Thanks to the generosity of Morgan Hill officials, the Ford
Store will keep more of its sales tax revenues now, but less in the
long run.
Thanks to the generosity of Morgan Hill officials, the Ford Store will keep more of its sales tax revenues now, but less in the long run.
In an effort to keep the Ford Store’s doors open through the year, the Morgan Hill City Council granted the store’s request to lower the baseline for sharing the city’s 1 percent sales tax revenues from $25 million to $10 million. That way, Ford doesn’t have to make as much money to get sales tax revenue back. In the end, the store is likely to receive $375,000 sooner than anticipated and about $155,000 more than they would otherwise.
Under the revamped agreement, the city used to collect half of one cent for every dollar over $25 million earned by the store; now through 2012, the city collect half of one cent for every dollar earned over $10 million. After that, though, the city will keep the whole penny.
In return, the concessions will end not after the store’s tenth year of business, or 2014, as was the original agreement, but after its eighth, or 2012.
Under the new terms and based on revised sales estimates, the Ford Store will receive about $1 million in sales tax rebates from the city over eight years. Based on the updated sales estimate, the store would have received just $850,000 in rebates over 10 years, based on the old model.
Still, since sales are so low and the tax rebate plan is performance-based, the city will pay about $220,000 less than it originally planned for.
Councilman Greg Sellers said the restructured package is a “triple win for the city,” since keeping the dealership alive means long term sales tax revenues for the city; Morgan Hill is likely to keep more sales tax since the rebate term was cut by two years; and when Morgan Hill again looks at expanding the number of dealerships in Morgan Hill, the Ford Store will encourage others to open in Morgan Hill.
Ford Store President Tim Paulus said he’s been in the auto sales business for 35 years and these are the most difficult times he’s ever seen.
“It’s very helpful for (the city) to back that up,” Paulus said of the tax help. “We all expected to not have this market happen. I’m very appreciative of them.”
Paulus said sales at the store are down 20 to 30 percent in the last six months, compared to the prior six-month period. However, January used car sales started to rise and the lower gas prices have helped, he said.
When asked if the store could close even with the city’s help, Paulus said, “I certainly hope not.”
“We’re making all these adjustments and trying to make sure that doesn’t happen,” he said. “Most economists are predicting a very difficult next few months. Long term, we really believe in the city of Morgan Hill.”
When the Ford Store opened in 2004, Morgan Hill officials approved a maximum of $1.2 million in sales tax rebates over a 10-year period to the store. And, for every dollar over $25 million Ford earned, the city would split the 1 percent sales tax with the store.
Since the store opened, though, automobile sales have dropped dramatically and are projected to continue dropping through 2009.
