley through 2043 with three caveats. The annual payment to Poag & McEwen would not exceed $1.1 million a year. Anything above that threshold would belong 100 percent to the city. And, if after 35 years the amount collected doesn’t reach $18.1 million, the city doesn’t have to give up the difference.



Bob Adams gets credit for Bass Pro deal

Manteca was competing with San Jose for Bass Pro Shops. The privately held firm -just like rival Cabela’s - has a history of demanding direct subsidies of between $15 million and $25 million to build a store in a jurisdiction. They are able to do so because the stores typically secure sought after sales tax cities would not normally have. In Manteca’s case, it is estimated over 97 percent of the sales tax collected at Bass Pro Shops in Manteca comes from people who do not live here.

Typically such subsidies are in the form of property tax forgiveness or money being funneled into developing sites through public improvements. Manteca opted not to take either route due to risks.

Weatherford credits former City Manager Bob Adams for pushing the developers to get the best deal for Manteca.

Critics contend Manteca should not have given up anything in sales tax. They also believe the city is in effect helping subsidize a big business against smaller businesses that carry the same type of equipment.

But city leaders viewed it as a strategic move to get much needed sales tax flowing into city coffers by essentially having non-residents pick up a sizeable part of the tab for police and fire services.

That is what has happened.

Since Bass Pro Shops sales figures are proprietary in nature they are not public information. But based on Bass Pro Shops first year of full operation when there was only the 16-screen theater collecting sales tax besides Bass Pro that was reflected in the first annual payment to Poag & McEwen, Bass Pro had retail sales pushing $160 million. That means Manteca received $675,000 in sales tax that it never would have been able to collect without Bass Pro Shops. That is in addition to $800,000 in Measure M public safety tax that is excluded from the sales tax sharing. In essence, the first year gave Manteca $1.4 million in additional sales tax paid almost exclusively by non residents.



Manteca getting 55% of what they never would of had

In defending the deal, Adams was quoted at the time as saying, “We’re giving up (55 percent) of what we don’t have. If we didn’t have a Bass Pro Shops, we’d get none of that revenue.”

Adams point out the Manteca store was literally drawing the sales tax out of the pockets of residents in Fresno, San Jose, Sacramento, Modesto, Hanford, Walnut Creek, Palo Alto, Oakland, and San Jose to name a few cities.

Adams - who went on to help lay the fiscal discipline that brought the City of Vallejo back from bankruptcy - was also the architect of the Costco deal.

Manteca’s willingness to split sales tax to get Costco to locate within the city until such time the warehouse store received $3.7 million was driven by hard numbers.



Manteca was losing $600,000 in sales tax to Modesto, Tracy

Every time a Manteca resident shopped at the Modesto and Tracy Costco stores they were dropping $600,000 in potential local sales tax. That figure was gleaned from tracking that Costco was doing of members from the 95336 and 95337 ZIP codes that were shopping at their Tracy and Modesto stores.

Costco is receiving 45 percent of all sales tax received in a given year. Once the $3.7 million figure is reached, all of the sales tax flows into Manteca’s general fund coffers. Manteca is on track to cover the obligation by 2018.

Manteca municipal officials found out through commercial leasing agents with Kitchell that Costco was going to locate another store in the region and was considering the east side of Modesto.

Costco is a huge generator of taxable sales in the communities they are located in.

Manteca municipal leaders figured if that happened it would have been years before Manteca had a chance at landing a Costco. And down the road that may not have happened as Lathrop would have been grown making the appeal of locating on the Interstate 5 corridor as being a central location for the Manteca-Lathrop-Weston Ranch region would have been a tough one for Costco to pass up.

Costco told city leaders the Manteca market numbers “weren’t high enough” yet to locate a Costco in Manteca. They’d consider Manteca, though, it there was some type of “help” in covering the site development.

When Manteca approached Costco the firm originally wanted a straight sales tax split with no cap but Manteca balked.

Even after they were told $3.7 million, the City Council wasn’t convinced it was a good deal.

The City Council retained a Los Angeles firm that specialized in such analysis that also – through Costco’s permission – got access to confidential and proprietary information that is collected by the State Board of Equalization on each business that has taxable sales in California.

They used that hard, state-audited data to determine whether a sales tax split deal would really benefit Manteca.

Data recorded every time a club member used their Costco card showed Manteca residents spent $6 million in taxable sales at Costco stores in Modesto and Tracy in 2006.

The $6 million Costco was pulling out of Manteca consumer pockets represented $600,000 in local sales tax that Manteca residents were paying to support municipal services in Modesto and Tracy.

The end result of the discussions with the big box retailer was that it would take $3.7 million for Costco to build a wholesale store in Manteca. The $3.7 million would come out of sales tax the city would receive from Costco shoppers buying items at the store. The deal gives Costco 45 percent of the city’s share of sales tax - excluding Measure M public safety sales tax that the city would retain - in any given year until the $3.7 million obligation was met.

Costco meet several critical criteria to get the council’s nod for the deal. First, Costco could prove they were already taking a significant chunk of consumer dollars out of Manteca. Second, there wouldn’t be a major shift of taxable sales dollars on non-grocery items from existing Manteca stores.

City officials acknowledged that Costco sold tires and other items such as liquor that competed with existing Manteca retailers but there wasn’t a major expectation that it would simply shift money being spent in Manteca stores to Costco.



Other big deal was BLD


The other pivotal deal was the Big League Dreams complex which is essentially city built recreation complex operated and maintained by a private firm.

Manteca first became aware of the BLD concept when then City Councilwoman Denise Giordano returned from a League of California Cities conference where BLD had a booth. She urged the city to look at the concept.

Weatherford noted that one reason the BLD complex is as successful as it is for the city is thanks to its staunchest critic on the council at the time - then Mayor Carlon Perry - who pushed hard to get a bigger chunk of the gross revenue to come back to Manteca each year. As a result, Manteca gets a 16 percent cut each year - almost 3 percent higher  - than any other city in lease arrangements with the company.

The city has essentially secured a sports complex that it doesn’t have to maintain or operate that also lures large sums of visitors each weekend who end up spending money at Manteca hotels, restaurants, and stores

“Deals have to make sense,” Weatherford said. “The city has to benefit.”

And how did Weatherford do on that Army test?

“I maxed it,” the mayor said.

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