GILROY
– The city is asking developers of the two largest big-box
retail complexes in Gilroy to guarantee that their stores will
generate enough sales tax to offset incentive packages worth $10.5
million.
GILROY – The city is asking developers of the two largest big-box retail complexes in Gilroy to guarantee that their stores will generate enough sales tax to offset incentive packages worth $10.5 million.
If developers of the retail centers at U.S. 101 and Highway 152 do not guarantee the windfall, the city will refuse permits for the stores. The city’s approach is bold given its tenuous grasp on the retail developers who, before getting their projects approved, never signed on the dotted line to guarantee that their retail centers would generate a certain level of sales tax revenue.
“The developers know we have a fiduciary responsibility to the citizens of Gilroy,” said John Greenhut, a Community Development director for the city. “We’ve been in touch (with the developers) regularly. We’ve discussed the issue.”
However, Newman Development Group Managing Partner George Akel said he had not seen – until it was faxed to him by a Dispatch reporter – the city’s latest draft document outlining four methods of determining how much sales tax each store must generate. Newman Development Group is building the retail center where Best Buy, Costco and Lowe’s stand now.
Akel reacted cautiously to the city’s plan and declined to respond to questions about whether or not he felt the plan contradicted anything the two parties signed on to within their original contract.
“We plan to adhere to the language of the original contract, and my hope is that’s what the city plans to do, too,” Akel said.
Regency Realty Group, which is developing the retail center where Target is now, could not be reached before deadline.
Before the city approved the Newman and Regency developments, City Council made the firms sign a document stating, among other things, that retail space would only be leased on five-year terms.
The five-year time frame ensured that the developers would lease space to successful retail outfits. This was important because with more retail success would come more sales tax, a crucial revenue source for the city since it is used to fund programs such as the new paramedic service. Roughly half of the city’s general fund is comprised of sales tax revenue.
For the city, the approach is the next best thing to the more politically popular sales tax deals it made with stores like The Home Depot, Costco and Lowe’s.
In those deals, known as economic incentive packages, the city waived costly development impact fees as long as stores guaranteed a certain amount of sales tax revenue over a three-year period.
“We feel the contracts (with individual stores) give us a clear and easy way to deal with companies. We track their sales tax revenue for three years, and they are either over or under,” City Administrator Jay Baksa said.
If stores do not generate their required amount of sales tax, they must pay the city the difference.
