DULUTH – The region's first Costco is one step closer to opening, and it's getting a $1.35 million tax break as a welcome present.
By a unanimous vote Monday, the Duluth City Council decided to grant the wholesale retailer a tax abatement to help fund improvements to public infrastructure, such as roads, traffic signals and sewers. It's rare for the city to provide such an incentive to a multibillion-dollar corporation like Costco.
"I don't want us to get into a pattern where we start looking at the subsidizing of big-box development as a strategy for economic development," Council Member Joel Sipress said. "This is an exceptional circumstance, and I hope it remains an exceptional circumstance.
Sipress and other council members said they were on board with the deal because they believe Costco will grow Duluth's sales tax revenue by drawing customers from nearby communities. They also lauded the company's business-to-business services and high wage rates.
"It's actually pretty impressive that folks seem to drive from everywhere to go to these stores," Council Member Zack Filipovich said.
A city report said once the store is built, the property will have an estimated market value of $11.2 million, ratcheting up its property tax capacity. City officials said they expect to pay back their abatement in 12 or 13 years.
The St. Louis County Board will have a public hearing July 28 to discuss an additional $650,000 in tax abatement financing for the development.
Costco stated in its application for the subsidy that the store's opening would create 75 full-time and 75 part-time jobs in Duluth. The city is also requiring Costco to sign project labor and community benefits agreements to boost the local construction industry.
The new store will be located on approximately 160,000 square feet of land at the intersection of W. Arrowhead and Haines Roads, near the city's airport.
Costco filed plans to build on the Duluth property last fall but terminated an agreement in March, when a site selector for the company cited "extraordinarily high project bids which far exceeded others we've seen recently throughout the Midwest region."
The company put out a new request for bids in May that allowed contractors more time to complete the project in an economy with a sudden supply of workers because of projects delayed by the COVID-19 pandemic.
Construction is expected to start this fall and finish a year later.
"In times of really tough budget discussions, it's nice to have some good news," Council Member Arik Forsman said. "It's nice to be talking about growing the pie and growing our tax base and growing jobs, instead of the alternative."