Almanac

News - July 2, 2014

Menlo Park losing a top sales tax producer

by Sandy Brundage

In the wake of a merger, one of Menlo Park's top sales tax producers is decamping for Fremont this fall, according to the city.

Office Depot Max will shut down its local distribution facility in mid to late November, company spokesperson Karen Denning said. Operations will be consolidated with a larger facility in Fremont; most of the approximately 130 employees at the Menlo Park warehouse will be offered a chance to transfer.

Ms. Denning said the company intends to sell its 11.2-acre Menlo Park property once vacated.

According to Jim Cogan, the city's economic development manager, the property, located off O'Brien Drive in the M2 industrial district, could be worth $25 million to $30 million.

"From Menlo Park's standpoint, the (distribution facility) was great, because it had a really low traffic impact, but high revenue generation," he said.

Mr. Cogan explained that confidentiality agreements prevent disclosing how much tax revenue a given business generates. The loss of Office Depot Max won't hurt Menlo Park during the 2014-15 fiscal year, which starts July 1, but will impact the city's revenue in subsequent years.

He said the question is how to mitigate the large loss of sales tax revenue in the mid-term. "We're really hoping downtown development can help bridge that gap. The (downtown/El Camino Real) specific plan is really a big part of our approach to that, by diversifying our tax base so we're not relying so heavily on one source."

Mr. Cogan said that with the proposed initiative to change the specific plan looking like it will be on the November election ballot, the outcome of the vote could reduce the potential investment in downtown.

"It is something we're concerned about," he said.

If the initiative, put forward by grassroots coalition Save Menlo, wins a majority of the vote, the city would have to look for other ways to diversify its tax base.

"Off the top of my head, our (1 percent) users utility tax is incredibly low. An increase of 1 percent equals (another) $1.13 million a year to the city, which would help offset the loss of sales tax," Mr. Cogan said.

He noted that there are other strategies to explore — including updating the zoning code for the M2 district, which is currently underway. The changes would ideally encourage companies to stick around.

"Menlo Park often has these amazing companies start here, grow to a certain size, and then move, like Cisco," Mr. Cogan commented. "We're excited about the opportunity to work with property owners to create a space where our next generation of revenue generators — biotech companies (for example) — have the interest and means to stay in Menlo Park to grow. It's a far stronger, more consistent sales tax generator group."

Mayor Ray Mueller, who focused on the future of the M2 district while running for council, agreed that the city's revised land-use policy needs to stimulate diversification "so that no one sector's downturn will cripple the city's revenue projections."

He said he'd like the city to make it easier for biotech and healthcare manufacturers to relocate to the M2, "as both of these sectors are highly regulated and are less likely to move offshore" and they collaborate with the city's information technology and software sector.

The M2 district already has one type of diversification in progress, albeit slowly: Menlo Gateway, an office-hotel complex on 16 acres along Independence and Constitution drives. The project, approved in 2010, would provide an estimated $1.4 million in annual hotel revenue. But until recently, investors weren't interested in building hotels, according to project developer David Bohannon. Now that's changing.

"We are in conversations with several potential operators for the Menlo Gateway Hotel. The market is encouraging," Mr. Bohannon told the Almanac. The Gateway hotel, he said, needs to be full service as compared to the boutique hotels being considered for downtown Menlo Park. He said he hopes to announce an agreement "in the not too distant future."

The city would love for that to pan out: "We're definitely going to be more interested in seeing that project move forward in light of the loss of sales tax, and definitely if the initiative passes, because we're going to need some investment," Mr. Cogan said.

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