What Of The Elk Grove Auto Mall Stimulus Package - Part I

With little discussion, the Elk Grove City Council unanimously approved a $275,000 stimulus package Wednesday night that will directly be...

With little discussion, the Elk Grove City Council unanimously approved a $275,000 stimulus package Wednesday night that will directly benefit the new car dealers at the Elk Grove Auto Mall.

In a nutshell, here is how it will work: Starting August 1, the first 500 purchasers of a new car at the auto mall will receive $500 worth of gift cards redeemable at participating locally based Elk Grove merchants and nationally-based retailers with locations in Elk Grove.

While the intent of the city council seems honorable, there are some lingering questions.

First, there was little discussion of the matter during council deliberations. It appears that the fix was on.

Indeed, less than 24-hours after the stimulus package was approved, a full-fledged web site was up and running. The site was ready to go once the stimulus package was formally approved.

To think that this stimulus package was mid-wifed without heavy duty backroom dealing before hand is naive - it happens all the time. The quick appearance of the site verifies this.

Moving on, the math of the stimulus seems sketchy. The city is paying out $250,000 in cash payouts for five hundred new cars purchased and $25,000 for administrative cost for a total of $275,000.

According the National New Car Dealers Association the average purchase price of a new car is $28,400. The City will get 1%. Based on the average purchase, the city will receive About $284 in sales tax revenue, much less than the $500 allotted for each redbate doled out.

According to Elk Grove finance director, Rebecca Craig, the city also receives money from the DMV and for the each car sold in Elk Grove.

Craig explained the financing mechanism via an e-mail the following way:

There are two general fund revenue sources tied to vehicles…the Vehicle Licensing Fees (VLF) and the Motor Vehicle Licenses (MVL). The former, In Lieu VLF, is the fee every vehicle owner pays when renewing their license plates annually and the FY 2009-10 budget projects $9.6M. There is not a direct correlation of revenue to vehicles or payments since this revenue source is a party to the triple flip agreement and now adjusts annually based upon assessed property values. The latter, MVL, is also state formula driven and not directly related to vehicle licensing transactions. The DMV receives a cut for operations prior to local distribution and the revenues fluctuate widely each month. Our FY 2009-10 budget estimates $500,000 in said revenues. We do not have car sale estimates.

Parsing Craig’s statements, it is hard to get an actual amount of money the city received from the purchase of a new car. It seem that much of the $500,000 comes from regular DMV fees on previously owned cars.

So in analysis of the car rebate program, it is difficult to see whether or not the city will even break even on the stimulus program. Intutiely, it seems that a very small portion of the fees referenced by Craig are from new car sales. Remember, thousands of cars a year are sold and re-regestered each year in Elk Grove alone.

Therefore, it is fair to say that the city is giving away $500 for each new car purchase and get an amount much less than that - probably not more that $350 per car and that is a liberal estimate.

Doe this seem to be a wise course of action?

Could the money have been better used?

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Anonymous said...

Is the city buying back the coupons from merchants? Are the gift cards taxable when used by consumers? Will they be taxable income for individual state & federal tax returns (usually they are)? By what mechanism does the cash make it's way into the economy?

Seems to me the cost will be $275,000 no matter what. Unless they're counting on selling an ADDITIONAL 500 cars, there'll be no city sales tax revenue increase from car sales. And unless the gift card redemption has sales tax assessed, where is the gain in city revenue from retail sales? However, there'll be some multiplier effect in the local economy from the money.

So, what will EG receive for this money other than auto mall and retail store good will, and does it really expect anything more? It's unlikely such a small subsidy can help revitalize the auto mall or retail shops, or provide more revenue to Elk Grove.

It has a "feel good" ring to it on the surface, however, and we should support ongoing programs of this sort if final cost numbers are not prohibitive. Such a program should be optimally designed, like stimulus money, to eventually result in future benefits to all involved parties. Maybe some more permanent program could be developed that would accomplish that.

Score one for the city!

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