A Local View commentary on Jan. 2 questioned the use of financial incentives by the city of Duluth and St. Louis County to secure the Costco project that now is in the early stages of development at Haines and Arrowhead roads. Former planning consultant Mark A. Baker of Duluth disagreed with the opinion that the incentives were a “good deal” for the city and county, as a News Tribune editorial had stated.
The column was a classic example of the opposing viewpoint presented when economic-development incentives are being discussed. It questioned the financial “gap” presented by Costco, the real impact on retail sales, the real impact on employment, and the time required for the city and county to receive full benefit for their investments.
The initial “gap” was so significant Costco went back to its engineers, adjusted its plan, and rebid the project while also seeking assistance to cover the cost of public infrastructure improvements required by the city and county. The $2 million in assistance was certainly helpful but was a small part of the total project cost.
Creating a greater tax base, more retail activity, and more sales tax revenue were objectives of the city and county. According to information in Costco’s 2019 financial report, the company’s 782 stores worldwide did an average annual sales volume of $129 million. If the Duluth store ultimately does that average sales volume and one-third of those sales are taxable, the sales-tax revenue for the city would amount to more than $500,000 annually, and another fourth of that would go to the county. An increase of only half that would be terrific for both the city and county.
Some transfer of sales in the community is inevitable. A change in future sales-tax revenue to the city and county will be a true measure of the change in total sales in the market.
Much the same can be said about the net effect on employment. Full employment in an established Costco can be upwards of 250 full- and part-time employees. Costco has an excellent reputation for paying its employees well and providing excellent fringe benefits. It obviously will hire people coming from other jobs in the market. The net effect again will be an increase in job opportunities for people with the skill set Costco requires, and other employers will feel the pressure to improve pay scales and fringe benefits to be competitive. That results in a net improvement in employment and family income in the community.
Real estate taxes on the vacant land Costco purchased were $28,000 in 2020. Assuming the assessor values the completed new Costco facility in the same manner as other similar facilities, the taxes paid will be in the range of five to six times that amount. And yes, the city and county will not see the results of that increase until the abatement is closed, but the school districts will benefit immediately. Increasing the tax base in our city and county benefits every property owner.
These are not “ill-informed assumptions,” as claimed by Baker’s commentary. Rather, they are the results recognized by economists and economic-development professionals throughout the country. There are now nine Costco warehouse stores in the Twin Cities metro market. Apparently, the communities which approved the later projects saw the benefits achieved by the communities first chosen for expansion by Costco. The city of Duluth and St. Louis County are fortunate to have qualified to fit into Costco’s plan for expansion!
Frank Holappa is a life-long Duluthian and retired broker investor who was involved in the negotiations to construct a Costco store in Duluth.