4:00pm | The Long Beach City Council on Tuesday voted 8-0 to approve a $600,000 loan package to auto dealer Worthington Ford in an effort to keep the dealership in town. The five-year loan will be used, along with several million dollars of Worthington Ford’s own money, to expand the dealership into the existing dealer facility recently vacated by defunct Champion Chevrolet and located just south of Worthington Ford.
Worthington Ford claims that the Ford Motor Co. had offered the dealer a lucrative incentive package to move out of Long Beach and the only way to remain in their 35-year-old Long Beach location was to expand.
The 5 percent five-year loan, which will be funded through federally-funded Community Development Block Grants, is permitted under a CDBG provision allowing the funds to be used for “business and job retention.”
In fact, nearly all of the commentary on the topic has focused on the dealership’s 115 workers.
However, to be blunt, that is not what this is about. What it is really about is money. And because it is about money, it can be boiled down to some basic numbers.
Now, this is not to say that there is not genuine concern among our city leadership for the workers, but keep in mind that the Worthington workers would likely have been hired on at the new facility if the dealership had moved.
Also, compare this situation with the October 2008 move where the city’s port staff imposed regulations on truck drivers servicing the port which immediately put more than 2,000 truck drivers out of work. Albeit the reasons were in the name of the community interest–cleaner air by banning older trucks–there was, however, little discussion at the time about the drivers that were displaced.
The difference between the two situations is that independent owner-operator truck drivers do not contribute a minimum of $300,000 in sales tax revenues to the city coffers like Worthington Ford did last year.
So, now that we are clear what we are talking about, let’s look at the numbers.
Just like the recent City Hall issue of a rent reduction for the Seal Beach Yacht Club, the City Council faced a situation with Worthington Ford where it had to weigh current revenue from the business minus the money being asked for versus the potential loss in city revenue while trying to replace the business if it vacated.
Here are some important background facts: In 2000, the city signed a 15-year lease with Robertson Developers (then California Drive-In Theaters, Inc.) to turn the 1950s-era Los Altos Drive-In Theater site into a retail and commercial center.
Under the terms of the lease, the city retained a flat-rate minimum of just over $568,000 a year in sales tax from the center’s various new businesses and 50 percent of everything over $568,000. The other 50 percent of the sales tax generated went to Robertson “to cover extraordinary infrastructure improvements [during the development] and to secure critical tenants.”
Cal Worthington revenue was part of this incentive program because as part of the drive-in redevelopment project, the dealership was rebuilt.
As an aside, it is ironic to note that many anecdotes credit the old Worthington dealership’s bright lot lights with dimming the view of one or more of the drive-in’s three screens and further accelerating the theater’s demise.
Since the opening of the rebuilt dealership in 1999, sales tax revenues from Worthington Ford above the lease threshold have ranged from a high of nearly $700,000 in 2001 to a low of approximately $300,000 in 2009. Worthington Ford estimates that if they are allowed to expand into the vacant dealership facility, they could return to 2001 sales levels by 2015–again pumping $700,000 in annual sales tax directly to city coffers.
However, the city-commissioned financial analysis of the Worthington Ford loan plan found that in the best case scenario the city could face a loss of $1.25 million (in 2010 dollars) over seven years if Worthington Ford left the city.
In other words, the city’s investment today of $600,000 would, if the analysis proves correct, prevent the future loss of another $605,000 in direct city revenue.
Also, keep in mind that not only is this a loan that will be paid back by Worthington Ford, it will be charged at 5 percent interest, meaning that after five years, the city could actually make a collective profit on the whole deal.
Lastly, it is worth noting this is by no means some odd financial experiment being played by City Hall. Auto dealerships make money and represent in most cases a steady source of revenue for their hometowns.
In fact, the city’s Economic Development and Cultural Affairs Bureau manager Robert Swayze told the Council that Worthington Ford has been one of the city’s top 10 sales tax generators for more than 15 years–generating more than $11.7 million for the city between 1986 and 2009. Also consider the City of Cerritos, where it’s large Auto Center generates more than $10 million a year in sales tax revenue–enough to more than cover the city’s entire annual Sheriff’s Department budget.
Ironically, similar profits are not reaped by the dealers themselves.
According to Todd Leutheuser, Executive Director of the Southland Motor Car Dealer Association, because competition and the current market situation have cut dealer profits so thin, dealers often reap as little as 1 percent of a car sale price while local governments still get their same percentage of the sales tax per sale.
This high level of revenue can lead cities to contemplate preventative action such as the Worthington loan deal when this revenue stream is threatened. Leutheuser points out that while these type of arrangements are not common, they are by no means unique in the industry.
“Cities are beginning to act more like businesses and they are starting to make investments where they think they will get the highest return on their dollars,” said Leutheuser.
Under the terms of the deal approved by the City Council on Tuesday, the city will make an initial loan of $200,000 to the dealership. Following a required change by the council to the city’s Action Plan, which sets down how federal funds can be used for development, the city will make an additional $400,000 loan to the dealership.
The modified Action Plan must also gain approval from the United States Department of Housing and Urban Development.
The Council will hold a public meeting on May 26 at 10 a.m. in Council chambers to seek community input on the Action Plan changes.