A potential e-commerce warehouse for clothing retailer Nordstrom fell by the wayside earlier this year, but the city of Fresno may offer a hefty financial lure to another potential suitor with a bigger name for the same southwest Fresno site.
The City Council on Thursday will consider a package of economic incentives worth up to $30 million over the next 30 years to persuade Golden State FC LLC – a wholly owned subsidiary of internet retail giant Amazon.com, according to the Governor’s Office for Business and Economic Development – to build an 855,000-square-foot order-fulfillment center at Orange and Central avenues. The site is considered “the preferred site” for Golden State FC, according to a staff report by economic development director Larry Westerlund.
But an economic development advocate suggests such tax breaks by cities are largely unnecessary because Amazon must grow to keep up with an increasing number of its Amazon Prime premium customers. “Our basic argument is that Amazon is coming anyway,” said Greg LeRoy, executive director of the nonpartisan Washington, D.C.-based nonprofit GoodJobsFirst.org. “Amazon has to come to fulfill its business plan.”
An economic analysis of the plan, code-named Project Cougar by the city, indicates it could initially hire 2,000 or more full-time employees, and that workforce would be augmented by many seasonal employees at peak times of the year. Future expansion of the center could boost the number of employees by several thousand.
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The economic incentives being recommended to the council include a rebate of 90 percent of the city’s share of property taxes for the site for 30 years. The proposal also calls for a rebate of all sales and use taxes paid by the company on purchases it makes within the city. But the incentives are dependent on Golden State FC creating at least 750 new jobs at the center, valued at $15,000 for each direct, full-time job. The financial lures are less for on-call or seasonal jobs at the center.
If that land stays empty for 10 years, we don’t realize any increase of property taxes. We’re only sharing the net growth of that property value over 30 years.
Larry Westerlund, Fresno economic development director
Westerlund said the city was approached by a development team working on behalf of Golden State to evaluate the site, which is part of the North Pointe Business Park, an industrial-zoned complex developed by the Parnagian family’s G3 Development. “Golden State FC LLC has requested that an incentive agreement be approved so that they can move forward on their analysis of this location and ultimately make a final decision,” he reported. “The city’s approval of this incentive agreement is a key step in the selection process.”
The city’s analysis suggests that between real estate, construction and investments in robotics and picking equipment, Golden State FC would likely invest $200 million to get the warehouse up and running by 2018. “They want to be operational for their peak period in 2018,” Westerlund said Tuesday. “It’ll take about a year for construction, or maybe a little bit faster than that, but they’ve got a very aggressive timeline” if the company opts to move forward with the Fresno location.
Westerlund said the rebates represent no out-of-pocket investment by the city; instead, it’s based on money the city would realize from the increased value of the land once the company builds and equips the fulfillment center. “It’s a net gain basis,” he said. “If that land stays empty for 10 years, we don’t realize any increase of property taxes. We’re only sharing the net growth of that property value over 30 years.”
The $30 million value is also a hard cap on the potential incentives; the city’s economic analysis estimates the actual property tax rebate over 30 years at about $15.3 million, along with about $750,000 rebated from sales taxes paid by the company.
Beyond the rebates, the city would expect to reap the benefits of about 2,000 new jobs at the center at an estimated average wage of $26,000 per year – at 40 hours a week, the jobs would pay on average $12.50 an hour. That would create a potential payroll of more than $2.2 billion over 30 years – money that would circulate within the community as employees spend at local businesses, buy homes and pay sales and property taxes.
But in a report issued Tuesday, GoodJobsFirst.org suggested that incentives are largely unnecessary because of Amazon’s continuing need to build fulfillment centers regardless of tax breaks.
“It’s not rocket science. They need to be in a place that’s got good highway access, a good labor force with appropriate skills, and where infrastructure is in place to serve them,” LeRoy said Wednesday. “Whatever Fresno has done in parceling land, providing infrastructure, preparing a workforce, it’s paying off. That’s why Amazon is looking at you in the first place.”
Amazon Prime’s premium, rapid-delivery service “requires dozens more fulfillment and sortation centers closer to affluent communities” regardless of potential incentives, the organization states in its report, “Will Amazon Fool Us Twice?” LeRoy’s research turned up at least $241 million in economic subsidies to Amazon in about two dozen cities and states. “Public officials have been willing to subsidize Amazon despite the fact that its same-day-delivery business plan is well-known. … Proximity to lots of Prime members and access to good road infrastructure to get goods in and then out on delivery are the site location variables that matter most to Amazon now.”
Whatever Fresno has done in parceling land, providing infrastructure, preparing a workforce, it’s paying off. That’s why Amazon is looking at you in the first place.
Greg LeRoy, executive director, GoodJobsFirst.org
According to research by sales-tax software company Avalara Inc., Amazon already has fulfillment centers sprinkled across California, in Patterson, Tracy, Stockton, Newark, Redlands, San Bernardino and Moreno Valley.
Fresno has increasingly been identified as a potential site for e-commerce and distribution centers by major retailers. In mid- to late 2015, Nordstrom eyed Fresno and Visalia as it was exploring for a major warehouse before a cooling retail economy prompted the company to put its plans on hold earlier this year. Officials in each city were offering sales tax rebates amounting to as much as $12 million to Nordstrom.
While Fresno’s Nordstrom site could be taken up by Amazon, Visalia remains hopeful that its Nordstrom prospects are not dead. “It’s on hold,” Visalia Mayor Steve Nelson said. “They say it’s still in the works.”
Just last month, the Fresno City Council approved an $18 million package of rebates on property and sales taxes to Ulta Inc., a major retailer of cosmetics and fragrances, for the company to locate an e-commerce center on property not far from the proposed Amazon site.
“The fact that so many companies are considering that location is proof that you have a business basis,” LeRoy said of the south Fresno industrial area. “You wouldn’t be on their short list if you didn’t already have what it takes.”
State and local taxes represent about 2 percent of the cost structure of a company to open a distribution center. “The other 98 percent is the basics of doing business,” he added. “You can almost never move the needle with tax breaks because you’re only shaving off a tiny proportion of that 2 percent. That’s why incentives almost never matter.”
Fresno’s incentives were codified earlier this year when the City Council approved Councilman (and now Mayor-elect) Lee Brand’s Economic Expansion Act. The act includes the tax rebates and other economic lures for major job-creating projects. The act shows just how aggressive the city has become to attract new job-generating companies.
Fresno fought about 20 years ago to lure Gap Inc. to build a major distribution warehouse. The city agreed to sell 146 acres for $1, expanded street access and utilities for the area at a cost of about $415,000, and assisted with site-preparation costs to the tune of about $150,000. The state Legislature also approved a $500,000 subsidy to persuade the clothing retailer to build in Fresno instead of Reno.
Staff writer Lewis Griswold contributed to this story.
If you go
The Fresno City Council meets at 1 p.m. Thursday in the second-floor council chamber at Fresno City Hall, 2600 Fresno St.. The meeting is open to the public.
Also on the agenda are:
▪ The purchase for the Police Department of 270 Colt patrol rifles for $325,000 and 60 replacement patrol vehicles for $1.8 million.
▪ Awarding a $1.6 million contract for site improvements and new transit shelters at Fresno Area Express’ Courthouse Park transit center in downtown Fresno, and a $1.4 million contract for construction and an exterior remodeling at the FAX Manchester Transit Center in central Fresno.
▪ Approving a five-year, $132,000 contract with West Corp. for its Beware computer software to scour online public and commercial records databases to provide law enforcement officers with location-based information for 911 emergency calls. Earlier this year, the City Council rejected a contract for the Beware software after community advocates and council members raised concerns over privacy safeguards.