(AP Photo/David Zalubowski, File)
The tax-sharing deals that Orange County cities have struck to lure — or keep — businesses inside their borders will funnel more than a quarter-billion public dollars into private pockets before they expire, our analysis finds.
Fifteen cities behind the Orange Curtain use this “give to get” approach. They “rebate” sales tax dollars they’d otherwise keep back to the businesses that help generate them.
Critics call this corporate welfare, and “kickbacks,” which pit city against city in a battle over high-volume businesses — with public dollars as the bait.
Many city officials defend it as a vital tool for delivering dollars to fund public services.
Orange County cities “rebated” at least $98 million to businesses through the 2024 and 2025 fiscal years, according to data from the cities and state. In return, those cities have received at least $36.7 million from active and recent agreements — money many claim they wouldn’t have without these deals.
Which industries gets the money? Oil is big. Sales taxes flow to companies such as AAA Oil and Marathon Petroleum. Car dealerships are big too, flowing to Garden Grove Automotive, McKenna Motors Huntington Beach, Volvo of Orange County. Dollars also go to property developers and managers and even to outside sales tax auditors that keep a slice of the un- or under-reported taxes they track down and recover.
(File: AP Photo/Chris Carlson, File)
The city of Orange has struck what appears to be the most lucrative deal, with Southern Counties Oil Co. and Orange Katella. Since 2018, about $48.2 million has flowed to the business, including $5.3 million last year alone.
Newport Beach’s agreement with David W. Wilson’s Newport Lexus Dealership wrapped up in 2024, but sent more than $9.6 million to the dealership over its 20-year life.
Huntington Beach has sent some $8.6 million to Pinnacle Petroleum, a fuel and lubricants supplier, since that agreement was inked in 2014.
Other local cities reporting tax-sharing deals with private businesses include Anaheim, Santa Ana, Garden Grove, Placentia, Seal Beach, Tustin, La Palma, Stanton, Cypress, San Juan Capistrano, Laguna Hills and Aliso Viejo.
Brea will soon join that list with the county’s first, and controversial, tax-sharing agreement involving a Costco.
The Costco Wholesale on Harbor Boulevard in Fullerton, CA, on Tuesday, March 10, 2026. Neighboring Brea, CA, may be getting a Costco too. (Photo by Jeff Gritchen, Orange County Register/SCNG)
“These are predatory practices,” said Chris Norby, a former Fullerton councilmember, Orange County supervisor and state assemblymember. In 2012, when he was in Sacramento, the staunchly Republican Norby joined forces with Democrat Gov. Jerry Brown to tank city redevelopment agencies.
When asked about the city-corporation agreements that have risen since the end of city redevelopment agencies, Norby said this:
“They stink to high heaven.”
Two for you, one for me?
In Brea, a 50-year deal with developer Dwight Manley’s company — a considerably longer term than the other agreements reviewed — is expected to generate sales tax revenue of $133.7 million from the Costco. Manley’s company is projected to get the lion’s share of it — some $77 million — while Brea and its senior programs get some $56.7 million.
Whether it’s a good deal or a dog has been a matter of some debate.
The Brea deal differs from many others in what its critics call “front-loading.” Over the first decade, the developer is slated to get 10 times more money than the city — $23 million to the city’s $2.3 million, according to projections. By year 20, it pencils out to about $41.5 million for the developer and $9.4 million for the city. Brea wouldn’t get half the sales taxes until year 30.
Screenshot of sales tax revenue sharing agreement between Brea and developer Dwight Manley for a new Costco. Manley’s company will get the percentage of sales taxes listed. The city doesn’t get half until year 30 of the agreement.
Such agreements often include incredibly detailed terms with wildly differing splits and sometimes convoluted formulas.
A simple one: Garden Grove’s deal with AAA Oil specifies that 75% of sales taxes over $321,000 go to the company.
A not-so-simple one: In Orange, Southern Counties Oil Co gets half of everything up to $4 million; then 75% of everything between $4 million and $5.5 million; and then 85% of everything above that.
And, well, Anaheim’s deal with Anaheim Capital Partners, which developed the Garden Walk project, is summarized this way:
“Until 6/30/2013: 30% of Applicable Sales Tax. Starting 7/1/2013: 40% of Applicable Sales Tax on the first $500,000 plus 50% in excess of $500,000 per year, or 50% of Applicable Sales Tax if exceeds $1 million in any year.”
The new owner of Anaheim’s GardenWalk plans to add more restaurants and entertainment and refresh the lighting, artwork and landscaping, as this rendering shows. (Courtesy of STC Management)
These deals – most recently Brea’s — enrage Norby, the erstwhile former assemblyman.
He, and many others, complained of rampant abuse by city redevelopment agencies way back when — exemplified perhaps by seaside Coronado, home of the Hotel Del and one of the wealthiest cities in the nation. Coronado’s redevelopment agency once declared its entire city “blighted” as a way to keep more property tax money in its own coffers.
Then-governor Brown complained that redevelopment agencies in cities around the state diverted billions from schools and public safety, then failed to consistently provide proven economic development.
Eventually, the state made those agencies disappear.
But the loss of those extra property tax dollars devastated cities, which had been scrambling since Proposition 13 put the brakes on property tax increases. Sales tax sharing agreements sprang up to replace those lost redevelopment property tax dollars.
The Hotel del Coronado (K.C. Alfred / The San Diego Union-Tribune)
“I thought after (redevelopment agencies) were gone we wouldn’t have these deals anymore,” Norby said. “But some of their worst practices seem to linger.
“Governments like to give away money.”
Steps toward transparency
How many of these deals are there? How much public money is being sent to private companies, and in exchange for what exactly? Do these deals live up to their promises? Are they effective over time?
The answers to these questions have been elusive, so much so that a state law that kicked in last year requires cities to report deals to the California Department of Tax and Fee Administration.
Cities must detail when deals are struck and when they expire; list how much money has been “rebated” in total, and how much was rebated in the most recent fiscal year; and spell out the percentages used to divvy up sales taxes.
Cities are not, however, required to tell the state how much they get from the deals.
Or how much they expect to get over the deals’ lives.
Or how much the businesses expect to get over the deals’ lives.
Or whether reality lives up to the promises made when the deals were struck.
And we found several deals that didn’t make it into the first year’s reporting.
To tease out answers at least some of those questions, we reviewed thousands of pages of agreements and subsequent reporting. We pulled figures from the agreements themselves and asked cities to fill in the blanks. Where they would or could not, we calculated the long-term value of the deals for both sides using the most recent year’s rebates, multiplied by the number of years in the agreement, thus getting a rough total for the businesses; then we calculated city totals based on the percentages detailed in the agreements.
AP Photo/Rich Pedroncelli
Gov. Jerry Brown speaks in Sacramento on May 24, 2018. (AP Photo/Rich Pedroncelli)
In Orange County, this rough accounting shows that about $347.2 million in sales taxes are expected to flow to businesses over the life of current and recent agreements, and about $220 million is expected to flow to cities.
How much of that money — or more — would have landed in city coffers without the sales tax sharing deals? No one really knows.
“We didn’t ‘gain’ anything,” said one city official, confused by our request to detail what the city “reaped” from the agreement. “We lost 20 percent. If we weren’t in a tax agreement, someone else would have come and taken over that spot.”
‘Serious leakage’
Data for all California cities show that at least $670.5 million in sales tax dollars have been rebated to private companies under active and recently-concluded agreements — including to Amazon, Apple, Home Depot, Office Depot and, yes, Costco. Combined, those five companies earned more than $212 billion in their most recent full fiscal year.
Cities see these deals as a matter of survival.
“The loss of redevelopment has left the city of Orange, as well as all cities statewide, with a loss of local resources to encourage economic development and maintain local services,” a report on the city’s tax sharing deals said.
*Numbers reflect FY 25. The rest reflect FY 24. SOURCE: California Department of Tax and Fee Administration
“The California Legislature and Governor Brown made the decision to terminate redevelopment and removed the single largest economic tool available to local agencies. Following the decision … the governor and legislature recognized the necessity of cities, counties and the state to encourage employment, retain jobs and companies in California….”
And thus tax-sharing deals took off. Businesses threatened to relocate to cities offering more favorable deals, and cities essentially gave them money to stay in town and invest more in their businesses “to avoid significant fiscal impacts to city revenues and community services.” If Southern Counties Oil left Orange, for instance, it would put a $5 million hole in Orange’s sales tax revenues, documents said.
In Surf City, it went like this: “Pinnacle was approached by other cities to relocate their operation and sales tax payments to their city, however Pinnacle decided to stay in Huntington Beach in large part due to the city entering into a sales tax sharing agreement in 2014,” a city report said.
Outside eating area at Rodeo 39 Public Market food hall in Stanton, CA, on Wednesday, Feb. 26, 2025. (Photo by Jeff Gritchen, Orange County Register/SCNG)
Stanton puts it this way: “Rodeo 39 is a state-of-the-art food hall establishment in which more than a dozen unique (non-chain) restaurants currently operate. It also includes entertainment options such as an arcade, retail shops, and services including a tattoo parlor and nail shop. It features three outdoor patios for dining and leisure. In a city with no traditional ‘downtown,’ Rodeo 39 has quickly become a gathering place where residents and visitors can eat, shop, and find entertainment….
“Prior to the company’s development of the site, it was a blighted and underutilized shopping center. The economic subsidy continues to support Rodeo 39 and assist the company in recouping a portion of its significant development costs to help ensure Rodeo 39’s long-term viability. The shopping center is a valuable community asset in not only the city but also the surrounding region.”
Several cities (that hiked their sales tax rates) have also extended $500 vehicle rebates for local residents who bought cars at local dealerships, including Garden Grove, Placentia and Santa Ana. “Local dealerships stated that the citywide sales tax increase could lead to decreases in the number of cars sold to residents,” a Santa Ana city report said. “The VIP program has been developed in order to address the serious leakage of local automotive purchases to outside jurisdictions.”
Cities share public dollars with private entities in other ways — by giving a slice of hotel bed taxes to the luxe properties they lure to town, or by offloading public property at less-than-market-prices to spur development, for example — but those projects are not included in this analysis. Nor are the incentive deals inked at the state level.
Location, location, location
There are fans. The CEO and president of the Orange County Business Council gave Brea’s deal the thumbs up, saying the city’s getting a strong developer with a powerful tenant that’s going to bring considerable benefits.
Gov. Gavin Newsom has also come to their defense.
“Current use of these tax agreements are limited but also an important local tool that captures additional economic activity, particularly in rural and inland California cities that continue to face significant economic challenges like high unemployment rates,” said Newsom in his veto message to a bill that would have curtailed local governments from engaging in this kind of municipal warfare.
“Therefore, completely removing these tax options from local decision makers is the wrong approach.”
In 2024, the proposed Senate Bill 1494 would have upended the competition by sending sales taxes to the city where the sale took place — such as the one you’re in, say, if you’re shopping online — rather than to the city that the business uses as home base (and with whom it has a sweet tax-sharing deal).
“When we’re talking about how much you’re losing in tax dollars, let me tell you, it’s over $1 billion … given back to companies,” Sen. Steve Glazer, that bill’s author, told his colleagues, according to CalMatters. “One billion dollars that would go to public services in all of our jurisdictions.”
The bill tanked.
A view of the California State Capitol in Sacramento, Calif., Aug. 5, 2024. (AP Photo/Juliana Yamada, File)
California’s Legislative Analyst is no fan of such arrangements either. “From a statewide standpoint, this redirection of revenues reduces funding for cities,” it said in a September report.
And Norby, who crusaded against redevelopment, calls the deals downright predatory, where one city essentially steals business from another rather than creating anything new.
“This Brea deal smacks of the worst abuses of the old redevelopment agencies,” Norby said. “Then, cities were giving away property tax increment that would have gone to schools. Now, Brea’s giving away its own sales tax dollars. Retail is way overbuilt. Any new Costco will only pirate customers from existing retail stores, adding to new vacancies. Let the free market decide what happens to the site. And the market demands more housing.”
The new data reported to the state are irrelevant, Norby continued, because they don’t tally the losses when customers are lured away from existing businesses that sell groceries, liquor, furniture, clothes, appliances, etc.
One way to stop such leakage? Forbid local governments from undercutting one another, perhaps. Or maybe reform Prop. 13 so that commercial property is reassessed; the 1978 law was intended to help homeowners, not mega corporations.
Norby champions non-aggression pacts between cities and “regional sales tax sharing” — where all the sales tax in, say, a county, is pooled and then divvied up based on the population of each community.
As things stand, these deals constitute gifts of public funds, Norby charges. That practice, he adds, is “illegal under state law, but sadly typical of the old redevelopment agencies. If these businesses make economic sense, let them buy the property at fair market value and build it themselves.
“It’s a race to the bottom,” he said. “It robs Peter to pay Paul — at public expense.”
Staff writer Victoria Le contributed to this report.