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Funding the Remaining $13,570,000 of Estimated Design and Construction Costs Of the remaining $13.6 million in estimated design and construction costs to be funded, Costco would cover $6,785,000 through a cash contribution. $3.7 million of that is Costco's TIF contribution that would be converted to cash. The remaining $6,785,000 could be funded by one of the following three ways: (1) sales tax sharing agreement with Costco, (2) City inter-fund loan, or (3) traditional debt through bond issuance or a bank loan. Of course, there is a fourth option to do nothing and not proceed with the JDEDZ transportation improvements. The three funding options are discussed below. 1. Sales Tax Sharing Agreement with Costco Costco would front the $6,785,000 and be repaid through sales tax sharing agreement not to exceed 25-years at 1.5% interest with Costco where Costco receives 40% of the sales tax generated by the Costco store and the City would receive 60%. Analysis of Proposed Sales Tax Sharing Agreement with Costco The proposed $6.8 million2 25-year sales tax sharing agreement at 1.5% interest with Costco would result in total sales tax allocations to Costco of $8.2 million assuming a full 25-year amortization period. The City would pay that amount to Costco through annual payments of up to 40% of the sales tax generated from the Costco on Johnson Drive. The City will receive at least 60% of the sales tax proceeds from the proposed Costco store on Johnson Drive. Attachment 3 illustrates how the Costco sales tax sharing agreement would work. In this analysis, staff used the sales tax estimate prepared by ALH ECON for the starting year of $926,7093 and assumed it would grow by 3% annually over the 25-year period. Under these assumptions, Costco would receive the $7.8 million by 2035/36 or 17 years after the Costco store opened which will fulfill the City's sales tax sharing obligation and the City would receive 100% of the Sales Tax revenues thereafter. The 17 year amortization period will reduce the interest expenses by approximately $400,000 ($8.2 million with 25-year amortization vs. $7.8 million with a 17-year amortization period). During that same period of time, the City would have received approximately $12.4 million in sales tax revenues that it would have not otherwise received. Over the 25-year term of the agreement, the City would receive almost $26 million in sales tax revenues. 2. City Inter-fund Loan Another option to fund the $6.8 million would be for the City to provide a loan from another City fund that would be repaid at approximately 1.0 to 1.5% interest with increased tax revenues. Under this scenario, the City would advance the $6.8 million from another fund and repay that fund over time with a portion of increased tax revenues generated by the JDEDZ. The City fund with sufficient 2 The$6,785,000 is rounded up to$6.8 million for this analysis. 3 ALH ECON's sales tax estimates take into account leakage from other stores in Pleasanton. In other words, the$926,709 in estimated Sales Tax revenues in the first year of the Costco store being operational on Johnson Dive would be new revenues to the City. Page 12 of 16