Huge city tax-break under fire

Posted on February 11, 2008 | Type: In the News | Author: Brahm Resnik
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Huge city tax-break under fire
Brahm Resnik
12 News
Feb. 11, 2008 06:56 PM

Desperate to keep another Nordstrom store out of Scottsdale, the City of Phoenix put together a $100 million incentive deal to lure the upscale retailer to the new CityNorth development.

That picture emerged in Maricopa County Superior Court arguments Monday over the constitutionality of the package.

That deal bought a parking deck -- at $30,000 per parking spot.  
 
"The developer came to the city hat in hand, to ask for a subsidy," said Clint Bolick, an attorney for the Goldwater Institute, which filed the suit.

Bolick contends the parking lot deal violates the state Constitution's "gift" clause, which bars municipalities from giving subsidies to businesses. Cities often get around the prohibition by offering incentives in the form of infrastructure, such as streets and sewers, that benefit the community.

In the CityNorth case, city lawyers argued the project serves a larger public good -- generating an estimated 100 million dollars in new sales tax revenue in the first 11 years. That is half the projected tax take; the other half would pay for the parking deck.

Lawyers said it was the parking deck that got the deal done.

Nordstrom "won't pay rent, it won't come without a parking garage next to the store, and Nordstrom's not going to pay for the parking garage," said Lisa Hauser, an attorney for CityNorth.

The billion-dollar mixed-use project is rising at the northwest corner of 56th street and the Loop 101 in northeast Phoenix, next door to Desert Ridge Marketplace. CityNorth designers envision a mix of high-end stores, restaurants, offices and condos.

The first phase opens in October; the Nordstrom store will open sometime next year. CityNorth is also in negotiations with the iconic New York department store Bloomingdale's.

The court arguments over the tax break come as the City of Phoenix wrestles with a $70 million budget deficit. Internal documents indicate the city might lay off workers and impose new sales taxes to close the gap.

"Taxpayer money is going into the pockets of developers when it should be staying and being used for city services," Bolick said.

Judge Robert E. Miles is expected to rule on the case within a few days. His ruling is expected to be appealed.

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