The $3 Million Economic Incentive for the New Dallas Costco Comes From Your Water Bill (Sort of)

I am pretty gung ho about Dallas getting a Costco within the city limits. Even if it means we have to bribe them with $3 million. I think the returns for the city will be worth it, well worth it: sometimes you have to spend money to make money. The City Council will apparently debate this Wednesday. Digging into their own membership information, Costco has projected that existing members who live south of LBJ will spend more than $40 million a year in this store. (Costco apparently makes the bulk of their profit from memberships, so they track them carefully.) That’s $40 million now being spent in other Metroplex area stores, NOT in Dallas. Have you ever been to a Plano Costco on a Saturday? Grand Central Station. As for giving Costco $3 million in economic incentives, I’m not turning cartwheels about it, but turns out we bribe a lot of businesses to move here, as many metros do. The hand-outs are carefully selected to bring us something in return. It’s an investment in our future.

Reading over city documents outlining the Costco proposal, turns out we are also giving the ad agency Saatchi + Saatchi North America, Inc. a $75,000 bribe to move into the new McKinney & Olive building in Uptown.

According to knowledgeable sources at Dallas City Hall, Costco has said the Dallas store at Churchill and Coit off 75 will be their most expensive store in the USA. More expensive, even, than the New York City and San Francisco stores. As one of the top three in the U.S., it will be a prototype and garner attention. Costco has been looking to build in Dallas city limits for more than a decade. The land they have a contract on is owned by the Texas Department of Transportation and by state law, must sell for appraised value. Which in this case is $16.5 million for a little over 13 acres. That’s about $29 a square foot or  $1.2 million per acre, not an outrageous price. Costco’s contract is pending Dallas forking over that $3 million incentive.

 

The other thing: the TxDOT property has been on the market for 20 years — fallow, producing zilch for the city, for us. Why the state could not lower the price tag on it to move it remains a mystery, unless there is a criss-cross of legislation somewhere. The lot was used to stage construction for LBJ. It is a mass of concrete and curbs, parking spaces, a few straggly trees and a bump or two of green. The area is surrounded by commercial real estate and multi-family living.

 

That $3 million is less than what Costco originally wanted for the deal, and they actually walked away from dealing with the city 12 months ago. But fiscal watchdog Lee Kleinman pushed them hard. Costco is a success story and frankly, they do not need our business.

But I think we need theirs.

By the way, other cities have also given Costco bribe bucks, anywhere from $3.5 to $4.5 million in incentives  — McKinney did, and Austin did. With the exception of the Harlem (NY) store, Costco usually develops on cheaper dirt in outlying areas, dirt that costs $2 to $10 per square foot.

But Dallas real estate has gotten pricey, so pricey the Churchill dirt will be Costco’s highest land spend ever because it is so close in. Which is another good rah rah point: that $3 million Dallas incentive will help us all save on gas and tolls.

I asked my source about the $3m , and where it came from, and what alternative uses it could have.

The $3 million comes not from the bond election of 2012, as I first was told. It’s a pool of funds earmarked for Economic Development. The funds are actually generated from fees users of Dallas Water pay. The water department is a revenue generating operation for the city — the city charges the utility a fee in lieu of taxes. This money goes into the public/private partnership fund and can be used for whatever the City Council decides, in this case economic development.

So my point: if it’s NOT given to Costco for this deal, it will be given to another company or entity to spur corporate relocations. Or a new distribution center. An e-commerce sales site. Expansion of medical clinics. New infrastructure for transit oriented development. Or it could help UNT develop a new law school in Dallas.

(Just what we need, more lawyers!)

Why do I think a Costco is better than all those? $40 million a year will be spent at that store, and the sales tax rev will be kept in Dallas. Costco is also going to drop some big construction bucks here: the land may be costing them $16.5m, but they plan to spend another $30.5 million on construction, concrete, parking lots etc. They will use local contractors. Costco will employ about 225 people with salaries ranging from $13 an hour to $22. These folks will rent or buy homes here if they move to Dallas, buy bigger houses if they are already residents. Costco has a 90 to 95 per cent employee retain-age record, and it provides decent benefits.

I would venture to say that North Dallas, that is, Dallas north of the Trinity River, asks for very little in economic incentives as a whole. And we pay the most in property taxes. Developers usually come here without incentives because businesses make decisions based on economic development, and it’s pretty good in the Park Cities/Preston Hollow/North & East Dallas. Great example: Preston Hollow Village. The bustling center with a Trader Joe’s at Walnut Hill and Central is a huge success story on land that once held Class C apartments and lay fallow during the recession. I recall the land auction in about 2009 when no one would touch that dirt. Now Preston Hollow Village is filling the city’s tax piggy bank.

Of course, no one gave them $3 million. This was all private investment, including the land they bought.

Costco is like the bridegroom who knows there is a dowry, and they want it. They don’t get it, they will walk. And we will lose yet another deal to the suburbs.