The city of Surprise is facing criticism over a $240 million sales tax rebate it is giving Westcor to build a vast retail, office and residential project on farmland next to the planned Loop 303 freeway.
The incentive package is for the shopping mall developer's Prasada project. Prasada will include a regional mall, car dealerships, shopping centers, as many as 13,000 homes and other commercial space.
Critics argue that tax breaks shouldn't be given to developers. They are pushing for legislative restrictions on local tax breaks given to developers, car dealers and retailers.
"We are tired of seeing cities carve out special tax dodges for politically connected developments," said Tom Jenney, executive director of the Arizona Federation of Taxpayers, which opposes special development tax breaks, claiming they create bidding wars among cities.
The Surprise deal calls for the city to return half of all sales tax revenues from the planned Prasada development through 2050 to Westcor and its development partners.
The rebate is capped at $240 million, and the returned money will come from Prasada-generated tax revenue. The cap does not include 9 percent interest payments the city will make to Westcor for the cost of infrastructure improvements the developer is incorporating into the project.
The development will cut across 3,335 acres on both sides of the planned Loop 303 freeway, between Greenway and Cactus roads and east of Cotton Lane.
Westcor is teaming with Fulton Homes, RED Development and The Staubach Co. to develop Prasada. A Catholic Healthcare West hospital also is planned there.
Surprise city officials defend the tax break, saying Phoenix-based Westcor is putting in substantial infrastructure around the development, and the project will generate significant tax revenue and jobs.
"This will be the economic engine for Surprise for the next 30 years," said city spokesman Ken Lynch.
Westcor will put in more than 20 miles of roads as well as sewer lines and street lights to accommodate the growth, Lynch said. The shopping center developer is donating land adjacent to the project for construction of the Loop 303 freeway, Lynch added.
Lynch views the Westcor deal not as an incentive or tax break, but as an arrangement that reimburses the developer for public infrastructure construction that will be funded via its development.
Westcor Vice President Karen Maurer said infrastructure construction will begin this summer, including sewer and irrigation lines, streets and lighting. Most of the parcel is undeveloped farmland.
Westcor would not have developed Prasada without the reimbursement package and tax rebate from the city, Maurer said.
City officials estimate Prasada will create 20,000 jobs and bring in $2 billion in sales tax revenue over the next three decades.
"We need to build a tax base to really support ourselves and be something other than a bedroom community," Lynch said.
Prasada construction starts this year.
The deal between Surprise and Westcor goes far beyond the $100 million incentive packages Phoenix is giving to both the CityNorth retail project near Desert Ridge and the CityScape mixed-use development in downtown Phoenix.
RED Development is the lead developer at CityScape. Thomas J. Klutznick Co. is developing CityNorth. Westcor owns several shopping malls in the Phoenix market.
Tax breaks given to developers by the cities could be prohibited or restricted if the Arizona Legislature approves proposals being put forward by critics of such deals. Fiscal conservatives, as well as some Democratic state lawmakers, deride tax rebates and subsidies for development projects as corporate welfare.
Clint Bolick, a senior fellow at the Goldwater Institute and an attorney who fought eminent domain efforts to replace one private business with another in Mesa, disputes the case for incentives.
"Not to be outdone by Phoenix's $100 million mall subsidy, Surprise is offering Westcor $240 million to do what any rational developer would do on its own dime: build a mall for a booming, upscale population," Bolick said. "However thin the economic case is for subsidies of private enterprises generally, no justification exists to subsidize a shopping mall."
Bolick said the local tax subsidies give special advantages to some businesses and violate the Arizona Constitution, which forbids gifts to private entities.
State Sen. Ken Cheuvront, D-Phoenix, has proposed a bill to penalize cities in Maricopa and Pinal counties that give special tax breaks for retailers, car dealers and shopping center developers.