To: Honorable Mayor and Members of Town Council
From: David L. Corliss, Town Manager
Title
Resolution Approving the Dawson Trails Retail Infrastructure Assistance Agreement (Costco)
Body
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Executive Summary
Costco is known to be a large sales tax generator supporting key governmental services. In Castle Rock, sales tax is the primary funding source for police, fire and roads, while also supporting recreation and other government administration. Adding Costco sales tax revenue in Castle Rock would allow for 35 FTEs (32 public safety, 3 general) between 2023 - 2027. Without Costco, the Town would need to reduce its hiring plan by 18 public safety personnel from 2025 - 2027. In order to bring Costco to a new area, it is common for municipalities to approve financial assistance packages. Therefore, Town staff is recommending approval of the Dawson Trails Retail Infrastructure Assistance Agreement (Agreement) in Attachment A.
The Agreement provides $10 million to the Dawson Trails Metro District to support infrastructure construction required to build a Costco facility. An initial $3.5 million would be paid upon opening of the Costco store and the remaining $6.5 million would be paid over a period of no more than 10 years as a shareback of actual sales tax revenue generated from the location. In no event would total assistance exceed $10 million.
Costco Wholesale Corporation is a global company with over 800 locations around the world, with 14 in Colorado as of December 31, 2021. Colorado locations include Arvada, Aurora, Colorado Springs (2), Denver, Gypsum, Littleton (2), Parker, Sheridan, Superior, Thornton, Timnath and Westminster. A new Costco location is proposed at the Dawson Trails development in the southwest portion of Castle Rock. While exact timing is unknown, planning is to finish Costco construction so it can open concurrently with the Crystal Valley Interchange.
Discussion
The attached Agreement, if approved, will provide $10 million to the Dawson Trails Metro District to support construction of the infrastructure necessary for a new Costco location in Castle Rock. Costco is a significant sales tax generator for the community which would provide new revenue to support core Town priorities including public safety, roads and recreation. Costco also serves as a retail anchor, thereby attracting other retailers to the area.
The Castle Rock Costco location includes a warehouse facility plus a fuel station totaling roughly 158,000 square feet. Based on 2022 fees, total Town development costs to construct these Costco facilities are roughly $1.6 million including impact fees, system development fees, use tax and other permitting costs. Prior to construction of the Costco, the Dawson Trails Metro District will be responsible for installing all necessary infrastructure to prepare a “shovel-ready” Costco building site. To support this project, the Town has prepared the infrastructure assistance agreement included in Attachment A.
Financial assistance for this infrastructure would be provided in two ways. First, $3.5 million would be paid upon opening Costco to the public. This initial payment would come from existing non-residential use tax revenue in the Economic Development Fund. Use tax is paid into this fund by other non-residential development in town and is used to support a number of economic assistance agreements. Second, a one-third shareback of actual sales tax revenues up to $6.5 million would be provided for a period not to exceed 10 years. Using conservative estimates, and factoring cannibalization of existing sales tax revenue, staff estimates a Castle Rock Costco would generate $6 million in gross sales tax per year. Therefore, a one-third shareback would result in an additional $4 million of Town sales tax. It is expected that the shareback would be fulfilled within two to three years of Costco operation. Town sales tax collections would increase by another $2 million following fulfillment of the shareback. Note that this is based on conservative estimates - any additional revenues will shorten the shareback timeframe and increase Town sales tax collections.
Without Costco revenue, General Fund sales tax collections are projected to grow $13.8 million between 2022 and 2027. During the same period, police and fire expenditures are expected to grow $19.3 million - adding 10 FTEs in 2023, seven FTEs in 2024 and no new personnel added after 2024. With the additional Costco revenue discussed previously, the Town would be able to add 18 more public safety personnel between 2024 - 2027.
It is common practice for municipalities to offer assistance to bring large sales tax producers to the community. Specific Costco incentives in Colorado have included $8 million in Parker, CO (2007), $10 million in Timnath, CO (2014) and $10.9 million in Longmont, CO (2022). Costco incentives have occurring in other locations including Georgetown, TX and Kyle, TX.
Incentives for attracting and retaining sales tax generators is not only common among Colorado municipalities, it is an important strategy for Castle Rock. As part of the incentive to attract and retain the Promenade development, the following major incentives were provided: The Town initially shared 27.5% of the sales tax generated on all of the property, except King Soopers on the Promenade site. In 2021, the Town successfully negotiated, as part of a re-financing, a reduction in the sales tax share back to 13.75%. So today, the Town shares back 13.75% of the sales tax generated at Promenade, including sales tax at Sam’s Club. This shareback will continue until 2039 or whenever the metro district bonds are retired, whichever occurs first. Additionally, the Town rebated a sum equal to Town fees for the Promenade development up to $4.45 million. This total amount has been met. This included a 2017 Town rebate back for the Sam’s Club development of $891,264.96 in Town fees.
Budget Impact
The Economic Development Fund has available fund balance to support the initial $3.5 million payment that would be released to upon store opening. The remaining $6.5 million will be paid over a period of no more than 10 years as a one-third shareback of actual sales tax generated after store opening. During this time, the Town would experience a net increase to sales tax revenue.
Staff estimates that Costco will generate roughly $6 million per year in sales tax revenue to the Town. During the shareback period, the Town is estimated to receive an additional $4 million per year. Although the Agreement allows the shareback to occur over a 10-year period, staff estimates that the $6.5 million shareback allowance would be fulfilled after two to three years of operation. Following fulfillment of the shareback allowance, the Town will receive roughly $2 million more in annual sales tax revenue.
Recommendation
Staff recommends Town Council approval of the assistance agreement as presented.
Proposed Motion
“I move to approve the assistance agreement as introduced by title.”
Alternate Motions
“I move to approve the assistance agreement as introduced by title, with the following conditions: (list conditions).”
“I move to continue this item to the Town Council meeting on ___date to allow additional time to (list information needed).”
Attachments
Resolution
Attachment A: Dawson Trails Retail Infrastructure Assistance Agreement