CityNorth subsidy challenged

Posted on August 09, 2007 | Type: In the News
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The Goldwater Institute filed suit Wednesday challenging Phoenix's controversial subsidy of almost $100 million to CityNorth, a luxury development under construction in northeast Phoenix.

The lawsuit, filed in Maricopa County Superior Court on behalf of six plaintiffs, seeks to block the subsidy and similar handouts in the future. It names members of the Phoenix City Council and City Manager Frank Fairbanks.

At issue is a deal that Phoenix and the Thomas J. Klutznick Co. signed last month. It provides Klutznick with a rebate of half of the sales-tax revenue generated by stores at CityNorth in exchange for 3,180 free parking spaces - in effect, two parking garages to be built in the center of the project. The rebate would last for 11 years and three months or until the $97.4 million mark is reached.

Assistant City Manager David Krietor, who had not seen the lawsuit, said the deal was "consistent with other retail details we have done around the city."

He declined to comment on the suit, as did Marla Ellis, public-relations manager for the Klutznick Co. Neither had seen the suit by Wednesday.

The deal has been contested, with many residents arguing that CityNorth development could have proceeded successfully without the subsidy.

A new state law passed in the wake of the deal prohibits similar subsidies in the future.

The sponsor of that law, Sen. Ken Cheuvront of Phoenix, is a plaintiff in the lawsuit. He was out of town Wednesday and unavailable for comment.

CityNorth will be a mixed-use development with nearly 5.5 million square feet of luxury retail shops and upscale department stores, including Nordstrom, office space, hotels and residences. It will occupy 144 acres at Loop 101 and 56th Street.

"There is no possibility this development will not produce large profits and tax revenues," said Clint Bolick of the Goldwater Institute, a conservative think tank based in Phoenix. "That makes this incentive very difficult to support."

He referred to CityNorth as "a fancy shopping mall."

At the time of the March vote by the City Council approving the agreement, City Councilwoman Peggy Neely said the development would generate $200 million in sales taxes in its first decade.

"These revenues are critical to operating our city," she wrote in a piece in The Arizona Republic. "Simply put, we cannot allow Phoenix to stagnate as our suburban neighbors continue to grow."

Neely, whose district includes the development, was out of town and unavailable for comment Wednesday.

Cities throughout the Valley have used similar subsidies to lure major companies to locate within their boundaries.

After the CityNorth decision, the city of Surprise agreed to reimburse Westcor $240 million from future sales taxes if it agreed to build a mixed-use retail, office and residential project and build all the roads and infrastructure up front. Most other cities have used subsidies to attract jobs and taxes.

"The cities have taken one giant step too far," said Bolick, "and we now believe the pendulum is swinging in the other direction."

He said the institute would not be suing Surprise on the same grounds.

"We have limited resources, and we have a number of other issues we would like to litigate," he said.

The plaintiffs own small businesses in Phoenix.

They are Meyer Turken, owner of Turken Industrial Properties, a real-estate development and management company; Cheuvront, owner of Cheuvront Wine and Cheese Cafe and Cheuvront Construction; Zul Gilliani, who owns an ice-cream shop at Paradise Valley Mall; James Iannuzo, who owns a sign company and is a candidate for City Council; Kathy Rowe, who owns Music Together, a program that offers music to children; and Justin Shafer, owner of Hava Java, a coffee shop.

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