Is new Costco worth $5.5 million incentive? Naperville has decision to make.

  • Costco has its eye on buying the western 18.5 acres of the Ogden Mall property, including this former Kmart, some vacant storefronts, Classic Cinemas Ogden 6 Theatres and other businesses. But the warehouse grocer and retailer says it would need $5.5 million in sales tax rebates from the city to make it profitable.

      Costco has its eye on buying the western 18.5 acres of the Ogden Mall property, including this former Kmart, some vacant storefronts, Classic Cinemas Ogden 6 Theatres and other businesses. But the warehouse grocer and retailer says it would need $5.5 million in sales tax rebates from the city to make it profitable. Mark Welsh | Staff Photographer

 
 
Updated 2/18/2020 6:35 AM

Naperville City Council members are set to discuss whether replacing a longtime big-box vacancy with a new Costco is worth $5.5 million in sales tax incentives.

The council could offer a rebate to entice the warehouse grocer and retailer to open its second store in town during a meeting at 7 p.m. Tuesday in the municipal center at 400 S. Eagle St.

                                                                                                                                                                                                                       
 

Costco has told city officials it needs $5.5 million to profitably operate a store at the site of a vacant former Kmart on East Ogden Avenue.

"Without the incentive, Costco will not proceed with a store at this location," Bill Novack, director of transportation, engineering and development, wrote in a memo.

The city has worked for at least the past five years to fill the vacancy left by Kmart, which closed in April 2013, Novack said in the memo. Officials set a goal under one of the city's four major initiatives to "actively seek to fill vacant spaces at Ogden Mall, Iroquois Mall and the northwest corner of Ogden Avenue and Naper Boulevard."

Costco wants to locate a store at Ogden Mall because its other Naperville warehouse on Route 59 near 75th Street has become too busy for its own good, Novack's memo said.

"Costco reports that when demand is too high in a single location, some customers choose to visit the store less frequently due to crowding or visit other stores in other communities," the memo said.

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So city staff members have devised a way to get Costco the $5.5 million it needs to build a new store on East Ogden -- in an area of northeast Naperville, Lisle or Warrenville where the company has looked for sites for the past five years.

The incentive plan would give back 75% of the city's portion of the state-imposed sales tax and 75% of the city's own home-rule sales tax on all purchases made at the new Costco. It is projected to pay out the $5.5 million within five years of the store's opening, Novack's memo said, based on expected sales tax receipts starting at $1.25 million in the first year and growing to $1.73 million in the fifth.

The deal would expire when $5.5 million is paid back to Costco or when 15 years passes -- whichever comes first. It would not rebate any of the motor fuel tax from the gas station Costco plans to build.

The incentive also is projected to keep the amount of sales taxes the city receives from both Costco locations at or above the amount it draws from one Costco store now, Novack said in the memo.

                                                                                                                                                                                                                       
 

The offer of $5.5 million would be the fifth-largest tax incentive the city has granted since 2008, with other incentives ranging from $1.4 million to Main Street Promenade to $10 million to Marriott Chicago Naperville.

In each case, Novack said in the memo, the city has been "strategic in its limited use of economic development incentives, setting a goal and using incentives to achieve that goal."

In the potential Costco deal, the wholesaler would buy the western 18.5 acres of the Ogden Mall site and would tear down much of the strip mall, including the space rented by the popular Classic Cinemas Ogden 6 Theatres.

Chris Johnson, CEO of Classic Cinemas and owner of Ogden 6, said his business would be forced to move or close if the deal goes through. The city and the Naperville Development Partnership are helping Johnson consider potential alternate sites.

An online petition to save the theater in place has drawn 20,707 signatures since it was established by two Ogden 6 employees Feb. 3.

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