The Duluth City Council unanimously agreed Monday night to offer financial assistance to Costco, which proposes to build a new 160,000-square foot warehouse store at the intersection of Haines and Arrowhead Roads.
Under the deal, Duluth will forgo up to $1.35 million in property tax collection, with St. Louis County being asked to abate another $650,000 in taxes for an overall aid package totaling $2 million.
Costco aims to begin construction of its first store in the region this fall, and the retailer expects to welcome its first local shoppers by the fall of 2021. The retail operation is expected to employ about 150 people, and the store's parking lot should be large enough to accommodate 725 vehicles.
The current market value of the property Costco proposes to develop is $1.15 million, and it generates about $23,700 a year in property taxes, across all jurisdictions — city, county and school district.
When the development is completed, the taxable market value of the property is expected to increase to $11.2 million, and the property taxes generated by the store are expected to exceed $434,000 annually.
The store also is expected to provide significant sales tax revenues, as well, with the city collecting 1% sales tax for its general fund, in addition to another 0.5% sales tax to support road improvements.
Adam Fulton, deputy director of Duluth's planning and economic development division, said the economic benefits of the project are expected to exceed the value of the requested subsidy.
Noah Schuchman, Duluth's chief administrative officer, said the subsidy will amount to about $85,000 during Costco's first year of operation, which will be more than offset by an anticipated $200,000 in increased tax receipts. "We will see, as a city, a net gain from this development in the first year," he said.
While 2nd District Councilor Joel Sipress said he generally doesn't support providing subsidies for the development of big box stores.
"Retail really, for the most part, has to rise and fall on its own and not be subsidized, adding also to the fact that there's the issue of fairness to competitors who didn't get subsidized and may be in the same market," he said.
But Sipress concluded the package being proposed remains a good business deal for the city.
"I think there's good reason to believe that Costco will lead to a real increase in our overall sales tax revenue sufficient to justify the aid. To me, that's really the only reason or basis for providing this kind of subsidy," he said.
At large City Councilor Zack Filipovich said: "In my more than 6½ years on the council, this is the first kind of big box or larger box retailer that we've given any subsidy to. I think that speaks to the quality of city staff. I know that they negotiated really hard, and Costco kind of walked away there for a little while, but they came back because they knew how special of a place Duluth is."
Filipovich thanked city staff and Costco for their persistent efforts to bring forward a project.