A Tempe development agreement that includes a $218,000 incentive for the developers of Sea Life Aquarium will remain in place while a judge sets a hearing to decide whether the subsidy is illegal.
Meanwhile, City Attorney Andrew Ching said as a precautionary measure, Tempe is drafting a new agreement that spells out more specifically how it complies with state law.
Maricopa County Superior Court Judge Eileen Willett said today she would set a speedy hearing to weigh Goldwater Institute’s claim that the incentive Tempe offered the developers of Sea Life violates state law and the gift-clause of the Arizona Constitution. The institute, a conservative Phoenix-based think tank, filed the claim on the behalf of Tempe small business owners and residents.
The gift clause of the Arizona Constitution generally prohibits governments from granting money or credit to private entities. The institute also claims the development agreement violates a state law related to tax incentives that requires cities hire a third-party to verify the economic impact of the incentive.
To date, Tempe has credited the developer nearly $15,000 to development fees. Sea Life is scheduled to open in June in an existing 26,000 square-foot leased space at Arizona Mills Mall.
At a preliminary hearing today, Tempe acknowledged that it did not complete the economic impact study prior to adopting the development agreement and offering the developer an incentive. Ching said that the study will be presented at a Tempe City Council meeting within the next month.
Presenting that study and adopting a new development agreement would make the institute’s claim that the city violated the law moot, Ching said.
Following the hearing, Ching said the city still maintains that the incentive does not violate the gift clause because the developer is providing discounted admission to the aquarium for Tempe school-age children in return for the incentive. But he added that “out of an abundance of caution,” Tempe is completing the study and adopting a new development agreement. The amount of the admission discount and the specifics of how that discount qualifies as a return on the incentive would be outlined in the new development agreement, he added.
Carrie Ann Sitren, a Goldwater attorney, said the incentive Tempe offered Sea Life is particularly egregious because it did not outline a specific return for offering public money to subsidize a private developer. The institute opposes cities offering developers incentives because it creates an unfair market where select businesses are offered public money to open.
Tempe has offered Sea Life, a subsidiary of the UK-based Merlin Entertainments Group, an estimated $218,000 retail-development tax-incentive that includes reimbursement of lease taxes and construction sales taxes and waivers on development fees. Last year, the Arizona Court of Appeals declared a similar development agreement illegal that Phoenix offered to the developers of the CityNorth mall project. An appeal of that decision is pending before the Arizona Supreme Court. Phoenix had agreed to pay the CityNorth developer half of the sales taxes collected for 11 years, three months, or until the total reached $97.4 million.
Sitren said that the institute supports the aquarium being built in Tempe as long as the developers do so without a tax incentive.
If Tempe’s new development agreement maintains the incentive, the institute would still consider it illegal and continue its suit against the city, Sitren said. The institute will continue to track the money Tempe credits the developer and plans to ask that the developer pay back the money if Goldwater’s lawsuit is successful.
Nick Coons, who owns a computer business in Tempe and is a plaintiff in the case, said he hopes Tempe will stop using tax incentives to attract businesses.
“Nobody gave me $150,000 to start my business,” Coons said. “(Tempe’s) picking and choosing who the (business) winners and who the losers are going to be. If (the aquarium) a good idea then let the people who think it’s a good idea pay for it. Stop giving our money away.”
