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Great Wolf, Manteca & the $7M question
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Free market purists are absolutely right that Adam Smith and Milton Friedman would likely disapprove of municipal deals such as the one Manteca’s elected leaders are entertaining to snare Great Wolf.
But this is a matter of survival in a market that is anything but pure. Manteca is being pragmatic to avoid running the risk of having less police and firefighters, even more moonscape streets, and less amenities.
The idea of Manteca leaders “partnering” with the private sector to bring jobs, boost the economy, and generate tax revenue isn’t a modern invention. It is what allowed Manteca to land Spreckels Sugar a century ago.
Modesto wanted Spreckels Sugar and made a strong bid to secure the factory. The Board of Trade — the forerunner of today’s Manteca City Council — arranged for a favorable land deal. The South San Joaquin Irrigation District board made concessions to use its ditches to handle the massive discharge of wastewater laden with lime.
Manteca prevailed over Modesto and secured a sugar beet refinery that added a different dimension to the then farm town. Spreckels became the largest private sector employer in Manteca — and remained so for 50 years — while the payroll and its purchases of goods and services helped local businesses prosper and generated numerous secondary jobs. By the time Spreckels ended its 79-year run in Manteca, it was no longer the top employer having slipped into 8th place among private sector enterprises.
That said, Spreckels Sugar was firmly engrained in Manteca’s civic psyche as well as the city’s image. Manteca and Spreckels Sugar were viewed by much of the world as synonymous.
Manteca isn’t the only entity by far that has had to get creative in order to pay the bills and attract jobs. In fact you could make a sound argument that such deals are defensive in nature as much as they are offensive — figuratively to some and literally to others.
Car dealership poaching was a prime example. Before the California Legislature stepped up in the early 1980s and required the local sales tax charged for a car to be based on where it is garaged and not where it is bought, cities would cut sweet deals to lure new car dealers from neighboring cities. If a dealer sold 100 cars a month at an average price of $20,000 the local 1 percent cut of the base sales tax would come to $20,000 a month or $240,000 a year. Changing the sales tax payment to where the buyer garages their vehicle — essentially resides — ended that practice.
Going after Costco was a no brainer. If Manteca hadn’t, it was clear from Costco’s real estate people that Manteca wasn’t on their radar given they thought a location on Interstate 5 ultimately could make more sense as Lathrop grew than one in Manteca.
Manteca went after Costco based on proprietary information that showed Manteca consumers were spending $60 million a year between their Tracy and Modesto stores. The split worked out until Costco recovers their $3.7 million investment that they never would have made in Manteca plus the Measure M public safety tax they generated has been enough over the past 10 years to cover the cost of three police officers. When the split ends in two years when the $3.7 million is paid off, the city will have funds flowing in from Costco sales that is the equivalent funding of five police officers a year.
In short, Manteca consumers that shop at Costco are paying for city services in their hometown and not those for the residents of Tracy and Modesto.
You could characterize it as “corporate welfare” but let’s be honest. The model most cities used up until the 1960s in California of using general fund money collected from everyone’s property taxes to extend streets, sewer and water lines so firms could build factories, warehouses, and stores is the same thing.
Toss in the fact the state has found ways to hijack property taxes and to play games with sales taxes by withholding part of the local cut for up to two years after it is collected and the Great Wolf deal, if it materializes, will look like pure genius.
The state has yet to find a way to legally raid room taxes. It is a tax that is paid almost 100 percent by people who don’t live here with the money collected used to pay for Manteca municipal services. And in the case of Great Wolf, most of that room tax will be paid by Bay Area residents.
Keep in mind most destination jurisdictions in California have room taxes pushing 15 percent.
If you keep everything in constant 2017 dollars, the split of the room tax alone for the first 10 years will give Manteca around $1 million a year. After a decade that will jump to $2.35 million and creep upward as the room tax dedicated to paying development fees is paid.
When the 26th year rolls around, Manteca will be collecting $4.7 million annually.
But should Manteca opt for a room tax increase more in line with what people who stay in other jurisdictions pay and increases it by 50 percent to 13.5 percent by 2020, those numbers change significantly.
In the first year with a 13.5 percent room tax Manteca would collect $3.35 million or just under 9 percent of the city’s current overall annual general fund revenue that it collects. In the 11th year it would be $4.7 million annually. Then in the 26th year it would jump to $7.05 million.
Without a Great Wolf project the numbers would be easy and extremely precise to project — zilch.