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

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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.

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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.

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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.

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2 Comment

  • One reason that Plano has been able to be a Mecca for corporate headquarters relocations is that they have wisely utilized the very significant ( and virtually perpetual ) stream of cash flow from Costco ad valorum and sales taxes to put in place the infrastructure amenities that upper middle class corporate staffers migrate to.

    Those youth athletic facililites of soccer fields, Olympic grade swimming pools, robust public libraries, well mananaged fire and police systems, well maintained streets and well managed public schools are essentials if a city seeks top grade companies to relocate its human capital to a given city.

    While the City of Dallas has abandoned the bottom up planed Goals For Dallas implemented by former Mayor Erik Jonnson after getting input on their priorities from over 100,000 Dallas residents, Plano has wisely utilized its Costco cash streams to put into place those infrastructure amenities that make the City of Plano a corporate relocation Mecca.

    To put this into perspective, from a sunk cost outlook, had the Dallas City Council completed this arrangement last year, it would have had available the cash flow from the Costco ad valorum taxes and the Costco sales taxes to fund the needed infrastructure amenities so badly needed in Dallas, especially our neglected streets and our severely curtailed public library infrastructure.

    Multiple surveys have shown that homes within a reasonable travel distance to the very few well managed retailers are in such demand that buyers willingly pay a premium for convenient access to those stores. Costco, Trader Joe’s and Whole Foods lead that list of desire infrastructure providers that improve the value of their served markets.

    Many of us are tired of having to travel to Plano to shop at that overcrowded Costco on Central Expressway. It is crowded because they carrry the goods those in their served market seek to purchase, not what some geek in the central office has deemed that nationwide stores will carry.

    Let’s associate with a winner. Costco is a winner, for its customers, for its employees and for its stockholders. It is a cash flow bonanza for those cities that are fortunate enough to have landed one of its stores.

    Take the time to contact your City Council representative and convey that this is an important infrastructure
    amenity that is important to improving the quality of life ein Dallas.

    This subsidy is requested only because the land size is smaller than its feasibility study shows to be needed for their operations and because the appraised value of he land is far higher than Costco normally pays for a building site.

  • The Walnut Hill and Central property was purchased by a Walton Trust entity (Walmart) to prevent Costco from creating a location there. Costco wanted to build one there. The Walton family did not want competition versus their Sam’s located on Park Lane (now relocated to NW Hwy / Skillman).