Jardine: An offer the City Council couldn't refuse

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By now, any self-respecting American knows exactly where to find the perfect metaphor for any given situation: "The Godfather" trilogy.

General Petroleum, a large oil distributor based in Southern California, wants to locate its Northern California sales office in Modesto and made the City Council an offer it couldn't refuse Tuesday night.

The council, all ga-ga at the prospect of new tax revenue during these tough economic times, gave the company a deal so sweet, the term kickback comes to mind. It's akin to a scene in "The Godfather II," in which Don Fanucci allows a young Vito Corleone to conduct business on his turf only if Corleone allows him to "wet his beak," meaning to score a large share of the profits.

On The Hive: Jeff Jardine's Blog

This deal, some say, should have slept "with the fishes." (Sorry that I couldn't work "go to the mattresses" or "Leave the gun. Take the cannoli" in here somewhere.)

"The purposes of just raising money don't justify this type of sweetheart deal," Modesto attorney Frank Zumwalt told the council Tuesday, arguing that it's unfair to give tax breaks to big companies while ignoring the smaller ones.

The council said it will entertain similar proposals from other companies that produce equal results, though there are only a handful of $200 million-a-year companies locally that could hurriedly relocate their sales offices to Modesto to take advantage of the tax break.

The council's thinking is simple: The economy stinks. Home values are down and so are property and sales taxes.

Virtually every government agency in the state is hacking its spending dramatically, and Modesto is no exception. Officials are looking for any new revenue sources to offset the losses. Hence, the General Petroleum deal.

In any year when General Petroleum earns $200 million, the company would get a $1.2 million tax rebate. Modesto's cut would be $665,000. That's $665,000 more than Modesto would get if General Petroleum browbeat some other city into cutting it the same deal, council members reasoned.

The company bluffed the council into making a rushed decision based on the assumption that if it didn't do so before Oct. 1, Gov. Schwarzenegger would sign a law prohibiting such sweetheart deals. The Guv, however, says he won't sign more bills until the state finally gets a budget. It's now almost three months overdue with no resolution in sight.

Yes, the tax deal benefits an out-of-town company, and an oil company at that. General Petroleum will open an office here that will be about the size of a single-story home in Village I, housing 20 or so sales reps at most.

Economic development officials here have lost out on big opportunities before because they wouldn't make unreasonable concessions.

In 1999, satellite TV company Echostar teased Stanislaus County with a call center that would have created 2,000 $7.50-an-hour jobs and generated about $40 million in sales annually. In addition to demanding tax breaks, the company wanted local officials to pay for the underground installation of fiber-optic lines to the Beard District, the old Breuner's building in Salida or wherever Echostar chose to set up shop. It even held a rather humiliating job fair here to see whether we had enough people smart enough to answer phones and operate PCs.

In the end, officials refused to cave in to Echostar's demands. How could they give to Echostar what they could not also offer companies that had been here for decades?

Without so much as a "sorry, you lose" phone call, Echostar chose El Paso, Texas.

And Modesto city officials with any kind of longevity must remember how the city lost the land beneath the Red Lion (now DoubleTree) Hotel when the developer claimed bankruptcy. The city had paid $1.6 million and expected to reap $4.2 million in lease payments over 20 years. Instead, the city gets nothing beyond the same proportionate taxes you pay if they leave a light on for you at Motel 6.

The General Petroleum deal demands no cash outlay on the city's part. The company isn't asking the city to pay for infrastructure costs or to buy the land where the office will be. The biggest risk is in handling whatever public outcry arises from giving such a tax break.

Only Councilman Will O'Bryant stood up to the company and the other council members, citing the lack of information preceding the vote.

"It's wrong to conduct the business of the people the way we're doing it now," he said.

But one skeptical councilman wasn't enough, and there's a "Godfather" line for that circumstance, too.

"I don't need tough guys," said Al Pacino as Michael Corleone in "The Godfather III." "I need more lawyers."

Jeff Jardine's column appears Sundays, Tuesdays and Thursdays in Local News. He can be reached at jjardine@modbee.com or 578-2383.