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Sales tax deals net Manteca $3.5M so far

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POSTED February 12, 2014 1:35 a.m.

Sales tax sharing deals that brought The Promenade Shops at Orchard Valley anchored by Bass Pro Shops and Costco to Manteca have netted municipal coffers $3,539,221 in taxes over four years.

That’s after paying Orchard Valley owners Poag & McEwen $1,044,600.55 and Costco $1,240,790 as their cuts of sales tax under agreements hammered out to lure both concerns to Manteca. The sales tax the city has received is an average of $884,800 a year from the portion of the local one cent sales tax Manteca is keeping plus the half cent Measure M public safety tax.  That is enough annual funding to cover eight public safety positions.

Negotiations with McWhinney Development for the possible building of a Great Wolf Resort in Manteca could add at least $1.4 million annually to city coffers through the splitting of sales, property and room taxes generated directly by the proposed 500-room hotel and indoor water park.

The revenue Manteca has received from Orchard Valley and Costco is gleaned from payment data to the two entities.

The two deals were structured differently.

Poag & McEwen entered into a 35-year lease with the city for the use of the Orchard Valley parking lot.

 The deal included:

• 35 annual payments that cannot exceed $61.7 million.

• provisions that no more than 55 percent of the sales tax collected in any given year goes to Poag & McEwen with the other 45 percent going to Manteca.

• all Measure M public safety tax goes to Manteca.

• at the end of 35 years whatever shortfall exists between the amount actually paid Poag & McEwen and the $61.7 million owed is forgiven.

• starting in the 36th year 100 percent of all sales taxes go to Manteca.

The contract called for Poag & McEwen to receive $938,549 the first full year. Their actual payment from the 55-45 sales tax formula was $298,843. That meant $639,705 was tacked on to the $976,976 owed for the second year making the balance $1.6 million. Poag & McEwen’s share of sales tax was $381,387 the second year. That created a $1.2 million shortfall tacked on to the $1,085,259 due in year three for an outstanding balance of $2.3 million. The year three payments, though, came to $364,359 leaving a balance owed of almost $2 million.

It means Poag & McEwen isn’t likely to collect anywhere near $61.7 million., Meanwhile, Manteca is assured 45 percent of the sales tax regardless of what is collected or owed during each year of the contract. That is in addition to keeping all of the Measure M taxes.

City Manager Karen McLaughlin noted the biggest draw by far at Orchard Valley is Bass Pro Shops. At least 98 percent of the sales at the store are to people who do not reside in Manteca. In short, it is sales tax the city would not have collected if Bass Pro hadn’t located here.

Costco is structured differently. The big box retailer receives 45 percent of all sales tax collected in a given year until they receive $3.7 million.

The deal was based on the fact residents in Manteca two ZIP codes were spending $45 million annually at the Modesto Costco store and $15 million annually at the Tracy Costco store. That meant the city was losing $500,000 a year in sales tax that Manteca residents were spending. In five years Manteca has received $1.5 million in sales tax from the Manteca Costco store they have been able to keep.

Costco was looking to build a second store in Modesto and not in Manteca. They told city leaders it would be at least eight years before another store would be built in the area. And then it was likely Manteca as well as Lathrop would be considered with only one getting a store.

The sales tax deal prompted Costco to nix the second Modesto store and build in Manteca instead. The city also is luring sales tax from consumers in Ripon, Lathrop, and Escalon.

The payments end when $3.7 million is reached. At the current rate that will be in between 11 and 13 years.

“Getting 45 percent or 55 percent of something is a whole of a lot better than getting 100 percent of nothing,” McLaughlin noted.

Sales and property taxes are the two biggest sources of municipal revenue.

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