Video: Behind Costco’s Spanish Fork deal


Photo credit: Steve F

What if your next-door neighbor were able to pay zero sales taxes for 18 months ($2,000 for the average Utahn) and zero utility bills for four years – and you had to subsidize this arrangement?

As we reported two weeks ago, Spanish Fork has offered Costco a special deal like this, while its soon-to-be competitors will continue to pay full tax rates and utility bills. We interviewed Seth Perrins of Spanish Fork and Bret Gallacher of Associated Foods to understand better how this deal will affect the city and its current businesses.

You can hear what they said in the following video report:


Here’s the script of the video: 

VOICE-OVER: What would you think if your city government told your neighbor that you and other taxpayers would pay the neighbor’s utility bills for four years, and that this neighbor would also be allowed to skip paying sales tax for 18 months? Those are two of the many incentives Spanish Fork city recently gave to Costco so that the retailer would build a store within city limits. Seth Perrins, the assistant city manager in Spanish Fork, speaks on behalf of the city.

SETH PERRINS: “We know what kind of revenue they derive in sales tax and to have that revenue here will be a great enhancement to the sales tax base of Spanish Fork.”

VOICE-OVER: The other special benefits that Spanish Fork is giving to Costco include free ground to build on; a waiver of the fees that other businesses have to pay for site plans and building permits; and reimbursement of $225,000 to the company for the grading and fill work done by the city and paid for by Costco. Perrins says the large incentive package was a necessity because Costco told city officials that it was debating where to open its doors next.

PERRINS: “They narrowed their research down to two sites, one in Springville and one in Spanish Fork, and so Costco approached each of our communities, Springville and Spanish Fork, and specifically asked what incentives can you offer to us.”

VOICE-OVER: Some in Spanish Fork, however, are going to be harmed by the city’s favorable treatment of Costco. Sutherland spoke with Costco’s competitors, Macey’s and Fresh Market groceries, which are both owned by Associated Foods and are the only grocery stores currently in Spanish Fork. Bret Gallacher, Associated Foods’ marketing director, explains how they will be hurt by the outcome.

BRET GALLACHER: “Whenever competition moves in, a portion is going to go to that competition, so yes, we will lose a little bit of the sales in those two locations. People going into a Costco, they like to buy big bulk large items; our Macey’s stores do a great job with food storage, they do a great job with some of those family-sized pack items, those might suffer a little bit.”

VOICE-OVER: For Associated Foods stores already in Spanish Fork, it becomes in part a question of fairness and equal treatment by the city.

GALLACHER: “We would hope that the government there would be just as fair to the existing retailers as they are to those that they are trying to entice to come to Spanish Fork.”

VOICE-OVER: City officials also got negative feedback from some city residents. Specifically, these residents voiced concerns that the city is giving a large, special deal to a business. However, the city believes that in the long run the incentives given to Costco will pay off.

PERRINS: “You never like to give away money; you don’t like to do things if you don’t have to, but recognizing that it’s required in order to prepare ground for development. So we recognize that even though it may not be something that the public wants – to give money to a corporation that is very successful – we recognize that it’s a necessary part of doing business in helping our local economy grow.”

VOICE-OVER: So what do you think? Do cities like Spanish Fork really have to give special deals to businesses to help the economy grow? Are such special deals fair when similar, longtime Spanish Fork businesses are left to fend for themselves? Is it right for a city to favor one company over another in an attempt to enhance the sales tax base of the city? And perhaps most importantly, as a taxpayer do you want to be paying the utility bills of businesses in your city? For Sutherland Institute, I’m Alexis Young, reminding you that public policy changes lives.