Lancaster Buys A Costco Store
Can this marriage be saved?
She — let's call her "L" — was a young, slightly naive city of 122,000 people in the high desert region of Los Angeles County. She loved her biggest retailer, Costco, very much. In their 13 years together, Costco had been a good provider, bringing about $470,000 annually to the city's general fund of $33 million. "L" vowed she would always be faithful to Costco, no matter the cost, no matter how much it hurt.
Now, Costco was one of those discount retailers with that bad-boy, big-box look that drives small-town city councils wild. He was not into architecture or decorating, to put it mildly. That's why prices were low, Costco would say gruffly. He just put the merchandise on the concrete floor, and people lined up to buy it. A lot of it.
At first, the marriage between Costco and Lancaster — oops, I mean "L" — appeared to be going well. "L" figured that if she and Costco stayed together, he could bring in something like $62 million during the next 30 years or so.
But Costco was restless. He wanted more. He thought his 131,154-square-foot house was too small, and he wanted a bigger one. About 148,000 square feet, plus a gas station, would do. It also turned out that Costco had a roaming eye — or so he said. If he didn't get his way, he would leave "L" for her sister, Palmdale, the other sizeable town in the Antelope Valley. Of course, he hinted that he didn't really want to go. But when a retailer gets its heart set on a gas pump island, well, something has to give.
"L" was frantic. She did not want to lose Costco for any reason, and was prepared to pay any price. If Costco wanted a bigger home, she would get him one: First she tried to condemn the neighboring merchant at Costco's old place. But the merchant, 99-cent Only Stores, sued the redevelopment agency, arguing that helping Costco was not a legitimate public reason to close another business.
"L" looked at the old Sears lot, but it was too small for Costco, who apparently had very large feet (at least, he seemed to require a very big footprint). Eventually, "L" would provide 14 acres of her own land, plus another five acres of Lancaster City Park, infuriating local picnickers.
Costco was sorry, to be sure, but 100 trees had to taste the chainsaw to make room for aisles of fertilizer spreaders, jumbo diapers and Britney Spears lunch boxes. The tearful city said she had to give up the parkland to preserve her "lifestyle." Apparently lolling in the shade at Lancaster City Park was not part of that lifestyle. Instead, she had her eye fixed on his rich streams of sales tax revenue and redevelopment tax increment. She hoped to reap $60.16 million in sales tax revenues, and another $2.2 million in tax increment, from the new Costco store and the old Costco store after it was reoccupied by another tenant during the life of the redevelopment project.
"L" wanted everybody to feel good, and she figured out a clever way to help, at only a moderate cost to herself. Here is how the deal works: Lancaster will sell nearly 14 acres to Costco for $3.275 million. When construction on the new store is done, the city will buy Costco's old building for $6.275 million, using the $3.275 million from Costco, plus $3 million of redevelopment money, which the city plans to recoup by selling the building to the owner of Costco's former shopping center. In addition, the redevelopment agency will pay the city $589,000 for the parkland-turned-discount-store-parking lot. Furthermore, the agency has agreed to pay $610,000 for 26 acres of former ranchland on the other side of the town that can be used to enlarge another existing city park.
The city will essentially subsidize the construction of the new Costco store in the following way: The store's annual sales tax payments to the city are to be frozen at $470,000 annually, which is the sum that Costco generated at the old store. Costco can keep all the money above $470,000 that otherwise would have gone to sales tax, until those revenues have effectively reimbursed Costco for the full cost of building the new store, estimated to be between $8 million and $9 million; the city expects this process to take five to seven years.
Now, state law forbids redevelopment agencies from attempting to lure away another city's retailer with cash and other incentives. But don't worry. That is not happening here. Lancaster is paying money and giving away precious open space to prevent a retailer from going through with a threat to leave Lancaster for another city. See the difference? It's perfectly legal, even if it is no less objectionable.
True, Lancaster has replaced its lost parkland with newly acquired property in another part of town. That does not set things entirely right. Open space is not a neutral condition whereof a loss on one side of town can be offset by a gain in another. Every part of the city needs open space, and Lancaster City Park is permanently diminished by this deal. It is a frightening precedent to begin thinking of parks as land banks for future redevelopment deals.
Deals like that of Lancaster and Costco put one form of desirable land use — redevelopment — into conflict with the equally desirable goal of open space preservation. Once again, the drive to "do the deal" wins out over a larger planning vision.
And was the deal even worth doing? Let me put forward the heretical notion that the parkland sacrifice was unnecessary. Costco would not have opened a store in the first place if Lancaster were not inherently a good trade area. If the city said no to Costco's latest demands, the store would threaten and fume, and go on doing business in Lancaster anyway — because it is profitable. As for going to Palmdale, don't think for a second that Costco will not open a store there the moment that market demographics justify it.
For the time being, honey, he's not going to leave you because he loves you — for your money. You would be surprised how many marriages are held together by that stuff.