Tribune Exclusive Report

Why Atascadero's retail engine is sputtering

The city’s total third-quarter sales tax receipts were down almost 20 percent — far beyond any other local municipality — as three high-profile properties endure difficult times

By Stephen Curran

Atascadero experienced a double-digit drop in sales taxes in the third quarter of 2007 compared to the same period a year earlier, the sharpest such decline in San Luis Obispo County, figures reported by the state show.

The drop in gross receipts to about $923,000 from $1.15 million during July to September 2007 surprised some local leaders who said they did not predict that stagnant construction and plummeting automotive sales would swallow so much of the city’s already anemic sales tax revenue.

No immediate cuts to public services are expected, administrators said last week. But the slide means the city will likely have to take $500,000 from its reserve fund in the coming year — a move that won’t put the city at risk, they said. Leaders were already bracing for a lean year.

It’s an increasingly familiar story, economist Bill Watkins said, as municipalities statewide must decide whether to court new business more aggressively in an attempt to fight the symptoms of the ailing real estate market.

Recruiting new business is one option for Atascadero, said Watkins, executive director of the UCSB Economic Forecast Project, “but they have others. One option is that they could cut back city services.”

Atascadero is home to persistent disagreement over its commercial future. That ongoing debate, some business people say, could keep the community from recovering as its reputation suffers among developers and outside investors steer clear of controversy.

The council voted in October to shelve applications by Wal-Mart and The Rottman Group for a 195,000-square-foot grocery/department store and shopping center at El Camino Real and Del Rio Road. Supporters said the project would have generated much needed sales tax for Atascadero; opponents claimed it would devastate independently owned businesses.

Anti-Wal-Mart advocates plan to place a measure before voters this year that would require the chain to stay within the 150,000-square-foot limit spelled out in the city’s General Plan. It also would restrict the amount of floor space the store could devote to selling groceries and other nontaxable items.

Rottman Vice President Keith Mathias, the developer of the shopping center across from the proposed Wal-Mart, said the slow economy and bureaucratic delays have forced his firm to walk away from three real estate deals and sell another piece of land at a significant loss.

It’s unlikely the company will pursue future projects in Atascadero, he said.

“All Atascadero wants to do is argue with itself,” Mathias said. “How long can we wait? If we had a way to get out of (the Del Rio project) with the skin of our teeth, we’d probably do it.”

Uncertainty lingers

Atascadero has long struggled to build on its sales tax base, which even before the downturn ranked among the lowest per capita in the county.

Taxable sales dropped in 2006 to about $346.3 million, down from $351.5 million the year before.

The most recent data came as all but two area cities—Pismo Beach and Morro Bay — saw declines in gross sales tax receipts during last year’s third quarter over the year-earlier period. The second most significant drop, 9.2 percent, was reported in Arroyo Grande.

The housing slump’s ripple effect on related businesses such as hardware and furniture stores has contributed to the sales tax decline. Building permits in all local cities were down nearly 32 percent last year over 2006, and Atascadero officials predicted a decrease to 190 this year from 240 in 2007.

The council will decide Tuesday whether to spend $61,500 to gauge public opinion on commercial growth in Atascadero. Of the $110,000 of redevelopment funds set aside in June for various economic studies, $7,000 was spent on an open house-style workshop in August and another $14,500 has been earmarked for a detailed tourism analysis.

“What do we want to become?” asked Mayor Mike Brennler, one of four council members who voted to reject Wal-Mart and Rottman’s applications. “What’s our vision for the future? Clearly we have to, as a community, embrace some type of vision as far as inviting business. But that doesn’t simply mean that you throw the doors open.”

City and business leaders tried in vain to lure popular grocery chain Trader Joe’s to town, only to see the company open last year in a new shopping center off Vineyard Drive in Templeton. The loss is still a source of frustration in Atascadero.

Meanwhile, the developer of Atascadero’s long-awaited Colony Square retail plaza at El Camino Real and Morro Road faces the nationwide credit slump and is struggling to attract upscale tenants. The city is now studying whether to allocate redevelopment funds for the planned shopping center.

And, Watkins said, the recent decision to scale back menu offerings at The Carlton Hotel’s signature restaurant could signal trouble ahead for the city’s downtown redevelopment plans.

But there have been successes, Atascadero Chamber of Commerce President Joanne Main said, including new chains arriving at Mission Oaks, across from the proposed Wal-Mart, and the new Guest House Grill restaurant at 8783 El Camino Real.

“There are businesses opening,” she said. “It’s not all doom and gloom. But we need to support these businesses because we want them to stay.”

Main and others criticized Oppose Wal-Mart, the locally based group that has launched the ballot initiative, saying members are trying to create unreasonable restrictions at a time when few national chains are expanding.

But Tom Comar, a cofounder and spokesman for the organization, said businesses should be able to work within the limit. His group plans to start circulating its petition in February.

“(The timing of the initiative) is not working in our favor,” Comar said. “…We are for good economic development, but something that is in scale and will engender diversity.”

Changing focus

Rachelle Rickard, Atascadero’s administrative services director, said the city had already braced itself for a lean year when it received a report from a consultant hired to analyze the sales tax numbers for the third quarter last year.

The report did not account for anomalies such as payments counted twice. When adjusted internally for those occurrences, Rickard said, the third quarter decline in gross sales tax receipts was estimated about 11 percent year over year, still higher than any other local community.

“I was surprised that it was so significant, but I’m not floored,” Rickard said of the decline.

Undesignated reserves — money not set aside for payrolls, accounts receivable and other specific purposes—account for about $4.2 million of the $19 million general fund. In severe financial crunches, Rickard said, the city could, with council approval, tap into or reallocate an additional $6.8 million that would otherwise go elsewhere.

The city does not work from a set percentage or formula when deciding how much to put in its reserve account. Instead, Rickard said, administrators conservatively allocate funds each budget cycle to a variety of accounts to ensure that key services are funded.

Councilman Tom O’Malley, who voted in favor of allowing Wal-Mart and Rottman’s applications to proceed to a mandatory environmental review, said the city needs to find new ways to enhance the local economy and better promote its tourism industry.

“We must position ourselves to receive our share of the great potential of our region’s tourism industry,” he said in rare agreement with Comar.

Watkins, the economist, said Atascadero can expect little if any economic growth in 2008. Like O’Malley and Comar, he urged local leaders to attract tourist dollars to offset the retail slump.

“There is a buyer, in a sense, in that Wal-Mart wants to build a store there,” Watkins said. “But you have to consider the political options. City council people are elected by their constituents. They have to outline the options and get a community consensus that is the least objectionable. The look of the city and the vitality of the city, that’s up to the community.”