Benefits of CityNorth were inflated, 2 studies say

Posted on November 14, 2007 | Type: In the News | Author: Michael Clancy
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The CityNorth project in northeast Phoenix "topped out" on its first phase of construction late last week, and the Goldwater Institute "celebrated" by releasing two studies questioning a nearly $100 million subsidy Phoenix gave to the development.

CityNorth is being built in the Desert Ridge area north of Loop 101 between Desert Ridge Marketplace and 56th Street.

It is going up in several phases, the first of which, called High Street, consists of 10 buildings of three or four stories. They will house restaurants, retail stores, offices and homes.
High Street is expected to open next year in time for the holiday season.

Part of project involves a city subsidy of $97.4 million, which the developer, the Thomas J. Klutznick Co., is using to construct parking garages.

The deal provides Klutznick with a 50 percent rebate of sales taxes over an 11-year period, a deal some say makes sense for the city because it enables parking to be consolidated, leaving more room for retail transactions that benefit the city.

But the Goldwater Institute, a Phoenix-based, conservative think tank, filed suit against the city in August challenging the arrangement. It has now also released two studies challenging the financial analyses used to support the subsidy.

One of the studies, done by Dave Wells of Arizona State University, looked at the retail economic analysis. The other, by Andrey Pavlov of the University of Pennsylvania, was a review of the project.

"Each study makes two points," said Clint Bolick, of the Institute. "Those are that the economic impact has been . . . overinflated, and the other is that the jobs that will be created will pay far less than the city's median income."

He said he was not accusing Klutznick of "fudging the numbers."

"I have no reason to think they did not act in good faith," he said.

Meanwhile, John Klutznick, the firm's vice president, said CityNorth will be an economic engine for the city.

"We stand behind all the relevant financial information we have provided" to the city and its consultants, said Klutznick adding that growth at CityNorth pays for itself. "The city did not risk nor did it invest any existing revenue in CityNorth. CityNorth epitomizes smart growth and dense urban-village planning that reduces sprawl, reduces travel and creates a live, work, shop and play environment."

Bolick said Klutznick's numbers were inflated in several areas, including:

The so-called feasibility gap, or the difference between the project's costs and the break-even point after setting aside a reasonable rate of return.

The tax dollars the project will generate.

The cost of the land.

Pavlov concludes in his report that the only reasons cities should give subsidies include such things as provision of affordable housing, rehabilitation of declining neighborhoods, reducing environmental impacts or improving the quality of citizens' lives.

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