After it failed to reach agreement at its July 7 meeting, a divided Hanford City Council will have to take a second look at how the city will honor its agreement with developers to split future sales tax income from the upcoming Costco.
The city initially agreed to reduce developer and impact fees to the tune of $2 million to bring Costco to town — a sum which city leaders knew would eventually have to be paid out of the city’s coffers. The council then OK’d a second resolution in July of 2014 agreeing to pay the developers a second $2 million for infrastructure improvements they will make at the East Lacey Boulevard location. But, the present council couldn’t decide at its latest meeting how to come up with the cash.
Rebuilding From the Recession
The reduced developer fees were offered in the wake of the mid-2000’s recession, a carrot dangled to attract new businesses to the city. The move worked, but now the discounted fees must be covered to avoid legal problems, Deputy Public Works Director John Doyle told the council.
“It was clear the impact fees had to be paid by someone,” he said. “If you reduce the impact fees and they’re not made up by someone somehow, then the development isn’t really mitigating its impacts, and so the discussion was that reimbursement is necessary to ensure those funds are whole, so the project is fully mitigating its impact.”
Mitigating the Mitigation
The plan presented at the July 7 meeting would see half of the sales tax collected by the city from future Costco sales redirected to covering the reduced development and impact fees. All sales tax generated by other businesses that move into the Costco shopping center once it opens will also go to repayments.
“The sales tax incentive agreement covered certain items we identified being installed in exchange for the sales-tax refund,” Doyle explained. “And, those would include the traffic signal at Lacey Blvd. and the entrance to the facility, part of the storm drain, because it services the street, improvements along the street that are outside the reimbursement, so it’s stuff that’s beyond the curb, the sidewalks, landscaping and medians. …”
The agreement, which has already been inked by both parties, will see half of the sales tax Costco generates returned to the developers whenever sales at the outlet exceed $5.7 million in a single quarter. The repayments end when the $2 million has been repaid, or after nine years. By comparison, the Costco in Visalia, which is approximately the same size as the 150,000 facility planned for Hanford, generates around $160 million in sales annually. The Hanford Costco must open by Dec. 31, 2017 in order to for the agreement to remain valid.
No Sales Tax Money for Years
The upshot and apparent source of disagreement, or perhaps confusion, arose when it became clear the city would see no sales-tax revenue from any business opened at the new shopping center until the entire $4 million had been repaid.
“So, if Costco opened tomorrow, the other half (of sales-tax revenue) that’s not going to the developers will go to impact fees,” Doyle told the council. “If another building opens three days later, all the sales tax from that will go to this (repaying the discounted development and impact fees) until it’s paid back, which will pay it back faster, obviously.”
When questioned by the council, Doyle agreed the city could see no sales-tax revenue from the project making its way into the city’s general fund for five to six years, or perhaps as long as nine years, should sales at the new store prove lower than expected. But, once the money is repaid, a total of $4.055 million, the city will be off the hook.
“That’s the end of the cost to the city and the general fund,” Doyle said.
A Council Divided
However, when the resolution to approve the repayment plan came up for a vote, the shorthanded council split itself in a 2-2 decision. Voting for the plan were Mayor Russ Curry and Councilman Justin Mendes, while Vice Mayor David Ayers and Councilman Francisco Ramirez were against it. Councilman Gary Pannett did not attend the meeting.
The repayment proposal will be brought back for consideration at an upcoming council meeting.
Also failing to gain support in the same vote was a second resolution authorizing a $6.4 million inter-fund loan that would have made funding immediately available for the reconstruction of the East Lacey Blvd. intersection with Highway 43. Because of its proximity to the Highway 198 on-ramp, the intersection will have to be moved to avoid traffic snarls. Current plans call for a roundabout to be constructed at its new location.
The loan, which the city would repay to itself along with 2 percent interest, will also be reconsidered at a future council meeting.