San Marcos Mercury | Local News from San Marcos and Hays County, Texas

June 5th, 2008
Prime Outlets expansion pulling more sales tax than city projected

Managing Editor

A major renovation of Prime Outlets completed more than two years ago is generating considerably more revenue than projected when the city council agreed to an economic development subsidy for the expansion.

Under the deal approved by the city council in September 2004, the city agreed to refund all the sales tax revenue it receives from stores located in a more than 150,000 square foot addition to the popular shopping spot. The incentive package was based on an anticipated $20 million investment by Baltimore, Md.-based Prime Retail but company executives later put the total cost of construction, including renovations not included in the agreement, at about $50 million.

The city continues to collect sales tax revenue from the older portions of Prime Outlets San Marcos and from next-door Tanger Outlet Center. The flagship malls of their respective parent companies, Tanger and Prime pull in an estimated 7 million-plus visitors a year and constitute a major, if not majority, chunk of sales tax revenue to the municipal coffers. Sales tax receipts constitute 45.5 percent of this year’s $39.2 million general fund budget.

The agreement with Prime was capped at $3 million over five years but the city is on course to reach that ceiling in three. Most recently, the city council appropriated $1,115,429 to rebate sales collected from vendors in the expansion during calendar year 2007. That was $115,429 more than the $1 million budgeted for the rebate; in 2007, the rebate came to $888,021 when $700,000 had been budgeted.

“Even though [the rebate this year] is more than we budgeted, it means the sales tax being collected from the expansion is more than we projected,” Finance Director Rosie Vela told council members last month.

The renovation included a representational replica of the Piazza San Marco in Venice, complete with weathered statuary and gondola rides in a faux canal. When they announced the renovation, Prime Retail executives said the renovation would keep the malls competitive in an increasingly crowded marketplace, especially for wealthy customers with the means to go elsewhere. The accelerated rebate schedule points to that kind of consistent increase in sales, although neither outlet center releases sales figures.

Since the fiscal year started Oct. 1, the city of San Marcos has collected $8,046,975 in sales tax through May, a 6.8 increase over the same point last year. Given the city’s dependence on sales tax revenue — and by extension, the outlet malls — a slight decline in monthly totals the past two months have been cause for some low-grade concern. Collections declined three-fifths of one percent in May, from $1,727,757 in 2007 to $1,717,419 in 2008; in April, the drop was even smaller, from $1,196,369 to $1,199,666, or less than three-tenths of one percent.

San Marcos’ retail sector boosters point out that sales tax revenue has increased year-to-year since at least 1980 except one. That was in 2002 after the Sept. 11 al-Queda attacks on New York and Washington disrupted consumer spending nationwide and choked off the border and the slew of affluent Mexican shoppers that come here each year. Even then, the decline amounted to only one-tenth of one percent. Financial policies implemented since then ensure that sales tax revenue growth is never estimated at more than three percent for budget making purposes. (The fiscal year 2007-2008 budget is based on a slightly more than one percent increase).

The city receives 1.5 cents for every dollar spent in town; the state receives 6.25 cents and the county’s cut is one-half cent.

One third of sales tax collected — one half-cent for every consumer dollar spent — is dedicated to property tax relief for residential property owners as authorized by the city’s voters in 1987. That portion of the sales tax alone is expected to generate about $5.2 million this fiscal year, equivalent to 24.2 cents on the property tax rate.

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One thought on “Prime Outlets expansion pulling more sales tax than city projected

  1. I hear that people are coming from far and wide to ride the gondolas. 😉 David Sergi’s father, Arturo Sergi, a famous tenor, performed at the opening event. Kinda cool.

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