Oakdale and Newman leaders say a tax-sharing deal Modesto signed last year with an oil distributor is siphoning scarce sales tax dollars away from their cities.
"We feel like we're being cheated. We feel like Modesto has taken our money," Oakdale Mayor Farrell Jackson said.
The tax-sharing deal, meant to boost Modesto's sales tax revenues, could cost Oakdale about $55,000 a year in lost sales tax dollars, Jackson said. "That's a police officer or a firefighter," he said.
Cities depend on sales tax revenues to pay for police, firefighters and other services. The economic downturn has slowed those revenues to a trickle.
Modesto saw a chance to reverse that trend when it signed tax-sharing agreements with three oil companies last year: Modesto-based fuel distributors W.H. Breshears Inc. and Boyett Petroleum, and Southern California distributor General Petroleum.
Under the agreements, the oil companies record their sales in Modesto, where they negotiate their deals, instead of in the cities where they make their deliveries.
Modesto gets to collect taxes on those sales, even if they're made to customers outside the city.
Breshears and Boyett had previously paid taxes at their delivery points. General Petroleum set up an office in Modesto to centralize its statewide sales. The deals don't apply to gas the companies sell to people at service stations.
In exchange for bringing new business to Modesto, the oil companies get a rebate on sales tax that would usually go to the city. For example, if General Petroleum earns $200 million in a year, the company would receive $1.2 million in a sales tax rebate and Modesto would net $665,000 in tax revenue.
Oakdale, Newman point to big losses
Even with the rebates, the city stands to gain. City staff said the three tax-sharing agreements could bring up to $1 million a year in new revenue. The City Council approved the deals this past September as Modesto struggled to balance an $8.7 million budget shortfall.
Such deals have since been banned under a new state law.
Some criticized the deals, saying they amounted to theft from other cities. Now Oakdale and Newman leaders say that prediction has come true.
Modesto's deal with Breshears is hurting their bottom lines, they say. Breshears serves eight counties in the San Joaquin Valley. The company operates fueling stations for company fleets — known as cardlocks — in Newman and Oakdale, as well as storage tanks in Newman.
In the quarter before Modesto signed the deal with Breshears, the company's sales added $17,766 to Oakdale's tax revenues. In the first full quarter after the deal was signed, Oakdale collected $4,002 from Breshears, City Manager Steve Hallam said.
In Newman, Breshears' sales tax receipts dropped from $26,213 in the quarter before the deal, to $75 in the quarter since the deal, City Manager Mike Holland said.
"When the fourth quarter (revenues) came in, we were very upset that one of our sister cities would cut a deal to harm the city of Newman," Holland said.
A Breshears representative said the company did not want to comment. Boyett and General don't do business in Oakdale and Newman that's covered by the tax-sharing deals.
In Oakdale, Hallam said he first thought the drop-off in sales tax receipts was because of the decline in fuel prices. But a Breshears accountant confirmed that the revenue hit was a result of the new sales tax deal, Hallam said.
Oakdale and Newman leaders say they want Modesto to hand over tax money they say belongs to them.
City Manager Greg Nyhoff said it wasn't Modesto's intention to funnel money out of Oakdale and Newman. City leaders thought cardlock fueling stations weren't included in the tax-sharing agreements, he said.
Nyhoff said Modesto could rewrite the tax-sharing deal so that Oakdale and Newman's revenues aren't harmed. But first, he said, the city needs more information about whether the tax-sharing deal truly is driving the revenue declines in Oakdale and Newman.