Manteca may make its biggest tax sharing deal ever to get the biggest economic return yet for the municipal general fund.

Municipal leaders have indicated they are looking at $32 million as Manteca’s contribution to infrastructure involved with leasing city-owned land for 99 years to McWhinney Development to build a 500-room Great Wolf Resort. McWhinney will invest $200 million into the indoor waterpark project that includes a conference center on 30 acres immediately west of Costco along the 120 Bypass.

Based on potential terms that surfaced during public discussion at last week’s council meeting, 75 percent of all of the city’s sales, property and motel room tax collected directly from the project — excluding the half cent public safety tax that would all go to the city — would be split with McWhinney. In addition to sewer, water, and storm lines it could also include the resort’s parking lot and other public improvements. At one time there was a discussion it could also included the conference center that could be used by groups not staying at the resort to drive convention business to Manteca.

An analysis done last year for the city by MuniCap Inc. — an outside financial consultant with expertise at examining public-private partnerships — indicated that a conservative projection for occupancy based on Great Wolf success elsewhere the resort would generate $6.5 million in occupancy tax. The occupancy tax is by far the biggest direct projected income from the project. Great Wolf would collect the 9 percent occupancy tax that all city hotels do and another 5 percent private lodging tax that only applies to their rooms.

At a 75-25 split alone in the room taxes using 71.1 percent occupancy, McWhinney would collect $4,875,000 a year and Manteca $1,625,000 a year. No other specific details have yet to be discussed publically including the length of time the split will be in place or how the city’s contribution will be covered. It could even be covered in part by McWhinney’s 75 percent cut if that is what both parties agree to do.

Also, there has been no pubic mention of possible fail safe mechanisms that Manteca negotiated into the tax split with Poag & McEwen for The Promenade Shops at Orchard Valley anchored by Bass Pro Shops as well as for separate tax split deal with Costco.

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The Costco deal

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

Every time a Manteca resident shopped at the Modesto and Tracy Costco’s they were dropping $600,000 in local sales tax.

Costco is receiving 45 percent of all local sales tax — excluding Measure K and the half cent public safety tax — generated 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 within 10 years despite the recession hitting just as Costco opened its doors on Daniels Street. Costco opened in Manteca seven years ago.

Manteca municipal officials found out through commercial leasing agents with Kitchell that Costco was going to locate another store in the region and were 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. The city instead asked for a dollar amount.

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.

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The Orchard Valley deal

The Promenade Shops at Orchard Valley sales tax split that brought Bass Pro Shops to Manteca was structured differently

Manteca is renting the 1,922 parking spaces for 35 years from Poag & McEwen. The lease started in 2008.

The terms of that agreement calls for Poag & McEwen to get 55 percent of the local sales tax collected —excluding the public safety tax (Measure M) and county transportation tax (Measure K) — and the city 45 percent based on the first $1.1 million annually over a 35-year period. If it is less than $1.1 million, the city’s payment to Poag & McEwen is capped at 55 percent of the amount collected. If it is  more than $1.1 million the excess all goes to the city.

The maximum that Poag & McEwen can receive over 35 years is $18.5 million.

Orchard Valley in its first full year with just JC Penney, Best Buy, and Bass Pro Shops in place took in close to $2 million in local sales tax with the bulk of it from Bass Pro. 

Using $2 million that meant Poag & McEwen received $605,000 and Manteca $495,000. In addition Measure M tax receipts for the complex were $1 million that initial full year of operation.

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Great Wolf different

Great Wolf Resort is different in that it isn’t expected to be a big generator of direct sales tax.

It is expected to generate only $162,000 in local sales tax a year compared to $6.5 million in room taxes. As such the $6.5 million Manteca would not have received since it is being generated for a destination resort unlike other hotels. 

Great Wolf projects a $9.4 million annual payroll with 414 permanent jobs and 156 part-time jobs. They also expect 400,000 annual visitors.

Environmental studies for Great Wolf and the rest of the city’s proposed family entertainment zone will be circulated within a month or so. The environment review and development agreement may go before the Planning Commission in May with a goal of a City Council decision in June.