When attorney Robert E. Cendejas told Long Beach, California, officials in 2015 that he had connections to help land new jobs and tax revenue for the city, they were a little leery, even though he’d represented them for years as an outside adviser.
An unnamed company would bring its sales operations to Long Beach if the city would give back a portion of the additional local sales tax generated, he said. Several dozen California communities had struck similar deals, but this one had an unusual side arrangement: Cendejas proposed he would receive 20 percent of the sales tax rebates on top of what the company got back—a finder’s fee estimated to be $400,000 each year for as long as 40 years.
Long Beach officials asked the California Fair Political Practices Commission for advice because “he was asking to handle both ends of the transaction,” said Deputy City Attorney Amy R. Webber, who made the request. In a six-page response, the commission said Cendejas sought to “personally benefit from the very policy he assisted the city in developing and for which he has provided advice,” making the deal a potential violation of state law.
Long Beach scrapped the idea.
Despite the advice letter, Cendejas has since struck similar deals with several other California cities, including one April 23 with the city of Whittier, which is about 20 miles east of Los Angeles. A Bloomberg Tax investigation shows he and two affiliated companies have earned $1.9 million so far from one city where he landed a deal with a retailer, and stand to earn at least $18 million for their share of sales tax revenue gains from two others.
Sales tax sharing agreements, involving companies like Apple Inc., QVC Inc. and Best Buy Co. Inc., have caught the attention of some state lawmakers and even the editorial board of the New York Times, who say they pit one city against another while giving money back to companies that the cities need. Legislation has been proposed to ban such agreements or require more transparency about expected tax revenue, jobs, and other state and federal subsidies the companies are getting. But the pending bills don’t address fees or commissions to consultants who are part of the deals.
“It’s bad enough that the cities are giving away so much of their tax revenue to these private online retail corporations,” said Sen. Steve Glazer (D), author of S.B. 531, which would ban new sales tax sharing agreements between cities and companies. “Giving away another 20 percent of the people’s money to the consultant who sets up the deals makes this even more outrageous.”
Cendejas declined to respond to questions when reached by phone, citing attorney-client privilege. He said he is semi-retired. He also didn’t respond to a detailed email containing written questions.
Cendejas, 65, has arranged contracts to receive sales-tax revenue even as he struggled to keep up with his personal tax obligations.
Orange County court records show that the Internal Revenue Service and the California Franchise Tax Board filed 14 income tax liens against him covering all but one tax year between 2001 and 2012, totaling $836,053. They have all been released, ending with two totaling $185,833 that were satisfied in August 2018, court files show.
Attracting Business With Tax Rebates
Cendejas’s deals are part of a larger practice among some cities racing to attract warehouses and online sales centers that can boost sales tax revenue. The agreements apply to a 1 percentage point increment of the state’s 7.25 percent sales tax that goes to local governments. A 1950s law created the 1 percentage point share, which the state distributes to local governments based on the location of a sale, not where the customer is.
The state divvies up about $6 billion each year to local governments. About 10 percent of California’s 482 cities are giving hundreds of millions of dollars from that revenue back to the companies, according to Michael Coleman, founder of the California Local Government Finance Almanac and a consultant to the California League of Cities, which lobbies on behalf of municipalities statewide.
Through their authority under the state Constitution to manage their municipal affairs, the cities enter into agreements with retailers that typically give about half of their 1 percent increment back to the companies every year—often for decades—in exchange for locating in their jurisdiction or designating their city as a point of sale for all California transactions.
The deals bring jobs to cities facing high unemployment, and boost revenue so the cities can fund services, worker salaries and pensions. Cities have turned to the agreements as the state has ended other long-standing economic incentives in recent years.
Most cities with sales tax sharing agreements use their own economic development officials to negotiate directly with the companies, Bloomberg Tax found in a review of more than 20 agreements with cities around the state. Some involve outside lawyers or accounting firms, but several city officials said those professionals typically charge an hourly rate or a retainer with a limited scope.
When Cendejas is involved in the agreements, he negotiates his own percentage of the proceeds for brokering them. Under his contracts with the cities, he gets annual payments from them for as many as 41 years. Several city officials interviewed for this story said they are unaware of other consultants with pay arrangements similar to Cendejas’s.
A search for such arrangements in other California cities reveals Cendejas has agreements with Corona, Dinuba, and Ontario for bringing hubs for retailers LuLaRoe Inc., BestBuy.com, and QVC to those cities, respectively.
The commission’s advice regarding Long Beach may cast doubt on deals in other cities, Jessica Levinson, professor at Loyola Law School and former president of the Los Angeles Ethics Commission, said in an interview.
“You’re allowed to charge for your services, but to tie payments to the length and success of the contract is problematic,” she said.
Cendejas attended Loyola Law School and has been a licensed attorney since 1984, state records show. He built relationships with the cities of Los Angeles, Santa Monica, Long Beach, Ontario, and others by representing them before the State Board of Equalization on local sales tax issues, according to records.
Cities in California often dispute the amount of local tax revenue the state allocates to them, or file complaints at the board against other cities for allegedly grabbing revenue. Cendejas represented various cities more than 20 times before the elected board between 2002 and 2016, weighing in on regulatory changes as well as allocation appeals, based on records from the board’s web site.
In 2007 and 2009 appearances before the board, he said he worked for MuniServices LLC, a consulting firm that helps “local governments prosper by discovering and recovering revenue while reducing transaction costs,” according to its website.
Whittier Mayor Joseph A. Vinatieri told city council members April 23 that he’s known Cendejas since 1985, when they both did state and local tax work for Texaco Inc. Cendejas has a wealth of experience setting up corporations that have high sales tax revenue in cities that meet their needs, he said.
“He and I go way back,” Vinatieri said. “He’s a very ethical and honorable person.”
Cendejas has donated almost $44,000 to California candidates, mostly to members or former members of the state board that makes decisions on tax policy, according to the California Secretary of State’s campaign finance database.
Dinuba and Best Buy
Dinuba, 180 miles north of Los Angeles in the Central Valley, reached a 40-year agreement in 2015 with Best Buy. The city hired Cendejas to negotiate a deal to designate a warehouse in the city since 2009 as the point of sale for all of Best Buy’s online sales in California. It was aiming to hold onto a key employer in a city that had an unemployment rate in March of 15.5 percent, more than three times the U.S. average, according to the California Employment Development Department.
Dinuba’s contracts with Best Buy and Cendejas call for Dinuba to give 45 percent of its revenue back to Best Buy each year, and for Cendejas and two affiliated corporations to receive 20 percent of what the city gets after it pays Best Buy. Complex terms in both contracts require that the city receives a minimum amount of revenue in each of the first four years before Best Buy and Cendejas are paid.
Cendejas and his affiliates have received $1.9 million since June 2016, according to invoices he submitted to the city and checks Dinuba issued to him and the affiliates. Annual amounts total $359,099 in 2016, $572,420 in 2017, $762,373 in 2018, and $294,227 so far in 2019.
Dinuba provided the documents in response to a California Public Records Act request. Information about Dinuba’s payments to Best Buy has also been requested but not yet received. Bloomberg Tax estimates Best Buy will receive $30.7 million over 40 years if the projected revenues are realized.
In a written statement, a Best Buy spokesman said its Dinuba warehouse is key to filling orders from West Coast customers in two days or less.
“We’re proud to employ hundreds of people in Dinuba and we’re pleased to have an agreement in place with the city that benefits both the city and Best Buy,” company spokesman Jeff Shelman said.
Cendejas helped lure QVC to the city of Ontario, in San Bernardino County, in 2015. With an airport at the intersection of several major freeways, Ontario is a major hub for the movement of goods.
Under the 2015 deal, Cendejas and his affiliated companies stand to get 5 percent of the first $5 million in sales tax revenue the city gets each year for 41 years, and QVC gets 55 percent.
If city revenue projections are realized, the company could receive $112 million, Ontario could receive $82 million, and Cendejas could receive $10.25 million through 2056, based on a Bloomberg Tax analysis.
An Ontario official didn’t respond to requests for comment about its agreement with Cendejas related to QVC and one other company. Bloomberg Tax has asked Ontario for records related to his payments, as well as payments to QVC. The request is pending.
In a written statement, QVC said the company carefully weighed site location, lot size, proximity to transportation and other factors when deciding where to open a warehouse, and decided Ontario was best suited to its needs.
Corona and LuLaRoe
In Corona, Cendejas had a role in landing a warehouse and statewide online sales designation with women’s clothier LuLaRoe Inc. in 2017. Under the 40-year agreement, LuLaRoe could receive $40 million, Corona could receive $32 million, and Cendejas could receive $8 million, if projected revenues materialize, Bloomberg Tax found.
Corona has paid him $195,519 for his share of revenue between July 2017 to December 2018, according to information the city provided to Bloomberg Tax through a public records request.
Bloomberg Tax has also asked Corona for records showing its payments to LuLaRoe. That request is also pending.
LuLaRoe didn’t respond to a request for comment.
Corona’s agreement with Cendejas differs from Long Beach’s because Cendejas didn’t advise the city on other matters, economic development coordinator Ryan Cortez said in an email. The Fair Political Practices Commission considered Cendejas to be a Long Beach public officer because he was a long-time consultant to the city on tax issues.
“To date, Mr. Cendejas has not provided any other consultant services to the City of Corona,” Cortez said.
Officials in Cypress, Ontario, and Whittier told Bloomberg Tax they were not aware of the commission letter opining that the Long Beach proposal could be a violation of California law.
Ontario has two active agreements brokered by Cendejas in 2015. He has represented Ontario on various matters before the state tax board, including at a 2014 meeting in Sacramento where he asked the board to make a change in its written ruling in a tax appeal that could affect the city. Cypress contracted with him in 2016 but that contract expired and the city never entered into a tax-sharing agreement with a company involving him, City Manager Peter Grant said. An official from Chino didn’t respond to a request for comment.
The Dinuba contract tied to Best Buy and the Ontario contract for QVC show Cendejas splits his fee with two other corporations: Business Location Advisors Inc. and Strategic Business Locations Inc.
The chief executive officer of Business Location Advisors is Christina M. Cendejas, and the CEO of Strategic Business Locations is Edward E. Cendejas, according to filings with the California Secretary of State. The two companies share a mailing address with Cendejas’s business in Diamond Bar, Calif., and public records indicate all three people have shared a home address in the Orange County city of Brea, about 10 miles from Disneyland.
Bloomberg Tax asked Cendejas in its email if Christina and Edward were relatives but did not receive a response.
Some experts frown on deals like those negotiated by Cendejas.
“Commissions really smell bad to us,” Greg LeRoy, executive director of nonprofit think tank Good Jobs First, said in an interview. “If a consultant can get a bigger commission in one place or another, that’s their incentive. It may not be best for the client.”
The group, which tracks tax subsidies around the country, is critical of site location consultants and views their activities more as lobbying than consulting, he said.
The state legislature wants more transparency. In addition to Glazer’s bill to ban them in the future, the California Labor Federation is pushing A.B. 465 by Assemblyman Jose Medina (D), to increase disclosures related to the tax-sharing deals
“We are very concerned that a consultant is siphoning off millions in limited public dollars from cities and taxpayers for a so-called service that is unnecessary at best,” said Sara Flocks, policy coordinator for the federation. “Every taxpayer dollar spent on consultants is a dollar that would be better spent on local schools, parks and roads.”
Medina’s bill passed the California Assembly May 2 on a 45-15 vote.
In Whittier, the possibility of at least $1 million in annual revenue was enough for the city council to approve Cendejas’s contract April 23 over the objections of one council member, based on the lawyer’s representations that he can entice one or two companies to locate warehouses there. Council members said they won’t know the names of the companies unless they sign a contract with Cendejas and he presents an agreement to them.
The city didn’t solicit bids for the contract and information about Cendejas was scant, council member Henry Bouchot said. Bouchot is a lawyer who has managed public safety contract procurement for the city of Los Angeles.
“We have no qualifications for this gentleman,” Bouchot said. “There is no resume, there is no application, there’s no evidence that he has demonstrated success or experience in this particular field. All we know from the mayor’s comments is that he is a long-term colleague of the mayor.”
Mayor Vinatieri and other council members said they had met with Cendejas and believed he could land a deal. Mayor Pro Tem Josue Alvarado said that “no other person came to the city with a deal in hand offering us to solve some of our fiscal hurdles we have coming up.”
But Bouchot was not convinced. “I don’t think it protects the public and it’s not sufficiently above board,” he said.
The deal was approved 4-1.
— With assistance from Jasmine Han
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