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Exit Highway 99 at Mountain View Avenue in California’s Central Valley and drive east past the flat expanse of stone fruit and citrus orchards, fields of grapes that will become raisins, and the occasional packing house.

Nine miles ahead, the gray-and-blue Best Buy warehouse emerges out of nowhere at the Dinuba city limits. At slightly more than 1 million square feet, it dwarfs the nearby shopping center anchored by a Walmart Supercenter — at least five of which would fit inside the warehouse.

Best Buy has been in Dinuba for 17 years, employing around 370 workers, but seven years ago it became even more vital to this 25,000-population city. That’s when the Dinuba facility was designated as Best Buy’s sole point of e-commerce sales in California, meaning that any state resident making an online purchase would pay the local sales tax on their transaction to Dinuba, not the city where they live. That prompted Dinuba — facing a $1.9 million budget deficit — to enter into a 40-year agreement to share those tax proceeds with Best Buy.

It’s an arrangement that a handful of other cities have set up, including Cupertino with Apple Inc., Ontario with QVC Inc. and Nike Inc., Shafter with Williams-Sonoma Inc., San Bruno with Walmart Inc. Typically, cities commit to send half or more of the local sales tax paid on e-commerce sales in California right back to the companies, for decades, in the name of economic development. In Apple’s case, that has resulted in one of the world’s richest companies getting $105 million in payments since 1996.

Neighboring cities — and the state of California — are noticing. The deals have created a state of haves and have-nots, as cities without such agreements bristle at windfalls going to a select few while they face tight budgets or ask their own residents to approve tax increases. They want the local share of sales tax revenue to be split more equitably. A forthcoming report from the state sales tax department based on credit card transaction data is intended to show the gains and losses for cities under the current rules for the first time.

In the Dinuba deal, the city keeps 40% of annual tax proceeds, Best Buy gets half and the tax lawyer who brokered the agreement and several others around the state, Robert E. Cendejas, gets the remaining 10%. Best Buy isn’t required to do anything for its money; the only expectation is that it retain at least 285 jobs at the warehouse. Since 2016, Dinuba’s total sales tax revenue has increased from $4.9 million a year to a peak of $30.8 million in 2020, with most of that increase coming from Best Buy as e-commerce took off during the Covid pandemic.

Dinuba’s windfall has meant higher salaries for city workers, new equipment, and resources for the police, fire and parks departments. The city took over a nonprofit senior center and expanded its programs. There’s an expanded afterschool program, new pickle ball courts and new playground shade structures. City officials celebrated the opening of a roundabout earlier this year at a busy intersection with heavy truck traffic —much of it headed to and from Best Buy and another nearby warehouse—that they expect will cut down on accidents and air pollution. This fiscal year’s budget has a $2.3 million surplus, and the city hasn’t sought a tax increase since the Best Buy deal was struck.

A traffic circle at the intersection of Alta Ave and Nebraska Ave in Dinuba.

Photographer: Eric Thayer

“I didn’t see the city skip a beat during the pandemic,” said Jason Sanchez, a National Guard reservist and former teacher who moved with his wife and two children to Dinuba from the neighboring city of Reedley in 2018.

The Best Buy money is improving the quality of life in Dinuba, which in turn attracts more people and businesses, according to City Council member and former mayor Kuldip Thusu. So, he says, it is lifting all boats.

Or is it?

‘We Don’t Have a Best Buy’

Lay maps of Dinuba and Reedley on top of each other, and they are nearly identical.

The Central Valley cities were founded in 1906 and 1913, respectively, by Mennonite families as hubs for shipping wheat to market via a newly built railroad. The conventional wisdom is that Reedley is wealthier, safer and has better schools. Dinuba has less expensive housing, better shopping and is more business-friendly.

What Reedley doesn’t have is a deal like Dinuba’s with Best Buy. As a result, Reedley officials complain, Dinuba has hired away several of its police officers by offering more money. While Dinuba builds its coffers with sales tax revenue that otherwise would go to other communities, Reedley has had to raise taxes on its residents, most recently through a 0.75-cent local sales levy that voters passed in 2020.

The city pounds the pavement for grants, state funding and other sources of revenue, said City Manager Nicole Zieba.

“We have to be much more innovative and aggressive in the other ways that we get money because we don’t have a Best Buy,” Zieba said.

Dinuba officials don’t specify how much the city gets from the Best Buy deal, citing taxpayer confidentiality laws. But city-issued checks and other public records show Dinuba has paid Best Buy $37.9 million and the lawyer, Cendejas, $8.2 million over seven years — meaning Dinuba has kept somewhere around $30 million since 2016. Annualized, that’s a big chunk of the city’s spending budget, which this year is $18.3 million. California collects about $8 billion in local sales tax annually, an amount that’s doubled since 2012. The California Department of Tax and Fee Administration distributes the money to 561 jurisdictions based on the location of transactions in California.

The Best Buy Distribution Center in Dinuba.

Photographer: Eric Thayer

Bloomberg Tax’s reporting on tax-sharing deals like Dinuba’s in 2019 prompted the California legislature to pass laws banning future deals and requiring more disclosures, but Governor Gavin Newsom vetoed the former, leading to new agreements including one San Jose struck with eBay Inc.

Texas is the only other state where similar tax-sharing agreements exist. But unlike in California, the Texas government is trying to undo them. Six cities with agreements are suing Texas Comptroller Glenn Hegar for trying to push through rules that would send the sales tax money to the cities where the customers live.

Since 2016, when Best Buy’s deal with Dinuba kicked in, voters in Dinuba’s county of Tulare, as well as neighboring Kings, Kern and Fresno counties, approved 27 of 46 local tax increases to pay for everything from police and fire services to transportation, infrastructure, parks and a zoo, according to information compiled by the California Taxpayers Association.

Dinuba city leaders last asked residents to tax themselves more in 2007, when they approved a 0.5-cent sales tax to fund public safety services.

Dinuba by the Numbers

In other ways, Dinuba, 200 miles north of Los Angeles, has much in common with dozens of cities that dot California’s vast agricultural heartland. The poverty rate is higher than the state average, high school graduation rates are lower, and fewer people go on to college. The median household income of $50,186 is well below the state median of $84,097. The population is predominantly Latino.

Whether Dinuba is better off than its neighbors as a result of the Best Buy arrangement is partly a matter of how you choose to read the data.

As of 2021, Dinuba has slightly more police officers per capita than Reedley and fewer than neighboring Selma. But Dinuba’s rates of violent crime are still higher than its neighbors, according to Federal Bureau of Investigation data. Its rate of solving violent crimes has fallen lower than its neighbors after several years of being about the same or better.

On average, Dinuba’s city employees make more than their counterparts in many nearby cities, according to data compiled by the State Controller’s Office. But its poverty rate of 31.9% remains more than twice the rate in California and the US as a whole, according to the five-year estimate from the U.S. Census Bureau’s American Community Survey.

Non-seasonally adjusted unemployment in Dinuba was 11.3% in 2021 versus 7.3% across the state, according to California’s Employment Development Department. In 2016, when the Best Buy money started flowing, Dinuba’s rate was 16% compared to 5.5% statewide.

Thusu, Sanchez and others in Dinuba are surprised by these numbers. They say their own experience is more positive. Response times for police and fire are fast. Gangs have been driven out of town and more areas are safe during all hours, Thusu said.

“You can talk about numbers, but it’s the feel on the street,” Thusu said.

A Struggling Downtown

Atlanta Braves relief pitcher Dylan Lee headed back to Dinuba, his hometown, a few weeks after his team lost its playoff series to the Philadelphia Phillies in October. He’d committed to running his second annual baseball and softball skills camp for local kids, offered through a community nonprofit he founded during the pandemic.

But whether he’s in town or not, he’s concerned about Dinuba. He wonders why the city hadn’t installed air conditioning in the indoor youth sports complex despite his offers to help, why the dog park floods all the time, and why downtown is filled with empty storefronts while chain stores proliferate on the side of town by the Best Buy.

“A lot of times I just scratch my head,” said Lee. “They’re trying to grow out instead of fixing the stuff that’s already there.”

A vacant storefront in Dinuba’s Mercantile Row Shopping Center.

Photographer: Eric Thayer

Downtown was bustling before Walmart and Best Buy came to town, Lee and others said. So was a shopping center on the eastern side of town called Mercantile Row that had a Save-Mart grocery store, a Rite Aid, a Kmart and multiple small businesses. It’s now mostly empty.

Aside from Dinuba High School students frequenting the Wimpy’s hamburger stand, taquerias and coffee shops within a few blocks of their downtown campus, foot traffic is light in town.

“Dinuba is business-friendly but not small-business-friendly,” said Anthony Reyna, a Dinuba native who with his wife opened Brick & Stone, a downtown specialty coffee shop, about a year ago. He’s struggling to turn a profit.

Reyna worked the night shift at the Best Buy warehouse for four years while attending school. Now, he wants the city to use some of the Best Buy money to help the downtown economy.

“Best Buy and Walmart changed how these towns operate,” said Liz Vidrio, co-owner of Valley Emporium, a newly opened allergen-free cafe on Dinuba’s eastern edge where the Save-Mart used to be. Vidrio found Dinuba landlords more willing to rent space than in Reedley and its officials more supportive. But it’s tough to run a business in a shopping center with so much unoccupied space, Vidrio said. “The resources are going into the other side of town.”

The Best Buy Distribution Center in Dinuba.

Photographer: Eric Thayer

In response to criticism, Thusu rattles off more ways the city has spent the Best Buy money: $4 million to upgrade a canal pipe that caused regular floods downtown for as long as residents can remember, reduced permit fees for businesses that want to open there and grants to downtown business owners to upgrade their facades.

Looking ahead, there are plans for a new city hall and public square downtown. By the end of 2023, Mercantile Row should be at least 80% occupied because discount retailer Ross, grocer La Superior, and a Tulare County social services office are moving in, Thusu said. And a builder is about to start 76 new homes in a vacant field behind Mercantile Row, where the city already installed utilities to attract development.

The Best Buy money made it all possible, Thusu said.

But some residents and officials also ask what Best Buy has done for the $38 million in tax money it’s received. The company isn’t a member of the Dinuba Chamber of Commerce, chamber Chief Executive Officer Heathe Jones said. If it and other large employers in town became more involved, it would take some weight off small businesses working to strengthen the city’s economy, she said.

When asked about the tax-sharing agreement, Best Buy pointed to Dinuba’s own budget report for the current fiscal year, which notes the revenue “has allowed the city to maintain current operations in times of economic uncertainty, as has been the case during the Covid-19 pandemic.” In addition to being Dinuba’s third-largest employer, Best Buy and its charitable foundation have given nearly $150,000 in the past 10 years to support 25 organizations in or near the city, including schools and summer camps, spokesperson Ryan Furlong said.

‘Please Don’t Touch Our Crumbs’

The chief executive officer of a Fresno-based biopharmaceutical research company by day, Thusu also represents Dinuba on the Revenue and Taxation Committee at the League of California Cities. The committee is locked in a years-long stalemate between cities with tax sharing agreements like Dinuba, Fresno and Ontario, and others like Rancho Cucamonga, which abuts Ontario in the heart of the Southern California warehouse boom and opposes the agreements.

The cities that don’t have the sharing deals, but do have the trucks and vans delivering purchases to their residents, want the rules to change. They resent how cities with the deals are vacuuming up revenue at their expense.

Dinuba City Council member Kuldip Thusu.

Photographer: Eric Thayer

Thusu argues that while the Best Buy arrangement makes a huge difference for his city, sending the tax revenue back to the location of the customer would disperse it to hundreds of cities in amounts so small they would barely notice.

“We are not asking for the loaf of bread,” Thusu said. “We aren’t even asking for a slice. Just please don’t touch our crumbs.”

Reedley’s city manager, Zieba, tried unsuccessfully to be on the league’s task force to represent the losers in the current system. Tax policy should be set at a more regional, holistic level “rather than each city fighting for each little piece of the pie,” she said.

“Why are we saying cities can only fund their police force if they can figure out a way to draw in retail?” she asked. “It doesn’t seem right.”

The committee is working toward a compromise, but any change to the rules needs a two-thirds vote from both houses of the Legislature to amend the California Constitution.

Meanwhile, California’s ethics watchdog, the Fair Political Practices Commission, on Feb. 16 said it had cleared Cendejas after a three-year investigation into whether he violated prohibitions on self-dealing when he negotiated the Best Buy-Dinuba deal. And on Feb. 22, California’s Office of Tax Appeals held a hearing on the tax department’s allegations that the deal Cendejas brokered between Shafter and Williams-Sonoma is a sham because the sales actually take place elsewhere. Shafter, Williams-Sonoma and Cendejas have all denied that. The appeals office will issue a ruling in 100 days.

Cendejas declined to comment when reached by phone.

Dinuba’s deal with Best Buy creates the illusion of increased economic activity, said Greg LeRoy, executive director of Good Jobs First, a think tank that studies tax incentives. Best Buy hasn’t substantially increased employment, and the money may not have generated a stronger local tax base through higher population and more consumer spending in town.

“If you attach your hopes to rent-seeking activity you’re always going to be vulnerable,” he said. “If Dinuba has a seven-year windfall and is not demonstrably doing better than its neighbors I would have doubts about its effectiveness.”

Still, Thusu and other Dinuba leaders are terrified the money will evaporate—whether it’s because of new tax rules from the state, a recession, or a change in Best Buy’s business plans. He’s constantly searching for ways to help make the city’s economy self-sufficient without Best Buy. Until then, he says, the city can’t live without it.

“If we don’t have that, we are decimated,” he says. “We are finished.”

(Clarifies how the Dinuba local tax is calculated in the first infographic. Corrects changes to local sales tax rates in Dinuba and Reedley.)

–With assistance from Alexander Cohen, Andrew Wallender and Jonathan Hurtarte.

To contact the author of this story:
Laura Mahoney in Arlington at [email protected]

To contact the editor responsible for this story:
Bernie Kohn at [email protected]

Jennifer Sondag
Nicole Flatow

© 2023 Bloomberg L.P. All rights reserved. Used with permission.

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