The Oro Valley Town Council on Wednesday, Jan. 21, voted to halt payment on economic incentive agreements pending the outcome of a case in the Arizona Court of Appeals.
The Turken v. Gordon case centers on the 144-acre CityNorth development in Phoenix, where an agreement gave developer Klutznick Company $97 million in tax rebates.
The appeals court last December ruled that the agreement violates the state constitution’s gift clause, a rule that prohibits local and state governments from giving preferential treatment or subsidies to people or businesses.
In recent years, Oro Valley has entered into four sales-tax sharing agreements with retail developers totaling more than $50 million.
A similar tax-sharing deal rebates the Hilton El Conquistador one-third of the bed taxes generated by the resort. The town charges a 6-percent bed tax.
“This effectively suspends any further payments under the town’s economic incentive agreements,” Town Attorney Tobin Rosen said of the council’s decision last week.
Rosen said the town would not stop accounting for the money, however. Instead, the money would be put into separate interest-bearing accounts pending the Arizona Supreme Court’s decision whether to take up the case.
The money would be paid, with interest, to EDA partners if the high court overturns the appeals court’s ruling.
“Right now, as the law stands because of the ruling, I feel we would be violating the law by continuing to pay,” Councilwoman Salette Latas said.
The council discussed the issue in an executive session before the meeting last Wednesday. Mayor Paul Loomis cast the sole no vote.
“I just think it’s premature,” Loomis said later in an interview. “The case is still outstanding in court.”
As a council member, Loomis had supported all the agreements except for the Oro Valley Marketplace incentive deal with Phoenix-based developer Vestar Development Company.
That deal has proven the most controversial of the town’s incentive agreements.
Under the arrangement, the company receives nearly half of the sales taxes generated at the site over 10 years, or up to $23 million.
“At the time when we made these agreements, Oro Valley was very much interested in accelerating retail development,” Loomis said.
But with the town near build-out and with little space left for retail development, that no longer is the case, the mayor added.
On Jan. 23, Town Manager David Andrews sent letters to all five of the town’s economic incentive partners informing them of the plan to place the payments on hold.
“I sincerely regret any inconvenience to you, however our Town Attorney has advised us that based on this case, any further payments under the EDA could be considered a violation of the Arizona Constitution and our Town Council has directed this action,” Andrews wrote.
If the high court refuses to wade in, the appeals court ruling would stand.
What the court decided in Turken v. Gordon was, in part, that the agreement did not provide a public benefit.
Under that agreement, Phoenix would rebate to the developer 50 percent of sales taxes in exchange for free public access to a 3,180-space parking garage at the retail center, including 200 park-and-ride spaces.
The court ruled that parking access, with the exception of the park-and-ride spaces, benefited only the retailers at the development.
Clint Bolick, of the Phoenix-based Goldwater Institute, who represented the plaintiffs in the CityNorth case, was surprised Oro Valley would take such a proactive step to end incentives.
“The town used to be first in subsidies, now they’re first in ridding themselves of its subsidies,” Bolick said.
Despite the town’s move and the appeals court ruling, Bolick said not all incentive deals would be retroactively nullified.
“Each development agreement has to be weighed on its own merits,” Bolick said.
The public benefit of Oro Valley’s incentive agreements would be up for review if the Turken ruling holds.
For her part, Councilwoman Latas has questioned some of the town’s incentives, including its deal with the Hilton.
The Hilton agreement provides up to two tennis courts at the resort for the town’s youth tennis program. Use of the courts, however, is limited to 10 a.m. and 5 p.m. during the months of June, July and August.
The deal also allows town officials to use meeting rooms at the resort. The town can only hold two meetings per month and they must be limited to 25 people.
The resort would charge additional for food, refreshments and audio-visual equipment.
“That’s of pretty negligible value to the town,” Latas said.
None of the town’s EDA partners had returned a reporter’s phone messages by Tuesday.
INCENTIVE PAYMENTS SO FAR
Of the five incentive deals Oro Valley has approved since 2000, the town has paid:
• Hilton El Conquistador: $2,073,851
• Oro Valley Marketplace: $675,441 (budgeted)
• Oracle Crossings: $437,912
• Steam Pump Village: $94,494
The agreement reached with Cañada Del Oro Properties for the Oro Valley Town Centre has not begun because the shopping center has not yet been built.
No payments have been made to Vestar Development Company for the Oro Valley Marketplace because the shopping center has not been open for a full quarter.
INCENTIVES IN ORO VALLEY
The town has entered into five economic development agreements over the years, including:
Oro Valley Marketplace
Vestar Development Company
45 percent of sales taxes
Up to $23 million
Oro Valley Town Centre
Cañada Del Oro Properties
45 percent of sales taxes and one-third of bed taxes
Up to $11 million (in sales taxes)
Steam Pump Village
Evergreen/Diamond Ventures
40 percent of sales taxes
Up to $7.6 million
Oracle Crossings
Bourne Partners
46 percent of sales taxes
Up to $6.5 million
Hilton El Conquistador
Rebate one-third of town’s 6 percent bed tax
