The city of Elk Grove has hit upon an innovative way to turn the tables on a tired economy.

The strategy: Offer millions of dollars in incentives to attract state and federal employers to this city, where the dour economy and the sour real estate market have hit as hard as anywhere in the region.

Last month, the federal receiver for the state's prison health care system announced the agency would move its headquarters to Elk Grove, accepting a bid from landowner-developer Pappas Investments.

The decision was affirmation for a pitch the city has been honing in recent years.

"We're knocking on the door," Mayor Steve Detrick said, reciting the come-on, "and we have money in our wallet to help bring you down here. We're going to do everything we can to make it happen."

The upshot?

The California Correctional Health Care Services agency will enjoy a $15 million savings over 10 years compared with the next-highest bidder, largely because of the incentives Elk Grove offered.

And the agency's 1,500 employees will come to work every day in Elk Grove – buying food, filling gas tanks and shopping in area stores. The city estimates the additional sales tax revenue will add up to about $4 million in as little as 10 years, said Mayor Detrick.

The first 500 workers will transfer to Elk Grove in the spring. The rest should arrive before the end of August 2013.

In the end, it was a package the state agency couldn't refuse – and a potential game-changer in the hot contest among local cities to attract public jobs. With the housing and commercial real estate markets still stalled, state and federal employers are among the few options cities can look to for a new stream of revenue.

"The city of Elk Grove is developing a reputation for being aggressive when it comes to attracting new jobs," said Councilman Gary Davis.

For years, Elk Grove and other cities have offered incentives to developers, such as deferred fees on permits and infrastructure improvements.

Now, Elk Grove has added to the mix grants to state and federal agencies in the form of reimbursements for costs tied to relocation, furnishings, equipment, construction and reduced lease payments.

Detrick is banking on the notion that the prison health care agency's relocation is the first of many.

"How much cheaper is it to operate in Elk Grove? Now we know," Detrick said.

The city is spending $4.8 million to make the deal work. It agreed to pay the prison health care agency a reimbursement incentive of $1.9 million toward relocation costs and furnishings; to provide $1.5 million for Pappas to build a bridge across Elk Grove Creek near the headquarters; and to throw in $1.4 million to Pappas to offset the state's reduced lease payments.

The money made the difference, said Nancy Kincaid, spokeswoman for J. Clark Kelso, the federal receiver who oversees California's prison health care system.

"It was less expensive to go to Elk Grove," Kincaid said. "Bottom line, it literally came down to the less expensive lease."

The strategy is attracting attention.

In Placer County, Roseville officials say they're considering revamping their own incentive programs. The city has spent more than $22 million since 2004 on incentives, aimed mainly at residential and commercial developers. Trouble is, there hasn't been as much development of late.

"We're saying, 'OK, we don't have the booming construction like we used to,'" said Karen Garner, economic development analyst for the city. "Now we're concerning ourselves with filling vacant space and asking, 'Do we need to consider changes to our incentives?'"

In Elk Grove, the deal with the state has drawn criticism from the Elk Grove Police Officers Association, which accuses city leaders of spending sorely needed city dollars in exchange for an uncertain gain.

"We want the City Council to be fiscally responsible," said Dan Koontz, president of the association. "In these times, we can't just draw money out without satisfactory returns."

Davis said the complaint is baffling, given that the incentives won't hurt police officers' pay: "The city of Elk Grove has the highest compensated police officers in the area. And these economic incentives help generate more funds for the city."

Supporters note that the city has been using a similar approach with local retailers, with some success. The Lasher Auto Group is in line this week for a $150,000 incentive payment to aid an expansion. Previously, the city provided $500,000 for the new Elk Grove Ford dealership and $150,000 to Mazda of Elk Grove.

© Copyright The Sacramento Bee. All rights reserved.

Call The Bee's Loretta Kalb, (916) 321-1073.

• Read more articles by Loretta Kalb