A new Oro Valley citizens group, calling itself "Stop Outrageous OV Giveaways" is circulating petitions to stop two of three multimillion-dollar sales tax rebate deals between the town and developers.
"We are in favor of quality and vibrant projects for Oro Valley. Our real concern is the amount of money that has been given," said the group's spokesperson Chet Oldakowski. "Our real objective is to get this on the ballot in November so that voters can decide. We don't want to stop the development, we just want the whole process to be reviewed by citizens."
In the past month, the town council has approved economic incentive packages totaling $42.6 million for almost two million square feet of retail store space along Oracle Road from Tangerine Road south to Magee Road.
The first of these was approved March 25 giving developer BP Magee LLC $6.5 million, or 46 percent of sales tax revenue generated over 10 years from Oracle Crossings, a proposed 300,000-square-foot shopping mall - to include shops, restaurants, a bank and offices - adjacent to the Fry's shopping center at the southwest corner of Oracle and Magee. The agreement was approved in a 3-2 council vote, with Mayor Paul Loomis and Councilmembers Dick Johnson, and Werner Wolff in favor and Councilmembers Paula Abbott and Bart Rochman opposed.
On April 7, the council approved $23.2 million for the Phoenix-based Vestar Development Co., representing 45 to 50 percent of sales tax revenue generated over 16 years by its proposed 900,000-square-foot regional power and entertainment center - Oro Valley Marketplace - at Oracle and Tangerine roads, directly across the street from Catalina State Park. Vestar projects are typically built for repeat tenants like big-box retailers Wal-Mart, Sam's Club, Ross Dress for Less, Target, Home Depot, Lowe's and AMC Theaters, according to a Nov. 1, 2000 issue of Retail Traffic magazine. The deal was approved in a 3-2 vote, with Johnson, Rochman and Wolff in favor and Loomis and Abbott opposed.
The petitioners are seeking to stop both agreements.
In a third deal on April 12, Canada del Oro Partners came before the council asking for a $12.9 million incentive package for its 600,000-square-foot "Main Street" project, Oro Valley Town Centre at Rooney Ranch, at Oracle Road and First Avenue, across from the Target shopping center. Facing little opposition, the deal sailed through council, which in a 4-0 vote, approved sharing 45 percent of the sales tax revenue and 2 percent of the town's 3 percent bed tax generated by the project over the 16-year life of the contract. Councilmember Abbott did not attend the session.
The opposition group has not yet determined whether it will oppose the CDO deal.
"People seem to really like that plan," Oldakowski said. "They're saying this is really what we want to see." How to get there may be another matter, he said.
By the Northwest EXPLORER press deadline April 19, the ordinance approving the CDO Partners deal had not been signed by the mayor, meaning the petitioners would have to wait to file a third referendum petition, Town Clerk Kathi Cuvelier said.
Together, the three agreements potentially provide $154 million for the town over the next 20 years. Projections indicate that the BP Magee site could generate $2.5 billion in retail sales and $37.3 million in sales tax revenue for Oro Valley. The Vestar project is expected to generate $3.6 billion in retail sales and $74.4 million in sales tax revenue to the town. Another $2.5 billion in retail sales and $42.3 million in potential sales tax revenue for Oro Valley is estimated for the CDO Partners center at Rooney Ranch.
"I would describe it as two years of effort all coming together at once," said Mayor Loomis. "What the incentive is trying to do is reduce that cost such that we're able to compete with other communities."
Loomis said he fails to fully understand objections to the incentives. "If you look at what we're trying to do and what we've done with the agreements is that we have forced the developers to start work on their projects so we can look forward to seeing a sales tax return some time in the near future."
To make the town economically independent is one of the prime visions and goals of the town General Plan, he said.
"If the referendum gets sufficient signatures and isn't challenged, it has the potential to stop development," he said. "It would take away incentive to hurry it through."
In Scottsdale, a city often looked to as a model for Oro Valley, an overwhelming majority of citizens recently used the referendum process to reject a $36.7 million deal with developer Steve Ellman, who planned to bring a Wal-Mart and other big-box retailers to the site of the old Los Arcos Mall. At the ballot box on March 9, 83 percent of Scottsdale voters rejected the deal, which would have given the developer 49 percent of the city's 1.4 percent sales tax over 40 years.
"It was too much money, people didn't want a big box there and there was concern about Wal-Mart in particular," said David Roderique, the city's economic vitality general manager.
Area grocers, including Fry's and Basha's, and the Scottsdale Area Chamber of Commerce raised more than $136,000 to defeat the Ellman deal, according to the Arizona Republic. The city council had narrowly approved the deal last summer.
Over the years, Scottsdale's biggest economic development agreement has been a $28.5 million sales tax rebate to developer Westcor to bring the upscale retailer Nordstrom -through a subsidized lease deal - and an additional 400,000 square feet to Scottsdale's Fashion Square Mall.
But that deal was an anomaly, Roderique said. Most deals offer much less to the developer.
"We've done other incentive packages - 15 over the years," he said. "Most are 10- or 5- year maximum and the dollar amount is $2 to $5 million, something in that range, typically 10 percent of the total revenue. Normally, if we do an incentive and we pay $2 million in incentives, we're looking at getting back $20 million over 20 years. This was an unusual project with a lot of different needs."
One of Scottsdale's early incentive deals was with the big-box retailer Costco. "We did an incentive in 1987 for Costco - with only $110,000 in incentives - that generated $20 million over 15 years in sales tax revenue," Roderique said. "That was paid off in three months. So there's a whole spectrum of deals out there."
In the Fashion Square Mall deal, the agreement was approved in 1996 and the expansion was completed two years later, he said. The sharing agreement amounted to a 40 or 50 percent sales tax rebate.
"A big chunk of that went into a public parking garage. At the end of the development agreement, Westcor will dedicate the garage to the city of Scottsdale," he said. "You have to meet the gift clause of the state constitution. You cannot gift public funds for purely private benefit."
Traditionally, economic incentive agreements with developers have helped cities and towns pay for road, sewer and other infrastructure improvements. These deals are "still structured technically to improve
infrastructure. We are in essence paying for things that would
normally be the developer's responsibility but they serve the public good," he
said. "Typically, the burden is on the developer to provide receipts to us showing they spent it on the infrastructure expenses. We've had cases where we approved a higher number, but actual numbers came in lower, so the incentive was lowered based on actual expenses."
Like many cities, Scottsdale is sensitive to a provision in Arizona's constitution that - while ambiguously worded and open to legal interpretation - appears to prohibit gifts of public funds, even to attract development and the sales tax it brings. Many cities and towns interpret the gift clause as allowing incentives as long as they are applied to public infrastructure.
Mary Vivion-Withrow, economic development program manager for the city of Phoenix, said that the city agreed to share 50 percent of city sales tax up to $1.4 million with the developers of Kierland Commons, a "Main Street" project like the Oro Valley Town Centre, at Loop 101 and Scottsdale Road.
"The city immediately recognized what a wonderful development it would be and that there could be transportation issues and limited public parking. "So the city agreed to a 50-year lease for 290 parking spaces, 50 for the Park and Ride Transit system," she said. Arizona's gift clause is the reason "we dealt with public parking spaces and spaces dedicated to the transit system. Clearly, it's a lot but it depends on what it will bring to the city."
Roderique predicted that developer incentive deals will persist throughout Arizona, until the state takes measures to broaden its tax base. "The way the legislature has structured the financial picture, we don't have local income tax, property taxes are low here, we don't have services tax, or employment tax, and that keeps pushing everything on sales tax. It almost forces cities to act like this," he said.
"You've got to find ways to get retail into your community," he said. "Sales tax generates eight times more revenue than our property tax. Getting retail here is very important. It's almost 50 percent of our operating budget."
In Oro Valley, Oracle Crossing developer BP Magee could come before council with its final plan as early as June, and the company could begin grading by October, said Town Economic Development Administrator Jeff Weir. "They have submitted a development plan - staff has looked at it - and responded with necessary changes," he said. "This is an aggressive plan. They will go sooner if they can." As of now, the plan is scheduled to go before the town's Development Review Board May 11.
BP Magee recently purchased the old Fry's shopping center north of its proposed site. "The plan is to initiate getting the new center started and constructed and then in three to five years, give the existing center a face lift," he said.
With regard to public benefit, Weir added that besides the $41 million in hard construction costs associated with Oracle Crossings, BP Magee could incur as much as another $10 million in additional costs associated with drainage and flood control improvements at the site.
For its Oro Valley Marketplace, Vestar has said that it could spend $13.1 million solely to meet the town's high architectural standards and another $16.8 million in infrastructure investments at the site, including two miles of storm drains and a new levee at the rear of the center, traffic signals and improvements at Tangerine and Oracle, extra fill to bring the site out of a floodplain, relocation of an existing sewer line and re-vegetation of the area.
Additionally, Weir estimated that CDO Partners could spend $11.3 million in infrastructure costs during construction of Oro Valley Town Centre to pay for landscaping and improvements along Oracle Road as part of the Oracle Road Improvement District.
Attorney Keri Silvyn, who represents CDO developer Blake Hastings, said that the project represents more than a third of the district, "which Blake is participating in to the tune of over $2 million," she said. "All of that is public infrastructure, including the widening of Oracle Road, sidewalks along Oracle and signals at Pusch and at First." The project will also dedicate pedestrian paths along Rooney Wash to the town and include public amenities such as plaza areas, she said.
"I have no idea why people are out there saying that they don't want this to happen. One hundred percent of zero is still zero," Weir said. "We are not spending a penny. These developers are putting in hundred's of millions of dollars and they take all the risk. The council has said, 'If you perform, you are allowed to share a portion of revenues.'"
In the case of the BP Magee project, petitioners have 30 days to collect 645 signatures.
"Assuming that the issue is referable, that would stay the effective date of the ordinance adopting the economic development agreement," Town Attorney Mark Langlitz said, which could delay the project. "It would be up to the developer to decide whether to move forward, with the potential that if those issues do go to the voters they could vote against the ordinance."
However, he added, the town can determine whether the issue is subject to referendum. "What it comes down to legally is whether the ordinance approving the agreement is a legislative or administrative act."
A prior legislative act, such as the town's adoption of its 2001 economic development guidelines, could render any subsequent economic agreements merely administrative. "Administrative acts are not subject to referendum," Langlitz said.