Elk Grove City Council Gives Thumbs-up to $8 million Sales Tax Kickback for Pappas, Costco

April 13, 2017 |  

The adage that if something shows up on an Elk Grove City Council agenda, you can bet your last dollar on it passing was proved correct again last night. 

By a 4-0 vote, the Elk Grove City Council approved a $8 million sales tax refund to Pappas Investments, the developer and eventual landlord for the long-awaited Costco store planned near Elk Grove Boulevard and Bruceville Road in the city's Laguna Ridge neighborhood. Council Member Darren Suen recused himself from the proceeding because he owns Costco stock in excess of $10,000.

With the approval, construction is expected to start soon, and the store could be oven by the first quarter of 2018. 

During his presentation, the city's Economic Development Director, Darrell Doan, said the refund would not be paid out of general funds, but rather from sales tax revenues as they are collected. The current value of the rebate, which will last no more than 25 years, is $8 million and could grow based on a built-in return of 6-percent to over $14 million and the length of time needed to pay completed payout.

Doan said if the incentive was not approved and another big box retailer developed the site, the City would lose sales tax revenue even with the inclusion of the refund. 

"Even with the tax sharing agreement over the same 25 year period of the agreement, the City still comes out ahead from a cash flow basis," he stated.

A slight majority of the roughly 15 people speaking on the matter opposed the refund, with two speakers who proved to be irksome to Mayor Steve Ly and Council Member Pat Hume. Those speakers Elk Grove residents Mark Doty and Amar Shergill.

Highlighting comments Hume made at a recent community meeting regarding the possible development of a Tractor Supply Company store in the Sheldon community of Elk Grove, Doty said the dean of the City Council noted it was not the business of the City to pick winners and losers.

"Mr. Hume we were at the Sheldon Homeowners Association meeting about the Tractor Supply [Company], and you got up and paraphrased that the government 'is not supposed to pick the winners and losers,'" Doty said. "That is what it looks like what we are doing here and perhaps Tractor Supply can make a campaign contribution and maybe thing will go a different way there."  

Shergill suggested that since most of the Council Members have accepted campaign donations from Pappas Investments, to avoid the appearance of impropriety if they were to approve the refund, they should return the Pappas Investments' campaign contributions. 

"The politics of this decision are horrible, and I want to offer you a way out of that," he said.

Pointing to the contributions Council Members have accepted from Pappas Investments, Shergill said they should return the donations given the magnitude of refund. In addition to giving the money back, he urged them to use this opportunity to explore local campaign finance reforms, including public financing options.

Shergill's comment appeared to especially annoy Ly. Later in the deliberations, with the aid of City Attorney Jonathan Hobbs, Ly said it was within his rights to accept the campaign donations and framed it as a matter of "free speech."

During his mayoral campaign, Ly took over $18,000 of in-kind donations from Pappas Investments.

During deliberations, Hume and Council Member Steve Detrick laboriously justified the refunds. Neither Detrick, Hume or Ly acted on any of the recommendations offered by Shergill.

Pointing to her background in workforce development, the newest Council Member Stephanie Nguyen said she would support the refund as Costco will bring 200 jobs to the community.

"I am all about jobs," Nguyen said. "The opportunity to have over 200 jobs paying $22 an hour is a good thing."

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Attikus Finch said...

Business as usual for our illustrious city leaders. Have they ever turned down campaign contributions from a developer? Apparently, appearance of impropriety and conflict of interest is of no major concern or consequence here. The line between ethics and legality can be easily muddled. It may not be illegal, but it appears pretty darned unethical for elected officials to accept money from those seeking favorable business terms and conditions. Also, consider that land development, whether it is housing, commercial, industrial, what ever the case may be, and jobs associated with that development, does not equate to a good quality of life. Time and time again, that is what our council fails to understand. Another glaring failure, is the council's short sightedness in approving large scale projects. Make no mistake, once housing tracts and commercial developments are completed and our open spaces disappear at alarming rates...there is no going back. Long after our ambitious council members have left the City for higher office elsewhere, Elk Grove residents and City staff will be left to steer the ship and manage the concrete jungle. Elk Grove's leaders lack any original ideas, hence the hiring of marketing companies to find a "brand" to promote the City at no small cost to taxpayers. Welcome to the jungle folks. Its not fun and games.

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