Shopping center builder offers to 'pre-pay' sales tax

The developer of a major shopping center on North McDowell Boulevard is offering to inject $1 million into the city’s dwindling budget — if the project is approved within five months.

In a letter to City Councilmember Mike Healy that Healy read during Monday’s budget deliberations, Merlone Geier Management said the money would be a short-term loan of future sales-tax revenue from the project.

The company said the loan would help the city avoid “drastic budget-cut measures” and would be paid after the city’s approval of Deer Creek Village, a 315,000-square-foot shopping center anchored by a Lowe’s home improvement store.

The letter sparked a debate at Monday’s council meeting about the appropriateness of accepting money from developers of pending projects.

City Manager John Brown said since a $2.3 budget shortfall was announced, his office had received inquiries from developers about pre-paying sales tax or building fees, but said he wasn’t comfortable recommending that the council accept such money.

“That’s really an attractive offer, given the scope of this problem,” Brown said. “But I can’t in good conscience recommend to the City Council that we accept monies in that way.”

Large-scale development projects pending in the city haven’t advanced to the point where building permits are guaranteed, Brown noted.

“I just think that these projects would do well to stand on their own merits and not have that cloud associated with them,” Brown said.

Healy said that Merlone Geier is offering to loan the city money after its project is approved, not before — thereby avoiding the appearance of trying to purchase the right to build.

“The way this is set up is not quite as troublesome as what the city manager described,” he told his council colleagues. “What they are saying is, ‘When we get our project approvals, we will then prepay some funds and allow you to get over your crisis.’”

If the city accepted the offer, “we could get by with a significantly smaller cut” than the $2.3 million now being discussed, Healy said.

Councilmember Mike Harris said the offer is worth considering.

“I do hope we explore this and don’t shut down discussion of this,” he said.

While not addressing the merits of the offer directly, some council members questioned the manner in which it arrived. Councilmember David Glass said the discussion could be “wholly inappropriate” if it delved into details of approving the project, which was not on Monday’s agenda.

Mayor Pamela Torliatt said Merlone Geier’s letter was not received by all council members.

“We could have all been aware of a proposal coming forward, something that wanted to be vetted appropriately so we could have all had input and been prepared to discuss it tonight,” she said. “When we have letters dropped on us at the last minute, I don’t think it helps, from a working-relationship standpoint.”

She said the issue should be referred to the city manager.

Said Healy, “I don’t think there was anything inappropriate about bringing the forward tonight. I think it was a valuable contribution to the conversation.”

Deer Creek Village, proposed for a vacant lot across from Petaluma Valley Hospital, could generate more than $1 million in property and sales tax each year, according to a city-commissioned study released earlier this year.

A Merlone Geier spokesman said the company is exploring a similar offer with another city. It is a “standing offer,” but if Petaluma were to accept it now, potential layoffs or other cuts at the end of the year could be softened or avoided, the company said.

“The saying that ‘time is money’ really applies here,” spokesman Marko Mlitokin said.

(Contact Corey Young at corey.young@arguscourier.com)