Judge hears arguments in CityNorth case

NORTHEAST PHOENIX – A controversial $100 million deal between the city of Phoenix and a developer was argued Monday, but a Maricopa County Superior Court judge issued no ruling in the case affecting CityNorth, a new, high-end mixed use development in northeast Phoenix.

After 90 minutes of argument on Monday, Judge Robert Miles said he knows his decision, whatever it is, will be appealed.

“I am under no illusions that I will have the last word on this subject,” Miles said. advertisement

At issue in the lawsuit is an agreement between the developers of CityNorth and the city of Phoenix that enables the developers, Related Urban Development and the Thomas J. Klutznick Co., to retain half of the project’s sales taxes in exchange for free public parking spaces in a parking garage. The agreement goes for 11 years or $97.4 million, whichever occurs first.

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. Concentrating parking in garages, the developers say, leaves more space for rent- and tax-producing buildings.

The deal was challenged by the Goldwater Institute on behalf of several clients who own small businesses,

Supporters of the deal argue that it provides a boost to crucial economic development in the city. Opponents say it is merely a giveway.

Several times, the judge interrupted statements from attorney to ask questions.

“Isn’t this really a deal to keep sales taxes away from Scottsdale?” he asked Timothy Berg, representing the city.

“Doesn’t that argument mean the city cannot enter into any contracts?” he asked Goldwater Institute’s Clint Bolick.

Bolick argued that the agreement violates several clauses of the Arizona Constitution. Andrew Federhar and Berg, for the city, and Lisa Hauser, for CityNorth, said the agreement meets the public benefit and proportional value tests required in such agreements.

Berg said that besides providing free covered parking and a new source of tax revenue, the project also serves to reduce traffic and air pollution.

“There simply is no doubt, no matter what the plaintiffs believe, that entering into this agreement seres a number of valid public purposes,” he said.

Hauser said Bolick has failed to provide evidence that the agreement was not necessary in order for what he calls “a luxury shopping mall” to be developed.

“Without the agreement, the project would be different, it would be delayed, and the income would have been diminished,” she said.

Bolick argued that because ownership of the parking spaces remains with CityNorth, no public purpose is served.

“I can guarantee you that if they city tried to park its fleet of garbage trucks there, they would not be allowed,” he said.

Miles gave no indication of when he would rule.

Such subsidies are increasingly routine, especially for developers of large-scale projects that promise millions in sales tax revenues. Phoenix officials say the deal is consistent with others the city has made.

But the state legislature, in a law passed after the CityNorth agreement was reached in 2006, prohibited similar deals in the future.