Updated with additional quotes.
CLARKSVILLE, TN (CLARKSVILLE NOW) – Attracting Costco to open one of its popular, club-based wholesale locations in Clarksville took more than the right location and demographics. It also took an incentive package. But that incentive – worth $21.5 million in sales tax revenue over 10 years – is essentially a contribution that doesn’t kick in until after Costco meets three key performance obligations.
Each year, Costco picks the best 15 markets for their next stores, with deals being offered across the world. “We’re trying to get Clarksville, Tennessee, on the list next to Tokyo, Japan, and Germany, and Europe, and Dallas and Austin,” Industrial Development Board President Josh Ward told the Montgomery County Budget Committee in a special-called meeting on Thursday. “They can hand-pick where they want to go, because everybody wants them, and with your help, we think we can get them here.”
How Costco incentive will work
The three obligations for Costco in the package are:
- Must be in business for one full year before the first incentive, then for six-month intervals thereafter for the 10 years of the incentive.
- Must generate a minimum of in $172 million in annual sales revenue.
- Must generate a minimum of $1.075 million in annual sales tax revenue.
Under the 10-year deal, Costco will receive $2.15 million per year for 10 years from Montgomery County’s share of the sales tax revenue they generate, expected at $250 million. The county will transfer that amount to the IDB, which will pass it through to Costco, according to Economic Development Council CEO Buck Dellinger.
“We are never paying them up-front. We’re always awarding their contribution after they’ve achieved” the stated minimum sales and sales tax revenues, Dellinger said.
The city and schools will still receive their share:
- $4.57 million/year for Clarksville-Montgomery County Schools
- $1.65 million/year for Clarksville City Government
Future sales tax revenue, rest of Freedom Farms
Those figures are based on Costco generating $250 million in total sales per year, which is typical for their first year. But by year three, their Tennessee stores typically generate $300 million or more, Dellinger said. The amount in sales tax paid back to Costco will not rise, so all of the excess will go to the sales tax share for all three local governments.
Also, these incentives apply only to Costco, which will sit on about 25 acres of the 220-acre Freedom Farms development. The city and county governments and CMCSS will retain all of the local sales tax revenue from retailers on the remaining 200 acres.
Among the retailers who are being sought for Freedom Farms are Trader Joe’s, Barnes & Noble, REI and dozens of others, though nothing has been finalized and no announcements are immediately pending.
There’s good reason to be optimistic about a Clarksville Costco’s success. About 50,000 people per year drive from Clarksville and areas north and west of us to Costco locations an hour away in Nashville and Hendersonville, Ward said. “That’s sales tax dollars leaving our community,” he added.
Another 7,000 drive all the way from Hopkinsville, Kentucky. Additionally, about 335,000 drive in from Robertson, Dickson and Cheatham counties. The Clarksville location will likely be easier to get to for many of those shoppers, bringing tax dollars in instead of sending them out.
Why do we need to pay Costco incentives?
Markets for major retailers are divided into classes, with Class A markets having the highest household income within a 10-mile radius. So the Mount Juliet Costco, for example, is in a $130,000/year household income area, while Clarksville is at $80,000/year.
“Because we’re not an ideal Class A market, we have to come up with more incentives,” Dellinger told Clarksville Now.
Other markets in similar situations have paid much more in incentives to get Costco, to the tune of $30-$40 million in multiple locations in Texas, Alabama and South Carolina. But in those states, local governments have much more control of their sales tax revenue. “Clarksville-Montgomery County has less negotiating space because of the way sales taxes are dedicated,” Dellinger said.
The IDB uses a “but-for” question as a critical part of their decision making on incentives. In this case, would Costco, or a Costco-level retail anchor, come to Clarksville “but for” these incentives? And would the remaining 200 acres of Freedom Farms attract the desired retail “but for” the presence of Costco? If the answer is no, the incentive may be justified.
What about traffic around Costco?
One of the concerns surrounding the project has been whether Costco and Freedom Farms will dramatically increase traffic in the area. Dellinger said that in some ways, the projects will improve traffic.
First, Wilma Rudolph Boulevard is already under high pressure from interstate travel and surrounding retail, with essentially only one way in and out of the area.
The City of Clarksville’s Spring Creek Parkway from Trenton Road to Wilma Rudolph will soon be complete. The Freedom Farms developer, Oldacre McDonald, plans to complete an extension of Spring Creek Parkway through their site and connect it with Ted Crozier Sr. Boulevard, taking on what was going to be a City of Clarksville expense. The developer will also be creating multiple roads through Freedom Farms.
Altogether, the additional roads should take pressure off of Wilma Rudolph Boulevard.
Adding Interstate 24 alternative exits
It was revealed Thursday that the EDC and Montgomery County are working with TDOT officials to request adding alternative exits at Exits 4 and 8, essentially creating an “exit 6” that would feed into Freedom Farms and other nearby sites, taking additional pressure off of both exits.
Exits 4A and 4B, and Exits 8A and 8B would create “collective distributed corridors” along the sides of I-24 as it is widened under existing plans, Ward and Dellinger said. “In essence, it will give us an Exit 6,” Dellinger said.
All of this is subject to approval by TDOT, which is still in the process of reviewing plans for expanding I-24 and improving those exits.
Property was going to sell, just question of how
Dellinger said it’s important, too, to consider the alternative. The Feltner family, which owned the property, was going to sell either way for tax reasons. It’s an agricultural, high-value area surrounded by the mall, I-24, and Vanderbilt Clarksville Hospital. “Something was going to happen,” Dellinger said.
Without a large master plan that included an anchor tenant, the property would have been broken up into small tracts, essentially multiplying the rapid growth seen on Wilma Rudolph Boulevard.
“This 220 acres was going to be sold off in 10- to 30-acre tracts,” Dellinger said. The EDC already owns about 76 acres directly to the south, for development of a convention center. “With this land and our land together, we knew we could do something transformative for our community.”
Dellinger said Costco will help us keep local citizens shopping in Clarksville. But it “also helps us attract more doctors, more dentists, more architects, more engineers, because if you’re coming from Orlando or Fort Worth, Texas, you’re going to ask your spouse or your family members, ‘Is this place as good as the place that I’m leaving? Do they have a Costco?’ And Costco and Trader Joe’s are those threshold retails that they expect to have in a community of our size and stature.”
He said when the EDC asks Clarksville residents what they want in new retail, Costco is the No. 1 or No. 2 answer every time.
The Budget Committee unanimously approved the package. The Montgomery County Commission is expected to take up the incentive package at its informal meeting on Monday, Aug. 3.
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