BACKGROUND
The Baseline Marketplace is an 81-acre, regional retail development located in the Sierra Vista Specific Plan (SVSP), fronting on Baseline Road between Fiddyment Road and Market Street. At buildout the project will total approximately 750,000 square feet of building area, including three (3) large floor plate commercial buildings, four (4) fast food restaurant pads with drive-thru facilities, three (3) gas stations and twenty-three (23) outlying restaurant and retail pads. The project entitlements were approved in 2014 and extended in 2017, 2020 and in February of 2022. Finally, the entitlements were updated for the proposal in its current form and approved on April 17, 2023.
The project requires approximately $16.5 million in public infrastructure to get started, a sum that has proven prohibitive to commencing development in the nine years since initial project approval. Additionally, the fee structure in the SVSP heavily impacts commercial development, further exacerbating the challenge.
The City has a strong interest in the overall Baseline Marketplace project’s success, as the first phase stands to generate $3 million in annual sales tax revenue to the City in the first year and $7 million at build-out. It also provides much-needed access to retail on the west side of Roseville.
In late 2021, Costco approached the City as they considered purchasing approximately 29 acres of the project, known as Parcel DF-41, described in Exhibit A of the Agreement, in order to build a Costco store. They expressed the challenges mentioned above and sought an agreement to offset the significant up-front infrastructure costs, of which approximately $6 million is related to their project, although they would need to spend the full $16.5 million to move their project forward. Many of the up-front public infrastructure costs will eventually be reimbursed, but in some cases, it may take several years. After a lengthy negotiation, the parties agreed to an up to $6 million lump sum payment tied to the actual required public improvement infrastructure work being performed by Costco. Such sum is only due upon the Costco store opening and based on the actual required public improvement infrastructure.
Because of this potential delay in reimbursement of over $10 million, staff also recommends that the City help mitigate the risk by providing a backstop to the reimbursement of two fees, as follows: If Costco has not received eligible cash fee reimbursement under the City/County Fee and/or the TMF Set-Aside Fund for the Costco project seven years after the date of store opening, the City will pay Costco in the amount of any such cash fee reimbursement that it is deemed eligible for under the City/County Fee and/or the TMF Set-Aside Fund for the Costco project, at that time. Staff estimates that the total for any such cash reimbursements is approximately $900,000 in City/County Fees and $800,000 in the TMF Set-Aside Fund, but in no event shall the City have to reimburse Costco for more than $1.8 million. Given fund projections, it is unlikely that this backstop would be exercised, but it provides certainty to Costco necessary to move forward with the project. If the City makes the backstop payment, Costco must assign the City its right to reimbursement under the City/County Fee and/or the TMF Set-Aside Fund, thereby making City eligible for full reimbursement of the backstop amount.
In summary, staff recommends that Council approve the Economic Incentive Agreement with Costco Wholesale Corporation, to include the following:
1. An up-to $6 million economic incentive paid to Costco upon store opening to offset significant infrastructure costs;
2. Up to $1.8 million as a backstop to fee reimbursements if not paid to Costco within seven years of the store opening, as described above and in the attached agreement.
Staff recommends that the City Council approve this Agreement because it supports Council’s specific goal to facilitate this project; it promotes the general welfare of the City and its residents by creating new jobs; it expands the range and diversity of its commercial retail sector, especially in West Roseville; it reduces traffic and vehicle miles traveled from residents in West Roseville to the existing Costco facility in northeast Roseville; it broadens the City's property tax and sales tax base; and it generates uniquely significant ongoing City revenues.
Without support, it’s likely that this development could sit idle for several more years, if not more. Should another regional retail development materialize in the vicinity, it could become even more difficult for this site to absorb, as recent studies show that, on paper, the demand for regional retail is already overburdened.
Additionally, there are local and regional examples where economic incentives were provided to catalyze high-tax-generating and/or job-creating developments. Below are some examples:
1. Roseville Galleria
2. Roseville Automall
3. Elk Grove Costco
4. Centene in Sacramento
The Roseville Galleria and Roseville Automall were provided future City subsidies to support infrastructure development. In 2017 Elk Grove provided Costco $8 million of future projected sales tax revenue ($10 million in today's dollars) to offset infrastructure costs. Lastly, in 2017 Sacramento provided Centene up to $13.5 million ($17 million in today's dollars) as an employment incentive.
Finally, approval of the recommended Agreement with Costco offers a win-win-win for the rest of the Baseline Marketplace, Costco and the City. It is clear that this is a uniquely significant opportunity to catalyze a major sales-tax-generating project that provides retail in an underserved portion of the City and that would likely remain dormant absent City support. Once the project is active the City anticipates a return on its incentive payment investment, in full, through sales taxes of about 24 months.