Our View: Modesto's downtown incentive proposal grandly optimistic

August 9, 2013 

BA RDA Modesto 8

(BART AH YOU/bahyou@modbee.com) Tenth Street Plaza January 26, 2012

BART AH YOU — Modesto Bee

For several years, the city of Modesto has been looking for ways to grow its downtown, to nurture its existing restaurants and art galleries and to lure more shops and professional offices. The goal is to fill the many vacant spaces and to make downtown attractive and busy throughout the week.

The city allows downtown restaurants to use sidewalk space for outdoor seating and has other zoning exceptions downtown.

The most recent proposal is for the city to provide cash incentives for businesses to locate downtown. The Economic Development Committee signed off on the rough plan this week; it will go on to the full council at some point in the future.

The incentive proposal is grandly optimistic. It suggests that for as little as $50,000 per year, the city could reap $13 million in jobs, salaries and general economic benefits. Wow. Who wouldn't want that kind of return on investment?

But is it realistic? And over what time period? And how would boosting downtown affect other parts of the city?

The staff report offered at Monday's committee meeting didn't do a thorough financial review. It focused only on cash outlays, ignoring lost revenue.

The proposal calls for the city to give $1,000 to a business that created the equivalent of five jobs downtown, $2,000 for five to 10 jobs and $2,500 for more than 10 jobs. To be eligible, the firm would have to have a business plan that shows it could be profitable. The cash would be paid at the opening of the store and would have to be paid back if it didn't stay open for a full year.

It also is proposed that the city provide matching grants of up to $10,000 for firms to make facade improvements. Specific streets would be targeted, starting with 10th Street.

What the report didn't address was the potential for lost revenue. Giving new businesses refunds on mill and sales taxes has a cost, as do exemptions from capital facilities fees.

We're concerned that the plan doesn't probe the very real possibility that some businesses would simply relocate, resulting in no new jobs for the city as a whole and potentially a reduction in tax revenue. And this is a city whose leaders are asking for a 1 percent sales tax increase, claiming they don't have enough money.

We would make several key points at this juncture:

• The city has made no commitments yet to this incentive proposal, and that's good.

• It makes no sense — politically or financially — for the council to commit to a $50,000 or $100,000 expense before the Nov. 5 election, when the sales tax increase is on the ballot. If the city is in as much financial trouble as the mayor and city manager contend it is, the city won't have money for this kind of incentive program if the tax measure fails.

• The city has promised the state court system that it will assemble the properties needed for a new courthouse in the block between Ninth and 10th and G and H streets. The council needs to know the cost of that real estate deal before it launches this incentive program.

And we urge the council to weigh whether it wants to include law offices in the incentive program since the new courthouse already will be a lure for attorneys and related services that will want to be close by for convenience.

The big question, of course, is what creates jobs?

Demand for services or goods creates new private-sector jobs, not relatively small incentives that are more likely to influence where an office or store locates rather than whether it opens at all.

Furthermore, many national chains prefer freeway or shopping center locations with vast parking lots. They don't locate downtown in any city or only in cities where there are hundreds or thousands of downtown residents. Modesto still wants condos and apartments downtown but they haven't materialized — because of cost and demand.

The Bee wants a vibrant downtown as much as city leaders. It will be good for the quality of life, our reputation and our self-esteem.

The City Council needs a more complete financial analysis of whether this incentive proposal is realistic — and it shouldn't make any commitment until after the November election.

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