Breaks won’t all be for big box stores

– Officials hope a set of new pro-business economic incentives
will help rein in sprawl, boost the city’s tax revenues, and level
the playing field between big box stores and smaller retailers –
all at the same time.
Gilroy – Officials hope a set of new pro-business economic incentives will help rein in sprawl, boost the city’s tax revenues, and level the playing field between big box stores and smaller retailers – all at the same time.

The proposals, which will go before City Council for review Monday night, would waive hundreds of thousands of dollars in start-up fees normally attached to the development of small- and medium-sized shopping centers.

To craft the incentives, Gilroy city staff studied Hecker Pass, Nob Hill and Safeway shopping centers, and worked with local real estate brokers and developers.

“It will help because it will encourage development inside the city instead of expanding in outlying areas of town on vacant land,” said Councilman Craig Gartman. “It tries to encourage people to develop where there are already streets and sewers … It also helps us control the growth of the city so we don’t end up with a sprawl condition.”

Gilroy’s existing economic incentive program is geared toward big box stores, which draw enough customers to meet the minimum sales and tax targets set by the city. To qualify for the current program, a store must provide at least $50,000 in tax revenues to city coffers. That figure requires a minimum of $5 million in sales annually.

The most recent participants include Costco and Lowe’s, which signed three-year contracts in 2003 that provided them with a combined $2.4 million in waivers on emergency-response fees, sewer usage, traffic impacts, and other up-front fees, according to city figures. In exchange, the stores promised the city a combined $2.6 million in sales tax revenues.

“It’s only really the big box that can make that,” said Wendie Rooney, Gilroy’s community development director. “We’ve had developers come to us and say, ‘Well, we have a collective group of tenants. Combined they can generate even greater than $5 million in taxable sales.’ We’re suggesting that the Council allow a group of businesses in one shopping center to do that.”

The first of the proposals, a revision to the current economic incentive program, would allow a group of smaller stores within a shopping center to meet the $5 million threshold by counting their revenues as a whole. The sales target would grow in step with the size of the shopping center, according to Rooney.

Under the plan, a shopping center must generate $2 of tax revenue for every square foot of space, with a baseline requirement of $50,000 for a 25,000 square foot shopping center. For instance, the city’s next major retail project – a proposed 100,000 square foot shopping center just east of Gilroy Crossing – will have to provide $200,000 in tax revenues to the city.

The second economic incentive, which will require City Council to enact a separate ordinance, would target small and medium-sized businesses that may not necessarily be developed as part of a larger shopping center. Fee exemptions would equal the amount of tax revenues new businesses generate, instead of requiring them to meet the $50,000 per year tax target. City staff recommended the ordinance expire after two years.

“Theoretically, a 7-Eleven or something else that doesn’t generate a lot (of revenue) can apply for it,” Rooney said. “Realistically, if they only generate $30,000 a year, they’re only going to get maybe $10,000. But it’s still an enticement to develop those in-fill properties.”

Former economic development director Bill Lindsteadt, who died in January, was the main force behind the original economic incentive program, instituted in 1999. Under his stewardship, the city doubled its annual sales tax revenues from $600 million in 1996, to more than $1.2 billion in 2003. His policy suggestions are widely credited for igniting the retail boom east of U.S. Highway 101.

“It was crucial for the big centers, especially because Gilroy’s demographics weren’t quite there for the big stores,” said Bill Reimal, a commercial real-estate broker who helped the city craft the new policies. “So in order to make their projects economically feasible, they needed a break at the front end. … This fee structure helped them. Without it those big stores wouldn’t have come in.”

The proposal affecting “multi-tenant” shopping centers would take immediate effect with City Council approval Monday night. The second proposal affecting small to medium-sized businesses requires a new ordinance, meaning a few more months before it takes effect.

“This is a real departure for us,” Rooney said. “It’s a real change for us to look at a group of stores. It’s more equitable, instead of just focusing on big box stores … It will create a much better urban streetscape design, it’s a way for property taxes to go up, and it provides goods and services to the community. It’s kind of a win-win on all sides.”

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