City Offers Car Dealer Hefty Rebate in Return for Promise to Stay

La Verne officials have answered Person Ford’s plea for financial assistance by proposing to lend the auto dealer, the city’s largest sales tax producer, $400,000 in exchange for a promise to stay for five more years.

The deal calls for owner Warren Person to repay the loan in five annual payments of $80,000, plus 5% annual interest. However, the city would forgive each of the payments if Person’s auto sales produce a minimum--and progressively larger--amount of sales tax revenue over the five years.

In the first year, Person would have to generate at least $175,000 in sales tax revenue for the city, graduating to about $300,000 at the end of the five years.

In April, Person asked the City Council, which serves as the redevelopment agency, to lend him $500,000 or simply give it to him if his business produced enough sales tax revenue over the next five years. Person told the council he needs the money to cover operating costs and capital improvements.

Without financial help from the city, he says, he will have to move his dealership--the only one in the city--to a better location in another town. City officials hope the proposed loan will enable Person to survive the recession. Then sales would be high enough to allow him to operate without city assistance.

Besides, city officials say, it’s worth paying $400,000 now to keep Person from leaving so the city can take in about $1 million in anticipated sales tax revenue from Person Ford over the next five years.

Person says the loan will enable him to stay in business in La Verne long enough to see construction of California 30, which would run from the eastern terminus of the Foothill Freeway (210) in Glendora to San Bernardino. A small section of the 30 Freeway already runs from Glendora to the western edge of La Verne.

Person said he expects La Verne’s portion of the 30 Freeway to be completed within the next five to seven years. Once the freeway runs through town, he said, he will relocate his dealership alongside it.

Caltrans officials say that, barring delays in the approval of environmental documents or major litigation, their $187-million 30 Freeway project should be completed by 2000 or shortly thereafter. Because Caltrans expects that it will take at least four years to buy about 200 homes in La Verne that now stand in the way of the planned freeway, that section will likely be built last, officials said.

More and more auto dealerships have opened beside freeways, where they are highly visible and easily reached. But Person is located on Foothill Boulevard--about two miles from where the freeway currently ends.

Moreover, Person says business has slackened during recent years because of the recession and the competition from nearby Colley Ford in Glendora and from Claremont Ford, less than three miles away.

Person Ford, which has 90 employees, was at its peak three years ago when it employed 120 workers and sold as many as 2,000 new cars annually. That brought in more than $300,000 in sales tax for the city.

Now the firm sells about 1,300 new vehicles a year, bringing the city roughly $250,000 in sales tax last year. This fiscal year, the city expects to bring in about $1.8 million in sales tax revenue.

“This is local business retention,” City Manager Martin R. Lomeli said of the city’s plan to keep Person in town. “Person Ford is our No. 1 sales tax producer. Under this agreement, we’ll be able to maintain our sales tax base.”

Lomeli said a review of Person Ford’s financial records showed that the dealer’s rent is so high relative to its income that it makes little sense for Person to keep his business in La Verne. Person said he must renew his sublease on the land, which is leased by the owner of the last dealership--Liberty Ford--on the site, in November. He said the lease holder will not reduce his rent.

Also, Lomeli said, there’s another reason to fear Person will leave town if he doesn’t get the loan: Lomeli said he verified Person’s claim that two nearby cities have proposed sweet land deals in an effort to lure Person out of La Verne. Lomeli and Person declined to name those cities or discuss the details of their offers.

Person and city officials are waiting for a third party to the loan agreement--owners of the land Person uses for his dealership--to sign off on the deal before the City Council can vote on it. Council members appear to favor the accord. City officials say there has been no opposition in the community to the proposal.

Under the proposal, the landowner, a group of individuals known as Gillette Enterprises, would secure the city’s loan. Person’s obligations would be secured by a deed of trust from the landowner, and all unpaid principal and interest on the loan would be due immediately if Person breached any portion of his agreement with the city.

Gillette representatives could not be reached for comment.

City officials say they are well aware that loans to auto dealers can, in the absence of adequate safeguards, quickly turn sour.

An example: Two years ago the city of Bellflower gave one of their biggest sales tax producers, Pete Ellis Ford, $700,000 in a last-ditch attempt to keep him from going out of business. Ellis received a $300,000 grant and a $400,000 interest-free loan, both from the city’s federal Housing and Urban Development funds.

The dealership abruptly shut down a few months later, shocking city officials. Ellis was personally responsible for repaying the $400,000 loan but there was no agreement to repay the $300,000. The city has filed suit to recover the money, but the matter has not been resolved, city officials said.

Lomeli said La Verne’s agreement with Person would allow the city to audit Person if it was suspected he was not using the loan to help his business, as mandated in the contract.

While it is more common for redevelopment agencies to sell land below market value to lure auto dealers, it is not unusual for a city to give or lend a dealership money to stay, according to William Carlson, executive director of the Sacramento-based California Redevelopment Assn., which advises redevelopment agencies and lobbies in their behalf.

“It’s been done before, particularly in instances where another city has offered a dealer great deals on land,” Carlson said. “And it’s not unusual to get heated competition where dealers play one city off another.”

Redevelopment agencies, he added, have been heavily criticized for subsidizing auto dealerships and auto malls. He said that, in many cases, cities that want to help auto dealers are more interested in bolstering their budgets than removing blight--the primary mission of redevelopment agencies.

Because redevelopment agencies should only be in the business of spending taxpayer dollars on eliminating blight, Carlson said, his association now opposes direct assistance to auto dealers in order to lure them to town or to persuade them to stay.

Lomeli hopes that the City Council will consider the agreement with Person and the landowner no later than August.

The agreement, Lomeli said, is being held up by the landowner’s lawyer, who is concerned about several technical points of the proposal. He and Person said they expect those points to be resolved soon.