Manteca got close to a $1 million in unexpected sales tax from The Promenade Shops at Orchard Valley due to an oversight that delayed the city’s final acceptance of the 1,922-space parking lot construction for almost three years.
The parking lot is the physical asset the city entered into a 35-year lease to essentially share Orchard Valley sales tax revenue in a bid to secure the center and its tenant anchor of Bass Pro Shops. Without final city acceptance of the parking lot, Orchard Valley developers Poag & McEwen could not start billing Manteca.
As a result, nearly $1 million in sales tax over three years - the 55 percent cut in annual sales tax that goes to Orchard Valley - went instead into municipal coffers. The timing couldn’t have been better. Sales tax started flowing in just as property tax receipts took a dive. Without it, the past three years of municipal budgeting would have required further cutbacks in services.
That doesn’t let Manteca off the hook for any revenue sharing that is based on sales tax generation from the center over the course of 35 years.
The clock simply didn’t start ticking until last year when the first check of $299,000 was sent to Poag & McEwen. That meant in 2010 the center generated local sales tax of about $545,000, Measure M public safety sales tax of around $272,000, Measure K transit sales tax of around $272,000, and state sales tax of roughly $3.5 million. Manteca - after settling with Poag & McEwen - netted about $245,000 for the general fund and around $272,000 for the express purpose of paying for police and firefighters.
Sales tax figures point to the likelihood that Orchard Valley business - Bass Pro Shops, JC Penney and Best Buy (which was still open) and other smaller ventures - generated $54.5 million in taxable sales during 2010.
Manteca was able to get sales tax it would not otherwise have gotten
City Manager Karen McLaughlin said she wouldn’t hesitate to negotiate the deal again today since what Poag & McEwen was offering was to snare a retailer - Bass Pro Shops - that would tap into the pockets of essentially non-Manteca residents to pay sales taxes. Those taxes in turn help pay for day-to-day services such as public safety, parks, and streets. It is estimated that at least 96 percent of all of Bass Pro Shops’ sales are made to people residing outside the city limits. That means the sales tax money Manteca is capturing - and the part it is giving up - would not have gone to Manteca without Bass Pro locating here.
McLaughlin emphasized the city’s deal was with the developer, and not Bass Pro.
“Poag & McEwen did whatever they had to do to get a deal made with Bass Pro,” McLaughlin said.
The privately owned company typically demands - and gets - anywhere from $10 million to $20 million in incentives of some type to site stores based on various stories down on deals elsewhere to snag a Bass Pro Shops.
Getting incentives from developers - or local jurisdictions - to site a major chain store isn’t unusual. Cabela’s, a direct competitor of Bass Pro Shops, typically demands similar concessions. Gander Mountain, another Bass Pro competitor, steadfastly refuses to make such requests at least of government jurisdictions.
It is common practice in many private sector shopping center deals to provide an anchor tenant - considered key to securing other tenants - a sweetheart of a deal. In malls sometimes the first anchor tenant gets a lease deal that can go as low as $1 a year for a set amount of time so developers can snare other retailers. One smaller center in Manteca has an anchor tenant that isn’t paying rent until more than half of the complex is filled.
The lease deal gives the City of Manteca full use of the 1,922 parking spaces at Orchard Valley for 35 years for various events, installation of a park and ride lot, and to use as a helicopter landing site in an emergency. Sales tax was used as the measuring stick for the lease on a yearly basis.
The split is based solely on the one cent local sales tax and not the Measure K or Measure M sales taxes.
Payments to Poag & McEwen capped
The first year the rent payment to Poag & McEwen was capped at $936,549 based on a 55 percent split. The $299,000 they received was $636,000 short. That deficit rolls over into the next year. That is added on to the base for the second year of $976,000 meaning they could receive up to $1.6 million providing 55 percent of the sales tax generated in the second year equals that amount.
The deal is written so that Manteca always receives 45 percent of the local sales tax collected each year during the 35 years the lease is in effect.
If sales tax ever exceeds what is needed to make an annual rent payment such as enough sales tax to give Poag & McEwen a $976,976 maximum payment at a 55 percent split in the contract’s second year, anything above that amount that year goes entirely to the city.
If at the end of the 35 years the payments from the sales tax split fail to match what was hammered out in the agreement, the shortfall is not made up and “debt” that Manteca “owes” is wiped out.