Costco Asks for $1.8 Million Tax Giveback

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Wednesday, November 2, 2016, 5:39 am
By: 
Alice Dreger

Above: Costco's headquarters in Issaquah, Washington, as photographed by Coolcaesar

Costco has officially requested a property tax break worth up to $1.8 million related to the store it is looking to build in East Lansing—a request two City Council members suggest to ELi is absurd given the relative economic positions of Costco and of East Lansing. Whether Costco gets the deal depends not only on the company having to convince at least three of five members of Council to vote for it, but also on East Lansing’s Council having to convince Meridian Township to go along with the idea.

Costco is asking for $1.8 million in tax increment financing (TIF), a system by which a developer can be reimbursed for certain redevelopment-related expenses out of newly-generated taxes that would otherwise go to the usual taxing entities, including in this case the City of East Lansing and Meridian Township.

Costco’s developer told East Lansing’s Brownfield Redevelopment Authority last week that the site is costing Costco more than the usual new-store build, in part because it involves filling in low wetlands and moving a gas pipeline. Costco says that there are $8.25 million in expenses that would be eligible for a Brownfield TIF but they are requesting only $1.8 million to cover the “gap” to enable them to obtain the target return on their investment.

East Lansing’s Brownfield Redevelopment Authority unanimously voted in favor of recommending the plan on October 27. The proposal now moves to City Council for possible approval, rejection, or revision, probably later this month.

East Lansing’s Mayor Pro Team Ruth Beier tells ELi that her “present thinking” on the request is this: “This company is the epitome of a company that does NOT need a tax break. On the other hand, East Lansing needs to collect all of its potential property taxes.”

In her remarks, Beier referred to the Wikipedia article about Costco, which reports that “Costco was the first company to grow from zero to $3 billion in sales in under six years.” According to the article, in the fiscal year that ended in August 2012, Costco’s sales totaled about $97 billion, with a net profit of about $1.7 billion.

Councilmember Erik Altmann responded to an inquiry from ELi by providing the same basic reasoning. He said that, “if my math is right,” East Lansing’s general fund is about three one-hundredths of one percent of Costco’s annual revenues, which Altmann indicated are reported at $116 billion. He said, “I’m not sure why they’re asking us for a handout.” Altmann went on to say he would consider a TIF “if there’s some public infrastructure” covered in the proposal.

Councilmember Shanna Draheim responded to ELi’s question about this TIF proposal by saying she is still evaluating it, and added, “It doesn’t right off the bat fit with my own criteria for a TIF, but I haven’t looked at the request in detail or what specific activities they are looking for TIF for.” The proposal is not yet on City Council’s agenda.

Councilmember Susan Woods responded to ELi’s question by saying she is “knee deep in planning the film festival so I have not had time to really research this.”

Mayor Mark Meadows, who is by virtue of being mayor also a member of the Brownfield Redevelopment Authority, voted for the plan at the Authority’s meeting last week, but he’ll get another vote on the plan at Council. He insists to ELi that the $1 million TIF cap written into the agreement about this land with Meridian Township won’t necessarily be a problem. That agreement states:

“Should a request for [TIF] funding under the provisions of a Brownfield redevelopment authority or a Brownfield redevelopment plan be made by the developer in connection with the construction of a Costco retail store or any appurtenant use located in the annexed area, if approved by the City of East Lansing, such funding provided pursuant to a Brownfield redevelopment authority or a Brownfield redevelopment plan shall not exceed the total sum of $1,000,000.”

City Attorney Tom Yeadon says East Lansing could offer a TIF greater than $1 million if East Lansing and Meridian Township come to an agreement to do so.

Meridian Township Manager Frank Walsh tells ELi that Meridian Township might be willing to come to such an agreement. That said, in a statement provided to ELi, Walsh made clear that Meridian Township wants to see limits on the tax givebacks for this project. “Meridian strongly desires the redevelopment of the former Four Winds Golf Course,” where this project is set to happen. “We have rolled out the red carpet for Costco. However,” Walsh added, “there is a limit to what can be approved.”

According to Walsh, “Meridian is certain that East Lansing will proceed in accordance with the agreement as written”—limiting the TIF total to $1 million maximum—“or request that new negotiations be undertaken for consideration of a possible amendment.”

Typically, when City Council agrees to grant a TIF to reimburse developers for eligible redevelopment expenses, funds that would otherwise go to the City of East Lansing, the East Lansing Public Library, CATA, Lansing Community College, and in this case, Meridian Township go to the developer instead. If agreed to by East Lansing’s City Council and by Meridian Township, this Costco TIF plan would capture 75% of new property taxes for the developer and have 25% go to the various governmental units for about 15 years or until the approved expenses total $1.8 million.

As we reported yesterday, the site plan for this project has been unanimously recommended, with some conditions, by the East Lansing Planning Commission. City Council will vote on the site plan as well as the TIF plan. As part of the rebuild of the infrastructure of the area, Ingham County has asked Costco to pay for various road improvements including paving and realignment of a road, and it appears Costco has agreed to do so.

 

Correction note: This story when originally published referred to two tax deals that were changed by City Council before reaching aprpoval. Because one of those stories was not correct (the developer wrote to us to correct it this morning), we have removed that section of the article.

 

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