TCC Weekly Bulletin

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Phoenix Retail Project's Subsidy Triggers Backlash
State Legislative Push
Seeks to Penalize Cities
Offering Such Incentives
By THADDEUS HERRICK
April 4, 2007; Page B6

(See Corrections & Amplifications item below.)

When local leaders in Phoenix agreed to a $100 million subsidy for a 144-acre urban village called CityNorth last month, they gave a big boost to a massive mixed-use project in a competitive market.

But they also triggered a backlash that resulted in a state legislative push to penalize cities offering subsidies to retail projects. Under proposed legislation, Arizona cities would lose a dollar of state revenue for every dollar they offer as incentives, except in certain cases such as redevelopment or historic preservation.

"We need to put a stop to this," says State Sen. Ken Cheuvront, a Phoenix Democrat who is backing the legislation.
[CityNorth]
A rendering of CityNorth, a 144-acre urban village under development in an area north of downtown Phoenix that has secured a $100 million subsidy from the city.

Subsidy opponents say the proposed law would prevent cities such as Phoenix and Scottsdale from trying to outbid each other to attract retail projects. In the past five years, cities in the Phoenix metropolitan area have given more than $300 million in incentives to retail developers, according to Mr. Cheuvront.

Deals in Other States

But proponents of the incentives warn that penalizing cities for subsidizing retail developments would likely send developers looking for deals in other states such as Colorado and California. The measure might also encourage developers to instead locate on Arizona's Indian reservations, costing the city needed tax revenue, adds Peggy Neely, a member of the Phoenix city council who voted for the incentive. "Most [Indian reservations] have the flexibility to make a deal work."

Opposition to such incentives has surfaced in other cities. In Kansas City, Mo., last week, former city auditor Mark Funkhouser was elected mayor in part because of his opposition to tax-increment financing, a popular economic-development incentive. But such sentiment runs counter to the mood in many cities, where local officials are using subsidies to land projects such as more pedestrian-friendly town centers.

In Phoenix, the issue has sparked controversy in part because a dozen or so cities in the area accounting for 4.5 million people rely heavily on sales tax, making them eager to attract large retail projects. Phoenix, for example, derives 40% its $1.1 billion general fund budget from sales tax, according to city officials.

'Close the Public Checkbook'

Though Phoenix Mayor Phil Gordon supported the subsidy to CityNorth, he has in years past sought to reach agreements with other cities to end such incentives, appealing to Phoenix area public officials in 2004 to "close the public checkbook on these projects." Mr. Gordon says now Phoenix can't "unilaterally disarm," but he supports the pending legislation.

Among the most outspoken proponents of the bill has been the local newspaper, the Arizona Republic, which says developers are taking advantage of competition for retail projects to win subsidies from cities when they would build anyway. "Puh-leez," said the Republic in a March 24 editorial. "With the region's growth machine at full throttle, success is a given."

Mr. Cheuvront sponsored similar measures in 2005 and 2006, only to see them fail. But this year he predicts the bill will succeed, in large part because the backlash against the CityNorth subsidy has drawn together conservative Republicans and liberal Democrats. On March 21, separate versions of the bill introduced in the Arizona legislature passed House and Senate committees. Gov. Janet Napolitano hasn't indicated whether she would sign such a bill into law.

The $2 billion CityNorth project, which wouldn't be affected if the bill is passed, is one of several major retail developments in the works in an affluent area north of downtown Phoenix known as the Northeast Valley. It is being developed by Chicago-based Thomas J. Klutznick Co., which is partnering with Kenneth Himmel of Related Urban, a unit of Related Cos. Site preparation started in November.

The project, to include nearly six million square feet of retail, residential and office space, is expected to take a decade to complete. Klutznick has already announced a Nordstrom department store as an anchor tenant.

"It's a true urban core for the Northeast Valley," says John Klutznick, vice president at Thomas J. Klutznick, adding that the streetscapes for the project are inspired by famous urban corridors such as Boston's Newberry Street and Oak Street in Chicago.

Mr. Klutznick says CityNorth couldn't be built as planned without the subsidy. The Phoenix City Council approved the incentive by a 7-2 vote on March 7, agreeing to rebate 50% of the city's share of sales tax up to $97.4 million or for 11 years, whichever comes first.

Phoenix officials say the subsidy -- and structured parking as opposed to surface lots -- will ensure a project with attractive public spaces and a more urban feel.

Write to Thaddeus Herrick at thaddeus.herrick@wsj.com

Corrections & Amplifications:

The streetscapes planned for a retail project in Phoenix known as CityNorth are inspired in part by Boston's Newbury Street. This article incorrectly identifies the street as Newberry Street.

(P.S. Newbury Comics rocks!)

[TheArtist]

Don't like how it looks in the rendering.  Impressive size of development though.


http://www.weknowurban.com/highrise-loft-buildings/Phoenix/City-North-Desert-Ridge.html#photos


Will be interesting to see how the TIF story plays out here.  Especially when our suburbs really start to compete with Tulsa as cities in their own right, not just as suburbs.

[brunoflipper]

does one of the fastest growing metros in the country really need to be giving tiffs for some developers pet project?

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quote:Originally posted by brunoflipper

does one of the fastest growing metros in the country really need to be giving tiffs for some developers pet project?

Hell no! Tulsa is a little too TIF happy IMO.