Group files suit over Phoenix's $100 million subsidy

Posted on August 09, 2007 | Type: In the News
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An Arizona state senator and several business owners filed a lawsuit today challenging Phoenix's nearly $100 million incentive to the private CityNorth development.

The Goldwater Institute is representing the business owners in the lawsuit, which could have implications for other cities statewide, and could impact the competition for new businesses between Phoenix and Scottsdale along their shared border.

If the lawsuit is successful, it would tie the hands of politicians who might consider offering public subsidies to private businesses out of fear that a neighboring city might snatch them away, said Clint Bolick, director of the Goldwater Institutes Center for Constitutional Litigation.

The lawsuit was filed this morning in Maricopa County Superior Court to challenge the constitutionality of the incentive, Bolick said. In addition to a handful of business owners, state Sen. Ken Cheuvront, D-Phoenix is among the plaintiffs.

They cant bear the thought that Scottsdale or some other city will get the project if they don't do it, Bolick said of municipalities that offer incentives.

Dave Krietor, Phoenix deputy city manager, said city officials haven't yet seen a copy of the complaint, but when they do, it will be forwarded to the City Attorneys Office for review before officials can comment.

Scottsdale City Councilman Wayne Ecton said a Goldwater Institute victory could help level the playing field between the two cities.

Id be tickled pink if they sued them and defeated them because it would put a big crimp in what Phoenix is trying to do in attracting businesses to their area versus businesses to our area, he said.

Phoenix officials have offered the Thomas J. Klutznick Co., developers of the $2 billion CityNorth project, a 50 percent rebate in sales tax each year for 11 years. Those rebates could add up to nearly $100 million. The developers were not immediately available for comment.

In exchange, Phoenix would be able to lease up to 8,000 free public parking spaces in four or five garages around the project. The move is meant to free up surface space for more retail, Phoenix officials have said.

The hope of the lawsuit, Bolick said, is that it would have a chilling effect on other similar proposals, such as developer DMB Associates request last year for $50 million from Scottsdale to help with roadway and utility costs for the $1.5 billion One Scottsdale project.

Everyone knows the day of reckoning is coming on this, Bolick said. We hope to cool the ardor of some city officials.

CityNorth, at the northeast corner of Loop 101 and 56th Street, will be a 144-acre development comprising 5 million square feet of commercial and residential space.

Bolick characterized the offered incentive as corporate welfare.

Business owners challenging the incentive to CityNorth feel it unjustly favors Klutznick over their own businesses, he said.

Only two miles to the east of CityNorth, in Scottsdale, will sit the proposed 120-acre One Scottsdale, a commercial and residential project on the northeast corner of Loop 101 and Scottsdale Road. It has a projected fall 2009 opening. DMB proposed 1.8 million square feet of commercial, retail and office space and 1,100 residential units.

Previously, DMB had asked the Scottsdale City Council for $50 million, to be paid back through sales tax revenue, to pay for roads to serve One Scottsdale. The developers withdrew that request last November after discerning there were not enough votes on the council to approve it.

Karrin Taylor, DMBs vice president of entitlements, said the company is taking a wait-and-see approach to the CityNorth lawsuit. DMB has had no further discussion with Scottsdale officials over the company's previous request, she said.

We made a commitment that if we came back it would be with something that would be supported by a majority of the council members, Taylor said.

Ecton said he doesn't expect the lawsuit to have much impact on Scottsdale because the city doesn't have to offer incentives to business.

Developers want to come to Scottsdale because the market here is great, he said. They're eager and willing to come here.

Bob Littlefield, Scottsdale City Councilman, said hes long supported imposing restrictions on public incentives to private business.

I hope it has an impact, he said of the lawsuit. I hope it would cause people to think twice about doing this.

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